BEIJING — China is mulling a policy to provide a subsidy for lithium batteries deployed in electric vehicles. This new favorable policy is expected to propel the development of the country’s electric vehicle sector. China has existing subsidy policies for the sector, but higher prices for the parts used in electric vehicles, in particular lithium batteries, prevent many consumers from purchasing the vehicles.
Japanese automakers, including Toyota and Honda, are planning to produce lithium batteries in China, in light of the proposed subsidy policy. Toyota is planning to produce hybrid power systems at its Changshu facility, while Honda is planning to produce such systems at a location in China.
Immature technologies and high manufacturing costs keep lithium battery prices elevated. Replacing the battery in the Nissan LEAF, for example, would cost $5,500, accounting for 25.6 percent of the vehicle’s price which starts at $21,480.
Despite the cost, China’s electric vehicle sector is seeing fast growth. In the first 9 months of 2014, the country produced and sold 38,500 and 38,200 electric vehicles, representing an increase of 2.9 times and 2.8 times year-on-year, respectively. Production and sales of pure electrics reached 22,700 and 22,300 units, respectively, while production and sales of plug-in hybrids topped 15,800 and 15,900 units, respectively.
In the first 10 months of 2014, the BYD Qin recorded sales of 11,200 units, with sales rising monthly, from 1,055 units in June to 1,316 in August and 1,702 in October. The Roewe 550 plug-in hybrid electric vehicle also witnessed a steady rise in monthly sales, from less than 100 units in June to nearly 300 in August and 354 in October.
German automakers are also accelerating their expansion into the Chinese electric vehicle market, as the two countries unify the specifications for charging ports. In September 2014, BMW officially launched its i3 and i8 electric vehicles in China, followed by the DENZA, a vehicle manufactured by the Daimler and BYD joint venture. Furthermore, Volkswagen is planning to launch 20 electric models into the Chinese market by 2018.
However, the subsidy policy is expected to exacerbate the overcapacity in China’s electric vehicle industry. In 2015, power lithium batteries will seize a 38 percent share of the entire lithium battery market. The share converts into a sufficient number of batteries for between 230,000 to 300,000 pure electric vehicles, according to an investment consulting firm. China’s production of pure electrics for passengers, plug-in hybrids and electrics for commercial use combined, however, only calls for lithium batteries for 120,000 vehicles, according to a report released by Frost & Sullivan. Some industry insiders are going as far as predicting that China’s subsidy policies may create an environment where the country’s lithium battery industry spins out of control.
China has been launching a series of subsidy policies for its electric vehicle industry since 2009, in turn, spurring investment in the production of lithium batteries. At present, the lithium battery industry has a planned capacity of 5 billion ampere-hours, almost four to five times the projected market demand over the next five years.
Lead image: Electric vehicle parking via Shutterstock