Manufacturers need to comply with quotas in 2019.

China has skipped its 8% New Energy Vehicle (NEV) credits quotas, but in 2019 and 2020 it will require all manufacturers that produce and sell more than 30,000 cars annually to get respectively 10% and 12% in New Energy Vehicle credits.

The new requirements don't mean that each manufacturer needs to sell 10% plug-in cars, because from a single sale of a New Energy Vehicle a manufacturer can get from 2 to 6 credits.

The number of credits per plug-in car (all-electric, plug-in hybrid or hydrogen fuel cell) depends on various criteria like all-electric range, efficiency and others. The base PHEV needs to have at least 50 km (31 miles of range), while the base EV at least 100 km (62 miles) of range and top speed of 100 km/h (62 mph).

The credit formula is: range multiplied by 0.012 + 0.8 (which gives 2 in case of 100 km BEV). Then you multiply the score by other factors from 0.5 to 1.2 like energy consumption and weight. The resulting cap is 6. We assume that in the future the formula will be evolving, forcing automakers to improve the cars.

Assuming that a manufacturer will sell plug-ins for 2 credits each, it will need to electrify at least 5% of its volume. If the company manages to get the maximum of 6 credits per car, then only about 1.7% of the volume will need to be electrified in 2019.

For example, for every 100,000 cars sold, the company needs to get 10,000 NEV credits in 2019, which translates to 1,700-5,000 plug-ins that fulfill the requirements.

Otherwise, credits will need to be purchased from others (that have an abundance of credits like BYD, Tesla or NIO). If the manufacturer does not gather enough credits, then the Chinese government envisions sanctions.

According to Bloomberg's article, Ford is one of the companies with the lowest share of plug-ins and could be hit relatively hard.

There are plenty of carmakers in China that exceed the requirements, so we assume that the new rules are directed towards those who still haven't introduced any plug-ins.

Source: Bloomberg