China will slash subsidies of new energy vehicles (NEV), including EVs, plug-in hybrids, and hydrogen vehicles, by 10 per cent this year, Reuters reports.

The Chinese government announced plans back in 2015 to eventually end subsidies this year but in March said it would extend them in response to the coronavirus pandemic. Under the latest plan, subsidies for buying NEVs will extend to 2022 with tax exemptions on new vehicle purchases also sticking around for two years.

While this all sounds very good, there is one key change and that is that the subsidies will only apply to passenger cars that cost less than 300,000 yuan ($42,376). This means that premium NEVs from the likes of BMW and Daimler will be excluded. Additionally, the Tesla Model 3 which starts at 323,800 yuan ($45,819) is excluded from the scheme.

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The Chinese finance ministry added that it will, in principle, cut subsidies by 20 per cent in 2021 and 30 per cent in 2022. It added that it will raise the requirements for the driving range and power efficiency of cars that qualify for the subsidies.

“This extending of subsidies will give the industry long term support but is unlikely to impact short term sales much,” secretary general at China Passenger Car Association (CPCA) said.

China has a target of NEVs accounting for a fifth of all auto sales by 2025 compared to the current 5 per cent. Last year, more than 25 million vehicles were sold in the country of which 1.2 million were NEVs.