Following the announcement by the UK and France to ban production of diesel and petrol engine vehicles by 2040, the Chinese Ministry of Industry and Commerce also said that China is currently proactively to schedule a timetable to phase out the traditional diesel and petrol vehicle production. In fact, the State Council announced a new policy in June to stimulate the electric vehicles industry development in China. It states that for all auto manufacturers, if their production volume for new energy vehicles fail to reach 8%, 10%, and 12% of the company's total production volume in 2018, 2019, 2020 respectively, they are not allowed to produce any more traditional diesel or petrol vehicles, unless they fulfill the requirement by purchasing certain numbers of points (set by the government) from the other auto manufacturers. Also, separately, it is reported that the China Association of Automobile Manufacturers will announce a car carbon emissions dual points system by end of this month. We believe the government’s commitment as shown from a series of all these enhanced polices recently should help to regain the market confidence for the electric vehicles industry development in China; following some negative cases reported last year in the market regarding a cheating by some manufacturers for government subsidy of new energy vehicles production. In light of all these, we expect the China’s electric cars sector is poised for a further re-rating, and recommend investors to buy into the related electric car shares.

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