September 14, 2017 / 8:24 AM / in a month

Fitch: China Unlikely to Ban Fossil-Fuel Cars within 20 Years

(The following statement was released by the rating agency) HONG KONG/SHANGHAI, September 14 (Fitch) China is not likely to be able to achieve a complete ban of sales of conventional fossil-fuel-powered vehicles within the next 20 years, says Fitch Ratings. The agency expects new energy vehicles (NEVs), which will substitute conventional vehicles, to be increasingly popular in China, but believes the government's existing goal to increase the market share of NEVs to 20% by 2025, from 1.8% in 2016, will not be easily achievable. This is because government subsidies for NEVs are due to end after 2020 and bottlenecks in battery technology and charging infrastructure are likely to constrain widespread adoption of NEVs in the private sector. Mr. Xin Guobin, the Vice Minister of Industry and Information Technology, said at a recent forum that the Chinese regulators have started to study a timetable to end production and sales of conventional internal-combustion-engine (ICE) vehicles. Fitch views this as the Chinese government's response to the ambitious timetables set by other countries. In 2016, the Netherlands and Germany announced plans to ban sales of ICEs by 2025 and 2030, respectively. In mid-2017, India announced it would electrify all the vehicles for sale by 2030, and France and the UK set their deadlines at 2040. These timetables have been set to urge global automakers to accelerate development of electric vehicles (EV); but we believe the deadlines are likely to be extended because EV penetration in most of these markets is low. Sales of NEVs in China have been strong since 2014 and have made China the largest EV market in the world. Sales have been driven by supportive government policies, including generous subsidies, exemption of NEVs from license-plate restrictions in large cities, and wide public-sector deployment. However, growth may slow once government subsidies phase out by end-2020, which will reduce the economic attractiveness of NEVs relative to ICEs. In addition, given the sheer size and geographical variation of the Chinese automobile market, automakers are unlikely to be able to completely electrify all vehicles while meeting the diverse needs of Chinese consumers in the foreseeable future. China's NEV market is currently geographically imbalanced, with the majority of sales concentrated in top-tier cities, and dominated by low-end models. China's timetable will remain challenging, but we believe the Chinese NEV market is set to grow in the next decade as automakers have strong incentives to increase their NEV offerings in China under tighter fuel-economy regulations and the NEV credit scheme likely to come into effect in 2018-2019. This will likely result in a large increase in supply of low-end pure battery-driven EVs and plug-in hybrids from both Chinese proprietary brands and Sino-foreign joint-venture (JV) OEMs. In fact, a few global automakers have already taken the short cut to quickly boost their EV production volume in China by forming new JVs that focus on low-end EVs, such as Volkswagen-JAC, Ford-Zotye, and Renault-Nissan's cooperation with Dongfeng Motor Group. For more details of Fitch's views on China's NEV market, please refer to the China New Energy Vehicle Blue Book: Government Policy Drives Market Development, published on 16 July 2017. Contact: Jing Yang Associate Director +86 21 5097 3017 Fitch Ratings (Beijing) Limited, Shanghai Branch 3401, 34/F, Shanghai Tower, No. 479, Lujiazuihuan Road Shanghai 200120, China Yee Man Chin Director +852 2263 9696 Media Relations: Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: wailun.wan@fitchratings.com. 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