China cuts Electric Vehicle subsidy, Tesla stocks soar

by Nicholas Brown

The Tesla Model S electric vehicle – now available in China.

Tesla Model S

China’s generous electric vehicle subsidy was rumoured for months to face huge cuts — but the Finance Ministry has lowered the subsidy by only half of what was originally planned (a 5% drop in 2014, and a 10% drop in 2015).

Electric Vehicle (EV) manufacturers within and outside of the country had been holding their breath ever since the first hints of a possible subsidy cut trickled out into the press.

However, since the latest announcement electric vehicle manufacturers have been celebrating — including Tesla Motors (TSLA) whose stock values have suddenly surged to a record high of $196 per share. Last year, 35,000 to 60,000 yuan ($5,780 to $9,900 USD) per electric vehicle were paid out in subsidies as the frenetic push continues for cleaner air within China’s smog-choked cities.

China has been on a manufacturing roll in recent years. Even companies that are not based in China choose to manufacture their products in the world’s most dynamic economy. Tesla Motors recently entered the Chinese automotive industry despite legal challenges — and Tesla brass expect the Chinese electric vehicle industry to be as large as, or even larger than that of the U.S.

That doesn’t surprise me, as China has the world’s largest population (1.35 billion in 2012, according to Google), and the world’s largest car market.

Apart from that, Tesla’s stock value could come crashing back down as it did in November of 2013. A 40% decrease occurred in a matter of months, possibly caused by reports of (only) three Tesla Model S fires.

However, every cloud has a silver lining — the fires, along with subsequent NHTSA test results, have showed that Tesla vehicles are quite safe. The NHTSA has since rated the vehicle and Tesla was awarded the highest safety rating ever by the NHTSA in 2013.

Information from CleanTechnica.com show the German’s agree with the U.S. National Highways and Transportation Safety Administration (NHTSA).

Responding to potential concerns, the German Federal Motor Transport Authority, Kraftfahrt-Bundesamt (KBA) decided to investigate the matter and check for manufacturing defects. Tesla complied, providing data and additional information related to the three Tesla fires noted above.

KBA conducted its investigation and came to the same conclusion as Tesla, writing:

“According to the documents, no manufacturer-related defects [herstellerseitiger Mangel] could be found. Therefore, no further measures under the German Product Safety Act [Produktsicherheitsgesetz (ProdSG)] are deemed necessary.”

I would also expect the electric vehicle industry to show strong growth as millions more of China’s citizens begin to enjoy disposable income levels on par with other emerging nations. In the China of 2014, hundreds of millions of people need economical cars today and (literally) millions of others are waiting for the opportunity to buy a luxury car. In some cases, due to the long waiting lists the delivery date for a luxury imported car can take longer than one year in China.

According to the Wall Street Journal, even Rolls-Royce sells more cars in China than they do in most countries, at a cost of hundreds of thousands of U.S. dollars per vehicle. China and the U.S. are the most significant markets (as of January 2014) for Rolls-Royce.

Tesla is due to report their fourth quarter results on February 19.

Source: CNN Money

Editor: John Brian Shannon