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The reality of electric cars in China

Everyone is excited about the potential for electric cars in China — except the companies actually making cars in China!

At the Detroit Auto Show in January of this year, Tesla announced its plans to open a dealership in Beijing — its first store in China. George Blankenship, the company’s vice president of worldwide sales, said the store will house an 8,000-square-foot facility, much larger than its U.S. stores, which typically have 2,500 to 3,000 square feet of floor space. “The China market is incredibly important to us,” Blankenship said. “We think our timing is perfect.”

At the Shanghai Auto Show in April, Detroit Electric, the rejuvenated automaker aiming to build a line of limited electric sports cars, announced that it had teamed up with China-based Geely Automobile Group to develop electric vehicles and related motors and drive trains for the Chinese market.

Like Tesla and Detroit Electric, many officials in the Chinese government would also like to see more electric vehicles in China. Much has been made out of the fact that Wan Gang, China’s Minister of Science and Technology who has championed the research and development of new energy vehicles for decades, promoted the new industry during this year’s annual legislative session. To show his support for electric vehicles, Wan abandoned his official sedan and took a small electric car instead as a commuter vehicle. The silver electric vehicle, with a slogan “zero-pollution, zero-emission” posted on the car body, carried Wan back and forth between the conference venue, his office and the media center.

From outside China looking in, it seems quite logical that China should embrace electric vehicles. Major cities like Beijing are struggling under crippling air pollution, and Beijing is only the 17th-most polluted city in the country. China also is importing oil, and energy demand continues to grow. Anything that can be done to reduce oil consumption ought to gain traction, it is thought. Finally, periodic statements by high ranking officials like Wan seem to demonstrate a high degree of government support for the electric vehicle industry.

However, the reality on the ground in China is quite different. At the end of March, there were only 39,800 electric vehicles on the road in the country, 80 percent of which were used for public transportation. Moreover, recent meetings that we have had with most of China’s local car assemblers confirm that none are counting on electric vehicles for any meaningful amount of growth anytime soon. While all of the local assemblers maintain electric vehicle programs to show the government, none are devoting any significant amount of resources to these programs. When one looks below the surface, support for electric vehicles is lukewarm at best — even at those Chinese assemblers that seem to be devoting resources to the sector.

Despite Geely’s cooperation with Detroit Electric, for example, Li Shufu, the company’s founder and chairman, told a press conference during the Chinese People’s Political Consultative Conference in Beijing in March that low-speed electric vehicles are the way to go for Chinese cities. Li believes that China should give priority to the development of low-speed electric vehicles due to practical considerations. He said: “Low-speed electric vehicles have many advantages. They are suitable for short driving ranges… This type of electric vehicle can be designed to be very small and lightweight, incorporating a smaller battery, which has a reduced battery pack capacity that saves more energy.” Obviously, Li’s vision for the electric vehicle industry, which we confirmed recently in conversations with other senior officials at the company, is quite different than that held by either Tesla or Detroit Electric.

BYD , the poster child for electric vehicles in China, is also de-emphasizing electric vehicles. In recent discussions, the company said it is focusing on the development of hybrid vehicles, rather than pure electrics. In BYD’s opinion, the future development of electric vehicles is too dependent upon local government policies, which are inherently unpredictable.

When Western observers analyze China, they often pay too much attention to statements by government officials and tend to forget that the government itself does not produce vehicles. While the Chinese government does own companies that do, even the most loyal executive at a state-owned enterprise (SOE) will not devote substantial resources to develop a product that cannot be sold in the marketplace. It’s nice for government officials to talk about how they would like to see an industry develop. It’s quite another for an executive at an SOE or a private company to stake his or her career on a new product, unless there is a clear market for the product. Moreover, China is a complicated country with many different factions. While Wan may represent the faction that favors electric vehicles, other factions may not be so sure that this is the way for China to go.

Even ardent supporters like Wan recognize the difficulties that lie ahead for electric vehicles. At his press conference, Wan indicated that, besides the subsidies to private buyers of new energy vehicles, a more coordinated development will be needed in the long run and “such coordinated development needs a combination of charging facilities, environmental protection measures, industrial development policies and efforts from the power sectors.” In its efforts to increase the number of electric vehicles on its roads over the next five years, Wan also said that government subsidies are only “short-term solutions,” and that the industry can only be sustained and expanded by raising technology levels and lowering costs.

Due to their intellectual appeal, hype for electric vehicles has always gotten ahead of the realities of market demand. In China, this is once again proving to be true.

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