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CCM: demand for ternary Li-ion batteries in China to more than double to 10 GWh in 2016 from 4.4GWh in 2015 due to subsidy fraud and response

In the wake of the news that five alternative energy vehicle (AEV) makers defrauded the Chinese government of about US$150 million in subsidies, the Chinese government adjusted its subsidy policies for alternative energy vehicles. Market analyst CCM believes that the adjustment will change the market structure and that ternary Li-ion power batteries—i.e., Li-ion batteries with ternary cathode materials such as LMO, NCM/NCA, LFP, etc.—will be the biggest gainers.

The firm forecasts an immediate boom in demand for ternary Li-ion batteries—mainly used to power alternative energy vehicles—from 4.4GWh in 2015 to 10 GWh in 2016.

Subsidy fraud from five Chinese AEV makers in China. China started giving state aid to alternative energy vehicles (AEV) makers in 2009 to promote the development of green vehicles to help tackle air pollution. Subsidies totaled RMB33.44 billion (US$5 billion) as of the end of 2015.

Early in 2016, China’s Ministry of Finance (MOF) with other ministries and commissions launched probes into more than 90 major AEV firms, examining 401,000 alternative energy vehicles which already received or had been approved for subsidies. The MOF also made spot checks on the running status of 133,000 sold alternative energy vehicles.

On 8 September 2016, MOF released a notification about the special inspection on subsidies for alternative energy vehicle (AEV) promotion and application, publicly exposing subsidy fraud and exposing the cases of five AEV manufacturers which involved USD$1.23 million (RMB1.0 billion) in financial subsidies.

The five AEV manufacturers were Suzhou GEMSEA Coach Manufacturing Co., Ltd. (GEMSEA), Ltd.; King Long United Automotive Industry (Suzhou) Co. Ltd.; Shenzhen Wuzhoulong Motors Co.; Chery Wanda Guizhou Bus Co., Ltd.; and Henan Shaolin Bus Co., Ltd.

According to MOF, some AEV firms had cheated the government by falsifying sales records.

  • Vehicles had not met the promotion standard or had not been manufactured at all, but had acquired subsidy by getting license plate against regulations.

  • Vehicles were qualified but had been sold to relevant enterprises but not end users, acquiring the subsidy beforehand without meeting the subsidy requirements.

  • Vehicles were sold to the end users but were left unused after acquiring the subsidy, thus seriously wasting financial fund.

The companies will be fined and the funds recovered, the ministry said. They also will no longer receive state aid and the relevant models developed by them will be removed from the national directory of subsidized AEV products.

Adjustment on AEV subsidy policy. In order to crack down on an increasing number of fraudulent claims, the Chinese government would adjust on the subsidy policies for AEVs.

According to CCM’s research, the new subsidy policies on AEVs will be adjusted in various aspects on the basis of the previous 2016-2020 subsidy plan. For example, the access standard (including vehicle energy consumption, driving range, power battery safety and enterprise integrity) will be raised, the subsidy amount will be decreased, and the money allocation cycle will be extended.

Types of alternative energy buses in which subsidy frauds were practiced severely were the first to be cut down in subsidy amount. For a 6-8 meter vehicle type, the subsidy amount for each one will be decreased from the previous US$17,968-37,434 (RMB120,000-250,000) to US$10,781-22,460 (RMB72,000-150,000). For 8-10 meter types, the subsidy amount for each will be decreased from US$29,947-59,895 (RMB200,000-400,000) to US$22,460-44,921 (RMB150,000-300,000).

Subsidies for alternative energy passenger cars and fuel-cell vehicles will be remain, but the subsidy upper limit of alternative energy special vehicles and alternative energy trucks will be increased.

Changes of subsidy policy to help increase demand of ternary power Li-ion power batteries. The adjustments in the policy will bring changes in the AEV market, CCM said.

With the maintained subsidies for alternative energy passenger car and fuel-cell vehicles and the increased upper limit of subsidy for alternative energy special vehicle and alternative energy truck, production of these types of vehicles will increase while that of alternative energy buses will fall, CCM said.

Ternary Li-ion power batteries are mainly used for power in alternative energy passenger cars and alternative energy special vehicles.

Moreover, the electric logistics vehicle market (a segment of the alternative energy special vehicle market) has become much favored by the industry so that quite a few manufactures have accelerated the rollout of relevant vehicle types.

There are altogether 448 alternative energy vehicle types, including 190 types of electric special vehicles (logistics vehicles accounting for more than 50%) according to the statistics collected in the declaration notification of the Announcement on Road Vehicle Manufacturers and Products (287th batch) issued by MIIT of PRC in August, 2016.

Considering the current situation, GF Securities Co., Ltd. also pointed out in its research report that electric delivery vehicle is expected to explode in its sales volume in the third and fourth quarters of 2016 with an estimated annual sales volume of over 100,000 vehicles.



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