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Recently, the Ministry of Transport and the Ministry of Finance jointly issued the "Implementation Rules for Subsidies for New Energy City Buses and Power Battery Updates" (hereinafter referred to as the "Implementation Rules"), proposing to provide fixed subsidies to urban public transportation companies for updating new energy city buses and replacing power batteries. Among them, for updating new energy city buses, an average subsidy of 80,000 yuan per vehicle; for replacing power batteries, a subsidy of 42,000 yuan per vehicle.

Securities Times and China Securities Journal reporters noted that on July 25, the National Development and Reform Commission and the Ministry of Finance issued the "Several Measures on Strengthening Support for Large-Scale Equipment Updates and Consumer Goods Trade-in", proposing to increase the subsidy standards for new energy buses and power batteries, promote the electrification of urban buses, and support the update of new energy buses and power batteries. The policy released this time is the supporting details for the implementation of the aforementioned measures.

Experts interviewed believe that the relevant policies will directly benefit the production of new energy buses and power battery production industries, and are expected to reduce the cost of purchasing new energy buses and replacing power batteries for public transportation companies, thereby increasing market demand. At the same time, the policy will also indirectly benefit the power battery recycling industry. With the update of power batteries, more waste batteries will enter the recycling and reuse link, providing more abundant resources for the recycling industry.

New energy city buses will be updated with an average subsidy of 80,000 yuan per vehicle

The Implementation Rules stipulate that urban public transport enterprises (hereinafter referred to as "applicants") will be given a fixed subsidy for updating new energy city buses and replacing power batteries. It is encouraged to reasonably select the type of new energy city buses to be replaced in combination with changes in passenger flow and the development of the urban public transport industry. The average subsidy for each vehicle is 60,000 yuan, of which 80,000 yuan for updating new energy city buses and 42,000 yuan for replacing power batteries. Local governments shall formulate local subsidy standards based on the subsidy funds arranged by the Ministry of Finance and the Ministry of Transport and the performance targets issued.

The subsidy funds support the renewal of urban buses with a vehicle age of 8 years or more, that is, those registered before December 31, 2016 (inclusive), and the replacement of power batteries for new energy urban buses.

The "Implementation Rules" point out that local transportation authorities must adhere to the combination of market dominance and government guidance, equipment updates and resource conservation, guide applicants to choose to update vehicles or replace power batteries according to local conditions, and guide the update of miniaturized, low-floor and low-entry urban buses.

In terms of subsidy fund management, the Implementation Rules propose that the subsidy funds for new energy city buses and power battery renewal shall be shared by the central and local governments at a ratio of 90:10, and the specific sharing ratio shall be determined by region. Among them, the eastern provinces shall share the ratio of 85:15, the central provinces shall share the ratio of 90:10, and the western provinces shall share the ratio of 95:5.

Zhu Keli, executive director of the China Information Association and founding dean of the National Research Institute of New Economy, pointed out in an interview with Securities Times and China Securities Journal that the relevant policies will directly benefit the new energy bus production and power battery production industries, and are expected to reduce the cost of bus companies purchasing new energy buses and replacing power batteries, thereby increasing market demand.

"For vehicle manufacturers, the subsidy policy will encourage them to expand production scale, improve product quality and technical level to meet the growing market demand for new energy buses. For power battery manufacturers, subsidies will not only promote power battery sales, but also encourage technological innovation and upgrading, because bus companies will tend to choose products with better performance and longer life when replacing batteries." Zhu Keli said.

New energy buses welcome favorable developments on both the supply and demand sides

The latest data from the Ministry of Transport shows that by the end of 2023, my country's bus ownership will reach 682,500 vehicles, of which 554,400 are new energy buses, accounting for 81.2%.

However, judging from the actual sales of new energy buses in recent years, the pace of bus electrification is gradually slowing down. According to statistics from industry organizations, the sales of new energy buses have declined for six consecutive years since 2018. If bus electrification is to be rapidly promoted, strong policy support is still needed.

Under the combined influence of many factors such as declining income and the termination of subsidies, the public transportation industry has faced great operating pressure in recent years, which has also restricted the development of public transportation electrification to a certain extent. Hunan Daily previously reported that a bus company directly stated that a large part of the financial pressure came from the adjustment of the subsidy policy for new energy buses and the decline in transportation capacity caused by battery degradation. According to the policy, after December 31, 2022, there will be no national subsidies for the purchase of new energy vehicles, and the pressure on companies that need to change vehicles will double.

However, as the country vigorously advocates large-scale equipment renewal and consumer goods replacement, the development of public transportation electrification has ushered in new opportunities. In March this year, the State Council proposed in the "Action Plan for Promoting Large-Scale Equipment Renewal and Consumer Goods Replacement" that it is necessary to continue to promote the electrification of urban buses and support the replacement of old new energy buses; it also proposed to strengthen policy guarantees and encourage local governments with conditions to coordinate the use of urban transportation development incentive funds arranged by the central government to support the renewal of new energy buses.

The State Council's executive meeting on July 19, 2024 also mentioned that it is necessary to support the scrapping and renewal of old operating ships and old operating trucks, and emphasized that it is necessary to increase the renewal subsidy standards for multiple categories of equipment, including new energy buses. At the same time, the meeting also emphasized the need to increase subsidies for the scrapping and renewal of automobiles and the replacement of old household appliances with new ones, as well as to increase the proportion of fiscal interest subsidies for equipment renewal loans.

Zhu Keli believes that the two departments' renewed financial subsidies will undoubtedly inject new impetus into the new energy transformation of the public transportation system. While alleviating the economic pressure on public transportation companies, this policy sends a clear signal that the country still attaches importance to and supports the new energy transformation of the public transportation system. This move is expected to inspire more public transportation companies to accelerate the replacement of new energy vehicles and promote the further development of the new energy bus market. "In this process, the implementation of subsidy policies must focus on sustainability and efficiency, avoid dependence, and ensure the healthy and long-term development of the new energy public transportation industry." Zhu Keli reminded.

In addition, the implementation of the "Implementation Rules" also indirectly benefits the power battery recycling industry. According to the "Regulations on the Mandatory Scrapping of Motor Vehicles" issued by the Ministry of Commerce and other departments, the mandatory scrapping period for buses is 13 years, and they are generally used for more than 10 years. At present, the design life and warranty period of mainstream power battery products are 8 years, which cannot support the entire life cycle of new energy buses.

Zhu Keli pointed out that the new policy will help improve bus companies' replacement of long-serving power batteries with serious performance degradation. More waste batteries will be recycled and reused, providing more abundant resources for the cascade utilization industry.

Source: China Securities

Statement: All information content of Databao does not constitute investment advice. The stock market is risky and investment should be cautious.

Editor: He Yu

Proofreading: Peng Qihua

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