SHANGHAI – Turning China’s policy of support for new energy vehicles into concrete help for its automakers is the key to any rapid advancement of the industry.
So far, success with electric vehicles, hybrids and fuel cell vehicles has been achieved mainly with demonstration projects, many of which had been aimed at last summer’s Olympic Games.
Toyota Motor Co., which now has nine years of marketing experience with its hybrid Prius, sold only about 1,000 vehicles in China last year, even though they are produced locally. Companies like Chang’an and Beiqi-Foton started their research on hybrids only several years ago, and their product sales have been limited, and government oriented.
China has budgeted ¥10 billion ($1.47 billion) to support new energy vehicles, but many details remain unknown.
“The government has been talking about subsidies,” said Chen Quanshi, professor at Tsinghua University and a proponent of electric cars since 1991. At the 2009 Presidents’ Forum and CBU/CAR‘s 14th Annual International Conference, he said, “There was lots of debate at a policy making session in December. There were voices asking how much hybrid would qualify? What is a hybrid? No consensus was achieved.”
China made 24 million electric bicycles and scooters last year, he said, and the government has adopted standards for them, but they have not yet been implemented.
Although implementation often follows long after adoption of policies and standards in China, while internal political differences get worked out, the policies tend to establish the direction in which the country will move.
The objective of the policy for alternative energy cars is to enable Chinese carmakers to enter foreign major markets, said Huang Younghe, director of automotive industry policy research at CATARC.
Current policy pushes existing carmakers to make hybrids, plug-in hybrids and electric vehicles, he said. In Europe and North America, new companies like Venturi and Tesla are trying to break into the auto business with electric cars, but in China, said Huang, “We do not encourage new manufacturers.”
To foster the new market, China launched specific policy guidelines to encourage market acceptance of new energy vehicles, which include tax reduction, government financed pilot projects, customer incentives, local government incentives, long-term infrastructure planning and fiscal support for OEMs and suppliers.
The question of consumer subsidies is an example of the delay between policy and implementation. The policy was to give preferential treatment to people who buy new energy cars, and what that means “is to reduce price differences with regular vehicles,” said Huang.
Details of consumer subsidy are still being worked out, he said, but “we believe the policy will take shape by the end of this year.”
The Foton New Energy Vehicle Center is typical of Chinese companies reacting to fuzzy policies.
“The policy has been made available only recently, and details have not been put together,” said Li Feng, deputy director of the company. “I think the government is very committed to such directions.
“In Beijing we have no subsidies from the local government, but a customer who owns a private bus fleet is confident that electric buses have a very good future, and in the future he will probably be eligible for local government subsidies.”
Foton has a prototype electric garbage truck in operation in Beijing on a demonstration basis.
“I do believe it will commercialize in the immediate future,” said Li. “We are looking at Beijing and other cities for deployment.
“But right now we are hearing two voices. Some people talk about full commercialization, some talk about step by step arrival on a demonstration basis. The future is unclear.”
While the question of what is a hybrid and how subsidizes should be structured remains undecided, “the government needs to subsidize corporate owners of new energy vehicles,” said Huang. “On the end user side the United States provides tax incentives for Prius buyers. I believe the Chinese government will do the same, with a reduced tax for buyers.”
Government support for alternative energy is needed in China, as elsewhere, because the market would not push for environmentally friendly cars until petroleum becomes too expensive, and that could be too late for the planet.
Wang Cheng, analyst for the non-government agency iCET, is lobbying both the government and consumers to push for more efficient cars. Besides proposing government policy, it is establishing a database that rates cars on an environmental basis, to encourage consumers to choose greener cars.
China’s current goal for fuel economy, he said, is 6.8 liters/100 km. In 2006, the average fuel consumption of 4.68 million vehicles sold was 7.95 l/100 km, and in 2007 the average for 5.53 million was a little worse, at 8.04 liters/100 km.
“In the future, the market will be for very small cars,” said Frank Zhao, chief technical officer at Geely Group. “But right now, people in China want to buy big cars, to show that they are rich.”
The strong central government has tremendous power to insist on change, although like any government anywhere, it needs the tacit support of the people to survive.
Thus, said Professor Chen, it is not possible to simply require that new delivery vehicles in central cities be electric powered, for example.
“In 1991 when I started the study of electric vehicles, I studied the logistics in Beijing. Logistics is a cost sensitive sector. Unless the cost of transportation is low enough, it is impossible to compete. Government support is necessary and we should encourage it.”
Nonetheless, there are some non-cash incentives that could encourage logistics companies to pay more for an electric vehicle. In China’s medium to large cities where daytime deliveries are now prohibited, said Huang, “zero emission light trucks should have 24 hours accessibility to city center locations.”
Government policy is concentrating on public transport for experiments in hybrid, electric and fuel cell buses, because “the range is longer and drivers are more skilled,” said Chen.
And in individual cities, he said, governments are “targeting consumers with a higher spending power. … If you pick Beijing, it is easy to expand the market because congestion is already a major bottleneck.”
Beijing invested a lot of money last year in clean vehicles for the Olympics, and Shanghai will do the same in 2010 and put on a good face for the World Expo. Other cities have launched plans to support electric vehicles.
Wuhan and Hong Kong have signed agreements with Renault-Nissan Alliance to promote electric vehicles, and Shenzhen, the home of BYD Auto, is using money gathered by fines levied against polluting enterprises to support electric vehicles. And Renault-Nissan signed a deal with the Chinese Ministry of Industry and Information Technology to provide electric cars to a pilot program in 13 cities.
Internationally, the situation is no different.
In Europe, said Dominik Declercq, China representative of ACEA, the European Union wants to reduce CO2 emissions to 95 g/km by 2020, and achieving that level, some cars have to be driving with alternative energy technologies.
“Government support is needed,” he said. “Financial flows must be liberated for investment for the future, not just to prop up current operations. For the long-term targets, we will never get there without government commitment.
“Industry must invest in new technologies, government must invest in infrastructure. That requires government to give us direction. Technology alone will make vehicles unaffordable.”
The Chevrolet Volt, a plug-in hybrid that will go on sale in the United States late in 2010 and in China in 2011, will cost “an estimated $40,000 per vehicle to be produced,” said Neil De Koker, president and CEO of OESA in the U.S. “It will require a tremendous subsidy to sell such cars at higher volumes.”
Different states in the U.S. have always offered incentives to automotive suppliers and automakers setting up factories, in order to encourage local employment. Michigan, which is losing jobs rapidly with the declining production of the Detroit automakers, has been aggressively pursuing the next-generation of the auto industry by encouraging battery manufacturing.
“Battery development is a very significant issue,” said De Koker, and four battery companies have reached agreements to settle there.
The Johnson Controls-Saft joint venture will make lithium-ion batteries for Ford Motor Co. General Motors will make batteries for its Volt, and two other companies with unannounced production plans will construct plants there.