China Transportation Briefing: Kingdom of Electric Vehicles?

An electric vehicle charging station at BYD Headquarters in Shenzhen. Photo by Remko Tanis.

Our monthly China Transportation Briefing shares interesting news and noteworthy research related to China’s transportation and urban development. The goal is to help people who are interested in solving China’s urbanization and transportation problems understand relevant Chinese policies and trends. Each issue revolves around a particular theme, with content summarized from recent newsletters and magazines. If you have any questions, feel free to contact Research Assistant Heshuang Zeng at hzeng [at] wri [dot] org.

In 2009, China overtook the United States as the world’s largest auto market after selling more than 13 million vehicles. Given that motorization is an irreversible trend in China, electric cars are seen as a solution to challenges like energy security and air pollution, and they have been highlighted in China’s 12th Five Year Plan.

Boosting Demand

The Chinese government offers strong financial incentives to create a market of clean energy vehicles. Starting in March, buyers of hybrid cars are entitled to a direct central government subsidy of 5,000 yuan ($790) per vehicle, while buyers of battery-powered cars are eligible for a rebate of up to 60,000 yuan ($9,380). Meanwhile, the Ministry of Finance (MOF) announced that China will cut taxes in half for users of energy-saving cars and ships. With recent skyrocketing global fuel prices, these incentives could make electric vehicles (EVs) an attractive option for personal use. An online survey found that more than half of Chinese participants are willing to buy electric vehicles within the next five years if the price is acceptable.

The “Thousand Vehicles Program,” established in 2009, has been focused on deploying electric vehicles for government fleet applications, especially buses, with the goal of bringing at least 1,000 electric vehicles into operations in each participating city by 2012. The program covered 10 cities at first, but it has since expanded to 25 cities.

Managing Supply

China does not hide its ambitions of becoming the world leader in the electric vehicle industry. Consistent with the national economic development plans, EVs are seen as a promising way for China’s manufacturing industry to create more value-added domestic jobs and excel in the global technology competition. Last year, when President Barack Obama announced that the United States would have 1 million electric cars on the road by 2015, China announced a plan of producing 1 million electric vehicles annually starting in 2015. However, the realization of this plan looks gloomy.

The challenge of promoting new “clean” vehicles is more daunting on the supply side, and the biggest barriers are with technology. In the past ten years, the Ministry of Science and Technology (MOST) has spent 2 billion yuan ($316.8 million) in clean energy vehicle research, but the scale of this investment is still tiny compared with other developed countries. Insufficient investment in technology research leads to a very fragmented EV supply market. Currently, there are more than 60 companies that have produced (or have plans to develop) new energy cars in China, but the annual production of these types of cars is less than 1,000 units. Small-scale production models result in high-cost and low-quality China-made electric vehicles.

A similar situation exists in the battery industry: the combined output of China’s more than 1,000 battery companies is less than 10 billion units. A study also showed that China holds just 1 percent of the total patent registrations for lithium ion batteries, while the ratio is 52 percent in Japan and 22 percent in the U.S.

Charging Infrastructure

Another bottleneck in the popularity of EVs is related to the provision of electric charging infrastructure, which requires huge investments. Even though there are some demonstration charging stations in Beijing and Shanghai, the coverage of charging stations still needs to be aggressively expanded if China plans to introduce many more EVs on the road. One significant shortfall is the lack of a national industry standard for EV charging connectors. Current stations have to provide various kinds of chargers with different charging connectors, which is inefficient.

Bright Future?

In January 2012, 25 pilot cities in the “Thousand Vehicles Program” met only 38 percent of their target. Meanwhile, China has extended its deadline of having 500,000 EVs on the road by 2015 due to technical constraints. On the other hand, cross-border and cross-sector business cooperation have come into sight. For example, Daimler, a U.K.-based car manufacturing company, and BYD, a Chinese battery company, have just established a new vehicle brand, Denza, aiming to bring mass-produced hybrid and electric vehicles to China.

It is hard to answer whether China could dominate the future of the EV industry. The learning process could be painful, just as the Japanese automobile industry experienced in the 1980s. Regulations might not be consistent, and the public’s acceptance of electric cars might be affected by the influence of oil companies, such was the case in California in the 1990s. In addition, whether the heavy subsidy could really make up for high price and quality issues of EV is also unknown. Only when China has the necessary technology, regulations and public acceptance in place can it really have a chance of becoming the world’s leader in the EV industry.

But could EVs really tackle climate change and air pollution in China, in terms of life cycle emissions, given the country’s high-carbon energy mix, predominantly powered by coal? And what about the problem of “clean congestion” caused by EVs? There are many more questions to consider when thinking about electric vehicles as a potential solution to improve quality of life in cities.

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