China: Light-Duty: NEV


The second phase of China’s Parallel Management Regulation for Corporate Average Fuel Consumption and New Energy Vehicle Credits regulation took effect on January 1st, 2021. It establishes a technology credit-based system that sets minimum sales share requirements for new domestic and imported electric vehicles (NEVs).

Standard type
New electric vehicle credit system

Passenger cars – battery electric vehicles, plug-in hybrid electric vehicles, fuel cell vehicles, and internal combustion engine (ICE) passenger vehicles


China’s first Parallel Management Regulation for Corporate Average Fuel Consumption and New Energy Vehicle (NEV) Credits or NEV mandate, for light-duty vehicles was finalized in September 2017 and took effect on April 1st, 2018. In China, NEVs include battery electric vehicles (BEVs), plug-in hybrid electric vehicles (PHEVs), and fuel cell vehicles (FCVs). The regulation seeks to promote new energy vehicle production and provide additional compliance flexibility to the nation’s existing fuel consumption regulation through a technology-based credit system. The regulation is partially modeled after California’s Zero Emissions Vehicle (ZEV) program but adds a parallel management component that connects manufacturers’ corporate average fuel consumption (CAFC) performance with their NEV credit performance. On January 1, 2021, the policy entered its second phase. The general structure remains unchanged from the first phase but increases in stringency.


Technical Standards

Under the NEV mandate, each NEV sold generates some number of credits, depending on characteristics such as electric range, energy efficiency, and rated power of fuel cell systems. The final NEV market share achieved in China under the influence of the credit targets will therefore depend on the final fleet mix. Under phase 1 of the ZEV mandate (2019-2020) annual NEV credit percentage targets for car manufacturers were 10% in 2019 and 12% in 2020. Under the second phase (2021-2023), percentage targets are 14%, 16%, and 18%, to be achieved in 2021, 2022, and 2023, respectively.

Credit allocations: Per-vehicle credits are a function of the base credit assigned to each vehicle class and various performance-based multipliers. A comparison of credit targets and allowances under phase 1 and phase 2 of the dual-credit system can be seen in the table below. The expressions for calculating BEV, PHEV, and FCV credits under phase 2 are shown below:


per-BEV credit = base credit x ER x BD x EC

per-PHEV credit = base credit x EC

per-FCV credit = base credit x RP


  • ER: electric range multiplier.
  • BD: battery energy density multiplier.
  • EC: electric energy consumption multiplier.
  • RP: rated power multiplier.


Table 1: Comparison of Phases 1 and 2 of the NEV Mandate Policy
  2017 policy 2020 policy
Annual percentage NEV credit target

2019: 10%

2020: 12%

2021: 14%

2022: 16%

2023: 18%

Per-vehicle credit


Base credit (BC) = (0.012 x electric range + 0.8)

Final credit = BC x EC

Capped at 2


Base credit (BC) = (0.0056 x electric range + 0.4)

Final credit = BC x ER x BD x EC

Capped at 5.1


Base credit (BC) = 2

Final credit = BC x EC

Capped at 2


Base credit (BC) = 1.6

Final credit = BC x EC

Capped at 1.6


Base credit (BC) = 0.16 x rated power

Final credit = BC x RP

Capped at 5


Base credit (BC) = 0.08 x rated power

Final credit = BC x RP

Capped at 6

The electric range multiplier increases from 0 to 3.4 as the vehicle’s electric range (in km) increases.  Since the electric range is also used to calculate the base credit for BEVs, it plays a double role in calculating BEV per-vehicle credit. Similarly, the battery energy density multiplier increases from 0 to 1 as battery density (in Wh/kg) increases. Thus, the BD multiplier is a penalty for BEVs with low-density batteries rather than a bonus. The energy consumption multiplier is determined as a function of the vehicle’s energy consumption in kWh/100 km and its curb weight in kg ranging between 0.5 and 1.5.



NEV and CAFC Credit Interaction: Manufacturers are required by CAFC credit requirements to make fuel-efficient vehicles, and to meet NEV credit requirements, they must produce NEVs. If manufacturers exceed the set targets, they are left with extra credits. Non-compliance, meanwhile, results in deficits. Importantly, and as detailed in Table 1, there is a one-way street via which NEV credits can be used to offset a CAFC deficit, but manufacturers with extra CAFC credits cannot use those to offset a NEV deficit.

NEV Mandate Compliance Methods
Deficit Type Compliance Strategy

NEV deficit

(Actual NEV credits < NEV targets)

  • Purchase NEV credits from other companies.
  • Use banked NEV credits from own company.

CAFC deficit

(Actual CAFC credits < CAFC targets)

  • Use banked CAFC credits from own company.
  • Transfer CAFC credits from affiliated companies.
  • Use banked or current year NEV credits from own company.
  • Purchase NEV credits from other companies.

Fuel efficient passenger vehicle multiplier: Phase 2 of the dual-credit policy creates a new category, fuel-efficient vehicles (FEVs), assigning special multipliers to manufacturers’ NEV credit compliance accounting. FEVs are conventional fuel vehicles that meet or outperform China’s weight-based fuel consumption standard per vehicle. The FEV multipliers offer manufacturers greater flexibility in meeting the NEV credit targets. Under phase 2, in 2021, each FEV is counted as 0.5 fuel passenger cars when calculating a manufacturer’s total vehicle production volume upon which the NEV credit percentage targets apply. This multiplier reduces to 0.3 in 2022 and 0.2 in 2023.

NEV credit carry-forward provisions: Under the 2017 policy, excess NEV credits earned in 2019 could be carried forward for a maximum of one year. NEV credits earned in 2020 can be carried forward at a discounted ratio of 0.5 for up to 3 years. 2021 and 2022 NEV credits can be carried forward, also at a discount only if (1) the corporate average fuel consumption (CAFC) of the company’s conventional fuel vehicles is no higher than 123% of the CAFC target; or (2) a company only produces or imports NEVs. An announcement in February 2021 also allowed NEV credits generated in 2021 to be carried back to satisfy 2020 requirements.

Credit transfers among affiliated companies: In phase 1 and phase 2 policies, CAFC credits can be transferred among affiliated companies as additional compliance flexibility. Affiliated companies include:

  • A domestic original equipment manufacturer (OEM) and a domestic group holding ≥ 25% of its shares
  • Two domestic OEMs with the same domestic shareholder holding ≥ 25% of each of their shares
  • An import agent of a foreign OEM and the OEM’s domestic joint venture with ≥25% of its shares held by the OEM.
  • In phase 2, the definition of an affiliated company was broadened to include an import agent of a foreign OEM, and the OEM’s domestic shareholder holding ≥ 25% of its shares.

Benefits for manufacturers producing less than 2,000 vehicles a year: The dual credit policy also includes compliance benefits for smaller manufacturers.  If the manufacturer’s CAFC drops by 2-4% compared to the previous year, the CAFC standard is relaxed by 30%, and if CAFC decreases by 4% or more, the CAFC standard is relaxed by 60%.


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