China EV Subsidies Frozen in Six Cities Amid Fraud Concerns

Electric vehicle (EV) manufacturers in China are encountering a significant obstacle as key government subsidies have been abruptly frozen in several major cities. This unexpected halt in subsidies has sparked concerns about its impact on retail sales and consumer demand. At least six municipalities, including Zhengzhou, Luoyang, Shenyang, Chongqing, and Xinjiang, have temporarily suspended their car trade-in subsidy programs. The reasons given by city governments vary; officials in Zhengzhou and Luoyang cited depleted central funds, while authorities in Shenyang and Chongqing described their pauses as part of efforts to improve capital efficiency. Xinjiang also confirmed a halt but did not provide a reason.

The national subsidy scheme, which encourages consumers to trade in their older vehicles for newer, more efficient models, has been a cornerstone of Beijing’s strategy to boost consumption amidst sluggish economic indicators. The Ministry of Commerce reported that over 4 million applications for car-specific trade-in subsidies had been filed by the end of May, underscoring the program’s popularity. However, the implementation of the scheme has faced challenges, notably the issue of "zero-mileage" fraud. This practice involves dealerships and manufacturers misrepresenting brand new vehicles as used ones to qualify for subsidies, allowing them to clear inventory at discounted rates. The central government has responded to this issue, with the Ministry of Industry and Information Technology (MIIT) convening an emergency meeting with auto companies to address price wars and market manipulation. Major automakers, including BYD and Nio, have engaged in repeated rounds of price cuts, raising concerns about the industry’s long-term profitability.

Despite these challenges, both the National Development and Reform Commission (NDRC) and the Ministry of Finance have confirmed that subsidy programs will continue through the end of 2025. Analysts are anticipating a fresh round of central funds as early as July, which could provide some relief to the industry. However, the current freeze in subsidies has already started to affect retail sales and consumer demand, with analysts fearing a dampening effect on both heading into the third quarter. The phase-out of subsidies has also exposed systemic overcapacity in the sector, transforming the market into a battleground for cost efficiency. As the industry navigates these challenges, the focus will be on finding sustainable solutions to maintain growth and profitability.