As China cuts green car subsidies, automakers' electric dreams differ

BEIJING (Reuters) - China will maintain plans to gradually phase out subsidies for green energy vehicles until they are fully eliminated in 2021 and allow the market to determine the direction of green car development, Finance Minister Lou Jiwei said on Saturday.

China's Finance Minister Lou Jiwei speaks at a signing ceremony of articles of agreement of the Asian Infrastructure Investment Bank (AIIB), at the Great Hall of the People in Beijing, June 29, 2015. REUTERS/Jason Lee

But auto executives speaking alongside Lou at an industry conference in Beijing laid out differing visions as to which technology the market will favor: Tesla-style pure electrics or plug-in hybrid cars currently favored by Volkswagen AG VOWG_p.DE and others.

Green car sales more than quadrupled in 2015 with the market finally taking off after years of subsidies and preferential government policies, leading China to surpass the United States to become the world’s largest market for electric cars.

The government sees new energy vehicles, a catch-all for pure electric, hybrid and fuel cell cars, as a means for China’s auto industry to catch up to foreign competition while also combating pollution that chokes many urban areas.

Lou reiterated plans to cut subsidies by 20 percent over the next two years and 40 percent by 2019-2020, eliminating them altogether after 2021 so that the industry does not grow dependent on them.

Instead, Lou said China should pursue market-based policies. He praised California’s emissions policy, under which Tesla can generate environmental credits from its emissions-free vehicles and then sell the credits to other companies, for playing a critical role in the success of the Silicon Valley carmaker.

This was an example to learn from, he said. China has yet to institute a similar system.

“Credit trading is the most effective way to ensure government neutrality on the technology’s development. The market should be able to choose the technical route,” said Lou.

Other automakers like Beijing Automotive Group [BEJINS.UL] and start-up electric maker NextEV also praised pure electric car maker Tesla as a model for development.

Executives from Volkswagen and BMW AG said they remain focused on plug-in hybrids as a the most viable technology in the near-term as China transitions toward electric cars.

“Once we leave the city we are forced to confront the problem of a nationwide high-powered charging infrastructure - if you really see it as a realistic goal, I personally have some doubts - to drive pure electric over long distances,” said Jochem Heizmann, head of Volkswagen Group China.

VW instead favors plug-in electric vehicles that can use electric engines for city driving and switch to gasoline engine for longer inter-city drives.

Chairman Wang Chuanfu of BYD, which makes China’s best-selling plug-in hybrid, said he expects buses to achieve full electrification, with commercial vehicles being completely electrified within the decade and passenger cars being fully converted by 2030.

Reporting by Jake Spring