How the Largest Automotive Market is Promoting the Mix of Drive Technologies

A points system is replacing the purchase premiums for electric vehicles as they have been in force until now. China is thus also reflecting on even more efficient internal combustion engine drives. After all, we will need the conventional engine for many years to come – but with clear limits and lower fuel consumption, so that China can deliver what it promised in Paris. Fuel consumption can easily be converted to CO₂ emissions. Nevertheless, China is not saying goodbye to electromobility.

New Energy Vehicles (NEV), i.e. vehicles with fully electric (BEV), partially electric (PHEV) and fuel cell drive (FCEV), are to continue to be promoted as part of a five-year plan until 2025, albeit to a lesser extent. In the future, purchase premiums will only be paid for electric cars with a range of at least 300 kilometers – previously it was 250 kilometers. If the range is less than that, the car is not eligible for sponsorship. Subsidies for NEVs will be reduced by ten percent in each of the next few years (2020, 2021 and 2022) and will only apply from July 22, 2020 to cars with a base price of less than 300,000 yuan (approx. 39,500 euros).

The sales quota for NEVs continues to exist. This year, BEVs, PHEVs and FCEVs must account for 12 percent of total vehicle sales in the country. The ratio will increase by two percentage points annually to 22 percent in 2025.

However, the new points system does not rely solely on NEVs, but also promotes more efficient combustion engines. Although there are many start-ups and many investors in the NEV segment in China, cars with high-voltage batteries are not yet mature in terms of range, safety and robustness. Instead of continuing to quickly let many electric cars of sometimes unsatisfactory quality enter the market, the Chinese government is encouraging more research and development of electric models to make them more competitive. However, electric cars cannot completely replace conventional vehicles. That is why a new segment was created in 2019 with the “low fuel consumption passenger car”. This is a good new regulation and points the finger in the direction of fuel-saving technologies, which will be more strongly rewarded under the new policy.

The development of hybrid models in particular could benefit from the classification of the “low fuel consumption passenger car”. Due to the coronavirus pandemic, we currently have a low fuel price, which means that buyer interest in conventional vehicles is increasing again and therefore fits in with the new political concept.

The dual-credit system obliges car manufacturers to collect a certain number of points. If a manufacturer does not reach the specified quota, it can buy credits from other companies via a state platform. The required number of credits must be proven within 90 days of the points being published.

The manufacturer is subject to sanctions if the targets are not met: It does not receive homologation for new cars with combustion engines and is therefore not allowed to sell new vehicles in this category or invest in new plants – a painful punishment for car manufacturers, because most money is still earned with combustion engines. Electric cars are not subject to the penalties; they may continue to be sold despite the lack of credits.

The Chinese dual-credit policy is based on two evaluation criteria: CAFC (Corporate Average Fuel Consumption) credits and NEV credits. The former assess fuel consumption and apply to vehicles with combustion engines. The target set for this is based, among other things, on the weight of the vehicle and the number of seats. The NEVs must all be made in China and run on electric power. Manufacturers who produce or import more than 30,000 cars per year are assessed by NEV credits.

The regulation is intended to motivate manufacturers to further develop their internal combustion engine vehicles. OEMs from Germany are already well positioned in the field of conventional drives. There are already very good engines on the market – small adaptations are already achieving a significant reduction in consumption. The Chinese OEMs are still lagging a few steps behind and must develop engines of better quality. We at IAV in China are currently looking into this question in an internal study: Which technology can we use to achieve the fuel consumption targets for the “low fuel consumption passenger car”? With just a modern and efficient combustion engine, a 48-volt mild hybrid or a PHEV? We have received many inquiries from Chinese manufacturers for a concept development.

The central government is also currently discussing the role that synthetic fuels such as methanol could play. Currently, very few Chinese OEMs are investing in methanol. The fuel could be used regionally, as it is produced from coal and there are numerous coal-fired power plants in some provinces. Even though synthetic fuels still have a long way to go before they penetrate the market, for the Chinese authorities, it is important overall not to rely solely on battery electric drives. Alternatives must also be pursued.

1. Dual point system

• The dual assessment of fuel consumption (CAFC) and electric cars (NEVs) within the framework of the “dual credits policy” is carried out by the Ministry of Industry and Information Technology (MIIT).
• Car manufacturers are obliged to comply with the requirements of the dual credits policy.
• The points system for CAFC was introduced in 2016; that for NEVs in 2019

2. Sanctions for violations

• Car manufacturers with negative CAFC or NEV point scores must present countermeasures to MIIT and initiate them to compensate for the negative values.
• Car manufacturers who violate the rules have 90 days to rectify their negative score.

3. CAFC points calculation (CAFC points = standard value – actual value) x annual production and import volume of all vehicles