China spent $230 billion to build its electric car industry, CSIS says

Is it time to disprove CSIS claims again?

Here's what CSIS claims for the 2009-2023 period:

$65.7B buyer rebates

$117.6B tax exemptions

$4.5B infrastructure subsidies

$25B research and development

$18B government procurement

Rebate estimates are based on published rates for qualifying vehicles and assume that 25% of EVs sold were not eligible. Rebate estimates prior to 2023 assume local government support amounted to 15% of central government support. The sales tax exemption is calculated using the stated 10% tax exemption for qualifying NEVs. Infrastructure subsidy estimates are based on funding amounts provided by the Ministry of Science and Technology. R&D estimates use government-funded R&D statistics and assume that 90% of auto R&D expenditure went towards NEVs. Government procurement estimates assume that 50% of government procurement of autos went towards NEVs. Estimates assume that the average prices of commercial and passenger vehicles are RMB 1.2 million and RMB 250,000, respectively. Annual currency conversions were done using exchange rate data from the OECD.

According to the 2020 policy, only passenger EVs costing less than RMB 300,000 (US$42,376) per unit are eligible for the fiscal incentives.

Up until 2022, the government of China claims 200 billion RMB of subsidies, with the tax exemption making up 115 billion RMB.

Let's backtrack these numbers:

200 billion RMB in total subsidies. 14.1 million in total PEV stock as of 2022, giving ~14.2k RMB/car in subsidies. The top selling EV in China in 2022, the BYD Song, sells for about 180k RMB.

CSIS claims that subsidies are on the order of $230 billion, or 1.67 trillion RMB, but includes 2023 sales (total PEV stock of ~22 million). That's a subsidy of ~76k RMB/car.

We know that the maximum buyer rebates were cut from 18k RMB in 2020 to 14.4k RMB in 2021 and 12.6k RMB in 2022 (but only for very high range EVs). Let's assume for a second that China claims 200 billion RMB solely from buyer rebates, and that of the remaining 1.47 trillion RMB, 853 billion RMB came from the purchase tax... At a 10% tax rate, that suggests an average car value of ~390k RMB or ~54k USD. That exceeds the average car value of US car sales (~47k USD).

Clearly, CSIS has some wonky numbers, but where do they come from?

Well, if you were paying attention, CSIS claims are alarmingly close to China's claims... If you convert to RMB. China claimed that the purchase tax exemption was responsible for a 115 billion RMB subsidy, while CSIS claimed a $117.6 billion subsidy. Due to differences in annual accounting standards, this is entirely possible.

To check, let's work back based on China's claims, assuming that the only subsidies China considers are buyer rebates and purchase tax exemptions (because funding research, funding infrastructure, and government procurement are hardly subsidies in China's accounting). That leaves $85 billion RMB in buyer rebates and $115 billion RMB in tax exemptions. Working back from the known buyer rebates rate (assuming ~14k RMB/car average over all sales), this gives 6 million subsidy-eligible EV sales or an average sale price of 190k RMB.

However, we know that China's total PEV stock by 2022 was 14.1 million, so what gives? Well, turns out hybrids are still considered PEVs in that accounting (despite receiving far lower subsidies), and the number of BEVs has only really ramped up recently. Moreover, for a variety of reasons not all EVs are eligible for subsidies.

In my next comment I'll dive into where I think CSIS went wrong.