Can China’s EV Industry Survive Without Subsidies?

A Chinese electric vehicle maker, BYD, is attracting a lot of positive sentiment from analysts covering the company, according to a Bloomberg poll among 27 analysts. A total 18 of these have a “buy” stance on the company despite it losing US$3 billion in market cap because of lower government subsidies and intensified competition from foreign manufacturers.

The revision in the subsidy regime for electric vehicles hurt the company badly. BYD recently said its first-quarter income would be a staggering 92 percent lower than in the previous quarter because of the lower subsidies. Yet the company will later benefit from higher subsidies that Beijing will continue providing for longer-range electric vehicles.

Speaking of long-range electric vehicles, BYD is one of the Chinese companies driving a potentially major decline in diesel fuel demand in China with their fast-growing electric bus fleet. This fleet could displace almost 280,000 bpd in fuel demand.

Bloomberg reported today that electric bus fleets across Chinese cities are expanding at the rate of 9,500 every five weeks. Last year, 99 percent of all electric buses in the world—some 380,000 of them—were in China. BYD’s electric bus production to date is 35,000, but it now has the capacity to roll out 15,000 annually.

Foreign competition is not a cause for concern for BYD, according to the analysts Bloomberg polled, even from Tesla or Nissan, which produces the most-sold electric car, the Nissan Leaf. In fact, Bloomberg estimates that BYD’s earnings per share this year will jump by 32 percent, which will outperform the rest of the sector in the country. For the Chinese EV industry as a whole, Bloomberg has estimated EPS growth at 29 percent.

China is pushing electric vehicle adoption urgently as part of efforts to deal with pollution. Beijing has a target of a sevenfold increase in the sales of the so-called new energy vehicles and is considering a ban on gas guzzlers. Still, the subsidies for new energy vehicles are planned to be phased out by 2020, which means that local and international EV makers have less than three years to find ways to survive on their own without subsidies.

By Irina Slav for Safehaven.com

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