The growth of BYD from a mobile battery maker in the 1990s into the world’s biggest electric vehicle maker today is a validation of the car maker’s ability to read the changing winds in the world’s biggest car market. But it’s also a validation of the ability of China’s state-centric capitalism to create winners and losers in new technologies with billions of dollars in help.
About a decade ago, as pollution worsened, China began heavily encouraging carmakers to make electric vehicles with subsidies and other incentives, and now has the biggest EV market in the world. Last year, people in China bought 1.2 million battery and hybrid vehicles. It was hard to know how much went to individual carmakers however, until the disclosure in 2016 of a $150 million subsidy fraud (paywall) involving padded and fake sales saw China overhaul how funds are awarded and begin disclosing the payments it was making more transparently.
A calculation by Quartz based on that data shows that BYD recouped about $1 billion dollars in electric vehicle subsidies toward many of the nearly 100,000 electric vehicles (pdf, p.11) it sold in 2016—or more than its 5.1 billion yuan ($750 million) net profit for that year. It’s also equivalent to a little over a fifth of BYD’s $5 billion in revenues from EV sales (pdf, p.12) that year.
The information was calculated from data released starting in 2017 by China’s Ministry of Information and Industry, which oversees the car industry, with the most recent data out March 19. While the amount is disbursed by provinces where cars were sold, it is separate of any aid provided by local governments.
BYD, which is set to disclose its latest earnings numbers tomorrow (March 27), doesn’t say how much it’s received from the central government specifically. Its earning reports do, however, disclose something called “government grants and subsidies,” a category that totaled some $590 million from 2013 to 2017. The company declined to comment on the difference between that number and the $1 billion toward a single year of sales compiled from the MIIT documents.
The subsidies have been vital for BYD, which saw its net profits start declining as China began unwinding its subsidy program ahead of a move towards a quota and credit system in 2020, with the most recent changes announced Tuesday. Preliminary numbers for 2018 showed the Warren Buffet-backed carmaker’s net profit declined 31% to $417 million, due to a slowing economy that has hurt overall car sales (BYD still sells more fossil-fuel cars than EVs).
BYD sold 96,000 electric vehicles (pdf, p.11) in 2016 to individual buyers, fleet-car customers such as taxis, and the government. Some of the most generous subsidies were disbursed for bus sales in Shenzhen, in southern China, which completed its move to an all-electric bus fleet by the end of 2017 thanks to BYD, which is based there.
Since the subsidy program overhaul, requirements to qualify vary according to the vehicle category and mileage clocked, to weed out faked sales. Cars sold to taxi fleets, for example, need to clock at least 20,000 kilometers (12,400 miles) (link in Chinese) before EV makers will get their money, which is why it takes several years for a car maker to collect all the subsidies due for a given year of sales. A national platform that China built in 2017 helps monitor electric vehicles, including their battery performance and travel mileage.
In all, Beijing gave carmakers a total of 50 billion yuan ($7.5 billion) towards EVs sold in 2016, according to an analysis of the MIIT documents by China’s EV news blog evobserver.
But that only captures a part of government support. There are also subsidies from local governments, most of whom don’t give out details the way the central government now does, as well as infrastructure credits, research and development grants, government procurement, and tax exemption for the purchase of new energy vehicles.
If all of these are factored in, Chinese state spending on the industry could have reached nearly 400 billion yuan ($60 billion) (pdf, p.16) from 2009 to 2017, according to an estimate from the Centers for Strategic and International Studies, a Washington DC-based nonprofit. This kind of support to key sectors of China’s economy has been increasingly in focus under the Trump administration, as trade tensions between the two countries deepened last year, but when it comes to EVs, it’s clear the government itself feels enough is enough.
In its latest change to its subsidy program, Beijing on Tuesday (March 26) again cut subsidies (link in Chinese) for electric and hybrid vehicles. As an example, electric passenger cars with the top driving range of 400 kilometers (250 miles) or above now qualify for about $3,700 per car, or half the previous amount. The finance ministry also advised local governments to stop their subsidies within three months, putting more pressure on the country’s approximately 400 electric vehicle firms (paywall) to compete on their own technological merits.
Update, March 27: This story was updated with information about subsidy cuts announced by China’s Ministry of Finance on March 26.