China’s decision to end a more than decade-long subsidy for electric vehicle purchases has forced automakers, including Tesla, to deepen discounts to maintain sales as demand eases in the world’s largest market.
The government originally planned to phase out the support scheme for EV makers and battery suppliers by the end of 2020, but extended it until the end of December in response to the pandemic.
As China grapples with the upheaval of an upsurge in COVID-19 cases and its economy grows at the slowest pace in decades, Tesla, Xpeng and SAIC-GM-Wuling have opted to hold consumer prices flat in January.
The subsidy accounted for around 3% to 6% of the cost of the best-selling electric vehicles in China last year, a Reuters analysis found.
Other EV makers, including Tesla’s larger rival BYD and SAIC-Volkswagen, have raised prices for some models but opted to absorb most of the cost of the subsidy, the Reuters tally showed.
The subsidy, paid to the automaker at the point of purchase, began in 2009 and was scaled back over time. It paid out nearly $15 billion to encourage EV purchases through 2021, according to an estimate by China Merchants Bank International.