The Challenge Of Greening Mainland China's Garbage-truck Fleet

Local government financial challenges may blunt mainland China
central government efforts to accelerate public fleet
electrification, especially concerning sanitation vehicles.

In February 2022, eight departments of the Chinese central
government jointly launched a pilot city program for the
comprehensive electrification of public fleet vehicles throughout
the country – with a timeline lasting from 2023 to 2025.

But recent signs show progress could be slow, as local
governments are caught between pressure from existing national
targets and reduced direct electrification subsidy support from the
central government.

This pilot program is a concrete measure taken by the central
government to achieve the country’s goals for New Energy Vehicles
(battery-electric vehicles, plug-in hybrid vehicles and fuel-cell
electric vehicles), as outlined at the beginning of the 14th
Five-Year Plan. But a 12-year NEV subsidy ended last year, and the
2023 pilot program will not provide direct-finance subsidies.

The pilot program aims to achieve a proportion of 80% of NEV for
newly purchased public fleet vehicles in the pilot cities. Public
fleet vehicles

include government vehicles, city buses, sanitation vehicles,
taxis, mail delivery vehicles, urban logistic and distribution
vehicles, and airport vehicles.

In addition, the notice also puts forward specific targets for
the NEV charging service facilities in pilot cities. Pilot cities
are also required to explore NEV’s new technologies and new
business models.

Among public sector vehicles, the most often used medium and
heavy commercial vehicles are sanitation vehicles (66%), city buses
(33%), and mail delivery vehicles (~1%). But in 2022, the NEV
proportion of the city bus market had already reached 99.5%.
Therefore, the sanitation vehicle market is the most likely to be
affected by the latest notice.

Following the COVID-19 pandemic, it is likely that sanitation
vehicle demand will have a purchasing rebound. However, S&P
Mobility expects the rebound will be limited because of the recent
shrinking in local government expenditures. In mainland China,
sanitation vehicle purchasing highly relies on local government
budgets, and after three years of the pandemic, local government
finances are under pressure. Meanwhile, the central government has
further tightened its management of local government debt.

Here’s why this matters: This public fleet vehicle NEV pilot
program works differently from previous NEV pilot programs. The
central government will not directly provide financial subsidies,
but instead will provide unspecified policy incentives to local
governments. However, the NEV target proposed in this pilot program
is relative rather than containing a specific volume target as per
previous plans.

For local governments under budgetary stress, that means the
total increase in the sanitation vehicle market and the increase in
new energy vehicles may be limited. However, the pilot program will
also help those pilot cities improve the NEV eco-system for public
fleet vehicles – including charging facilities, which will create a
better environment for the rapid development of NEV sanitary
vehicles when they arrive in the future.

Looking beyond the pilot program, prospects for NEV vehicles
remain bright. Outside the public fleet segment, demand for NEVs to
reduce carbon emissions in other industries – especially the steel
industry – is entering a rapid growth phase in the near coming
year. As a result, S&P Mobility analysts continue to expect
that the NEV market share in the medium-heavy duty truck market
will climb and reach 3.1% and 3.9% in 2023 and 2024, respectively,
and as high as 12.0% by 2030.

MEDIUM- AND
HEAVY-COMMERCIAL VEHICLE MODEL FAMILY SALES FORECAST

MAINLAND CHINA
COMMERCIAL TRUCK PRODUCTION STARTS 2023 WITH A POWERFUL
REBOUND

MHCV PLANT CAPACITY
FORECAST

MAINLAND CHINESE
CONSUMERS CROSSING THE CHASM TO MAINSTREAM EV ADOPTION

MAINLAND CHINA’S BUS
PRODUCTION IN THE SHADOW OF COVID-19

This article was published by S&P Global Mobility and not by S&P Global Ratings, which is a separately managed division of S&P Global.