The move is part of the country’s continued efforts to reduce pollution and shift to more environmentally friendly electric vehicles.
As part of its continued push to curb pollution, China is suspending the production of over 500 car models and model versions that do not meet its fuel economy standards.
The halt began on Monday (January 1), according to a statement from the China Vehicle Technology Service Center, and on Tuesday (January 2) a number of carmakers confirmed it is now in effect.
It will reportedly affect both domestic automakers and foreign joint ventures, though only a small portion of the country’s overall auto market will be impacted. China produced 28 million vehicles in 2016, and the China Passenger Car Association has said the ban will affect 1 percent of the market at most.
Suspended models including FAW VW’s Audi FV7145LCDBG sedan, Beijing Benz’s Benz BJ7302ETAL2 sedan and Shanghai GM’s Chevrolet SGM7161DAA2 sedan, says Bloomberg in a recent article.
Speaking to the news outlet via email, Wang Liusheng, a Shanghai-based analyst at China Merchants Securities, said that while this is the first time China has stopped production of specific models and model versions, he expects more of the same in the future.
“To emphasize a cut back on energy consumption, such documents will surface frequently in the future. It’s an essential move to ensure the healthy development of the industry in the long run,” he said.
In addition to taking action against polluting vehicles, China is leading the global shift toward electric vehicles (EVs). The Asian nation is the world’s largest auto market, and its government is pushing for all-electric battery cars and plug-in hybrids to account for at least one-fifth of its vehicle sales by 2025. At the end of 2017, EV sales were on track to reach 700,000 for the year.
That’s good news for companies focused on lithium, one of the metals required in the lithium-ion batteries used in EVs. Prices for this crucial metal were on the rise in 2017, and many market watchers believe a supply crunch is due to hit the market as demand for EVs continues to rise.
In a recent tweet, Simon Moores of Benchmark Mineral Intelligence suggested that the amount of battery capacity in the pipeline “needs to double.” He added, “[n]o way near the 550-600GWh needed by 2025.” Other lithium-ion battery components such as cobalt are also expected to benefit from this demand.
Aside from China, other countries and companies in other parts of the world are also headed toward increasing vehicle electrification. For instance, last year France and the UK outlined plans to ban fossil fuel cars by 2040; additionally, major carmakers like Volvo (STO:VOLV) and BMW (ETR:BMW) have said they will electrify most of their models by the mid-2020s.
But it will be crucial to watch China moving forward. “The simple fact that China is the biggest market means automakers will be accommodating” to further regulations promoting EVs, said Michelle Krebs, an analyst at the AutoTrader Group.
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Securities Disclosure: I, Charlotte McLeod, hold no direct investment interest in any company mentioned in this article.