China’s new energy vehicle (NEV) subsidies in 2019 will only be payable for electric vehicles with higher driving range and energy density, while the value of the subsidy will be reduced by 50% to a maximum of 25,000 yuan ($3,725) per vehicle produced.
The 2019 NEV subsidies for pure electrical vehicles have been lowered to 18,000 yuan or 25,000 yuan per vehicle produced, depending on the NEV’s driving range, battery energy density and energy consumption. This marks a 50-60% reduction from subsidies in 2018.
The driving range subsidy will be subject to mass energy density requirements, where pure electric passenger vehicles produced with mass energy density of between 125 and 140 Wh per kg will receive the total driving range subsidy x 0.8, and those with energy density of between 140 and 160 Wh per kg will receive the subsidy x 0.9. Models with a mass energy density of 160 Wh per kg and above will qualify for the total driving range subsidy x 1.
All subsidy standards are reduced from 2018 levels.
Subsidies for NEVs with a driving range of below 250km will be phased out after a transitional period between March 26 and June 25. During this period, producers making NEVs which fit the standard for 2018 but fail to reach the new standard for 2019 will receive the 2018 subsidy x 0.1 per vehicle, and NEVs which reach the 2019 standard will receive the 2018 subsidy x 0.6 per vehicles.
This new policy for 2019 follows the market and technological changes of the past two years, which have seen battery makers aim to increase the driving range, safety and performance of NEVs. The policy aims to encourage the production of high-performance batteries alongside vehicles with longer driving range over those with lower driver range and battery density.
China’s NEV subsidies have been adjusted annually to gradually reduce state support from "necessary" - to see this industry flourishing - to "auxiliary", while not hindering Chinese NEV manufacturers' performance. The central government will eventually withdraw all NEV subsidies by 2021.
Lithium and cobalt
The adjustment of the NEV subsidy policy last year has already had a great impact on battery chemistry markets because longer-range vehicles with higher energy density batteries require a change in consumption of its two critical raw materials: lithium and cobalt.
Lithium is widely used in battery materials for NEVs, and demand for the material is expected to increase in the following years. But the lithium carbonate market has maintained a downtrend with prices falling by over 50% since 2018 after most downstream buyers of cathode slowed purchasing to adjust operations to meet subsidy requirements last year.
The price of battery-grade lithium carbonate (min 99.5% Li2CO3) was 72,000-80,000 yuan per tonne on Thursday March 21, 2019, down by over 50% from 160,000-165,000 yuan per tonne at the beginning of 2018, according to Fastmarkets assessments.
Separately, the expectation of increasing demand for lithium hydroxide used into high-quality batteries supported battery-grade hydroxide prices in 2018. But prices started to fall in late 2018 on slow downstream demand and increasing supply.
Battery-grade lithium hydroxide monohydrate (min 56.5% LiOH.H2O) prices were at 93,000-98,000 yuan per tonne on March 21, down from around 150,000 yuan per tonne in early 2018, Fastmarkets historical data shows.
Meanwhile, to increase the energy density and driving range, battery manufacturers need to increase the adoption of nickel in production. This will lead to a reduction in cobalt consumption. This has cut demand for cobalt chemistries since last year, which in return weighed on cobalt sulfate prices.
The Chinese cobalt sulfate price has dropped rapidly since April 2018, two months ahead of the termination of transitional period outlined in last year’s subsidy policy. Fastmarkets’ Chinese cobalt sulfate price dropped over 50% to 65,000-68,000 yuan per tonne on December 28, 2018, from a historical high of 145,000-150,000 yuan per tonne on April 11, 2018.
The cobalt price was most recently assessed at 47,000-49,000 yuan per tonne on March 22.
Susan Zou has contributed to this story.