30% Alt Energy Cars for China

In an attempt to clear the air, China has issued a ruling that requires 30 percent of all government vehicle purchases to be for alternative energy vehicles by 2016. The country’s multi-year subsidies and other incentives for energy-efficient vehicles will provide the alternative energy market with a much-needed boost.

For several years now, China has been trying to reduce air pollution by creating a plan to increase the number of non-polluting vehicles on the road. Under the new regulations, which will be phased in over two years, subsidies will be offered to government and public agencies for vehicles costing less than 180,000 yuan (US$29,186), including subsidies. Furthermore, as infrastructure for alternative energy vehicles is not as prominent as infrastructure for gasoline vehicles, local governments will be tasked with putting in place new energy-vehicle charging facilities.

According to Hong Kong-based Barclays (LSE:BARC) analyst Yang Song, China’s plan is a “laudable aspiration.” Song estimates that government purchases account for about 10 percent of total new vehicle sales in China, noting that “[g]overnment purchases are not growing as fast as private consumption. So just to rely on the government purchase would be a challenge.”

The latest announcement comes shortly after last week’s notice that individual buyers will be exempt from a 10-percent vehicle tax when they purchase electric and other non-polluting vehicles.

Resource market impact 

With battery-powered, gasoline-electric hybrids, fuel cells and other non-polluting vehicles encompassed in China’s plan, the expectation is that the automotive industry will get a much-needed boost from increased vehicle sales.

Based on Tesla Motors’ (NASDAQ:TSLA) gigafactory announcement earlier this year, it’s already clear that electric vehicles will very much be a part of the transportation industry’s future. And in order to meet this impending demand for batteries, resources like lithium, graphite and cobalt will be required in large quantities. Indeed, with increased demand on the horizon, exploration and development companies should be on investors’ radar.

 

Securities Disclosure: I, Vivien Diniz, hold no direct investment interest in any company mentioned in this article.