15:19 09.06.2019

The Best Way to Boost Electric Cars in China

Source: Bloomberg
The Best Way to Boost Electric Cars in China

In China, the most talked-about and coveted feature associated with Tesla Inc.'s new China-made Model 3 electric vehicle isn't the car’s high performance, sleek design or semi-autonomous capability. It’s the license plate -- which should tell advocates hoping to move the world’s drivers off fossil fuels something.

The recent buzz is the result of a misunderstanding. A social media post from Tesla last week appeared to offer buyers in Beijing the chance to get a license plate as part of a Model 3 financing package. The company updated its post a day later to clarify that it doesn’t obtain or lease car plates in China. Regardless, the ostensible promotion quickly became a hot topic online and in the mainstream media.

The excitement is understandable. Since 2011, Beijing has limited the number of license plates available to aspiring buyers. The system is slanted to favor electric vehicles: Drivers of gas-fueled cars have to enter a lottery where there’s no guarantee of ever winning a plate, whereas applicants for new energy vehicles can put their names on a first-come-first-serve waiting list. (The overall number of plates is also capped, with 60,000 available for electric vehicles in 2018 and only 40,000 for traditional cars.)

That still means a long wait -- currently about eight years -- which helps explain why drivers leaped at the possibility of cutting the line by buying a Model 3. But, at least EV buyers know they’ll get a plate eventually.

Chinese authorities should take note. Since the late 2000s, the government has spent billions on one-time purchase subsidies to encourage Chinese to switch to electric vehicles. Local governments have added their own subsidies to boost local manufacturers or reduce pollution and traffic. Others offer to subsidize insurance or reduce tolls. The bills have added up – and subsidies have encouraged production of some unsafe, shoddy electric vehicles. The government is planning to phase out national-level subsidies after next year.

The fear is that EV sales will plummet after that. Tailoring license-plate programs, though, could be not only a cheaper but more effective means of incentivizing buyers to switch to electric cars. In Beijing, a 2016 study found that 43 percent of buyers ranked the availability of license plates as the primary reason for buying an electric vehicle, followed by environmental concerns (10.2 percent) and subsidies (6 percent).

There’s evidence that drivers in other cities feel the same way. A 2018 survey in 30 Chinese cities found that while national subsidies played a role in boosting EV sales, they failed to explain wide variations in market share between cities. To determine what accounted for the high market saturation in Shanghai, say, compared to Nanjing, researchers assigned monetary values to local incentives such as parking preferences for electric vehicles. Among these, the value of a license plate ranked highest, reaching as much as $18,800 in Beijing (far more than the value of many electric cars) and  $13,000 in Shanghai.

Currently, only six Chinese cities have restrictive license plate policies that favor electric vehicles. With car sales slowing, regulators have come under pressure to loosen those policies. So far, they've largely resisted, and they should continue to do so in order to prop up demand after EV subsidies are phased out. Indeed, they’d be wise to encourage other Chinese cities and regions to adopt similar programs. China’s already the world’s biggest market for electric vehicles. This would be an easy and cheap way to make it even bigger. Just ask Tesla.

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