The Future of the Electric Car in China

A recent New York Times article reporting that a Warren Buffett controlled company will pay 1.8 billion Hong Kong dollars for a 9.89% share of BYD Automotive, the Chinese battery and car manufacturer that plans to sell electric-powered cars in the United States, puts a spotlights on electric vehicles (EVs) and infrastructure in China.

Though attention is now focused on BYD Automotive, there are several other Chinese car companies that are also developing EVs as a result of the technical, legal and physical infrastructure to support alternative fuel vehicles that is currently being put in place. Though there are only a relative few EVs on the streets of a few large cities, the Chinese EV is gaining traction in terms of research and development. In addition to BYD Automotive, the following companies have a gained a foothold in the Chinese electric car industry: the Wanxiang Group, Wuhan Dongfeng, Tianjin Qingquan and Anhui Qirui.

Research and Development Driven by Policy Frameworks

The Chinese EV industry is making progress improving the performance of electric cars. Recently the range of the Wanxiang Group’s electric car has increased from a claimed 280 km just one year ago to a claimed range of 380 km today. Slightly behind that range, BYD Automotive is now developing an all-EV with a claimed range of 200 km and the company recently unveiled its F3 EV, with a claimed range of 350 km. The company is also planning to release a hybrid vehicle whose electric battery is said to have a range of 100 km.

As is true of most emerging industries in China, the development of the Chinese EV industry has been given impetus by the evolution of a policy framework. The “863” (Energy Conservation and Alternative Energy Vehicle Significant Projects) initiative, which was launched by the Ministry of Science and Technology in early 2007, has encouraged electric vehicle R&D by universities, research institutes and companies. Then in November of that year the government crafted regulations that, among other things, created an application, examination and permit system for companies interested in manufacturing electric cars. The government has also has issued a draft of technical standards for the EV manufacturing industry that will be released as early as the end of 2008.

Shortly after the launch of the “863” initiative, in December 2007, Beijing added alternative energy vehicles to the list of “encouraged” industries and proposed helping to foster the development of charging stations for the first time.

Most recently, at an August 2008 summit meeting focusing on electric cars, Wan Gang, the Chairman of the Ministry of Science and Technology indicated that over a three-year period the Ministry of Science and Technology would develop a large-scale demonstration project in 10 or more cities to put 1,000 hybrid, fuel-cell and all-electric vehicles on the road in each of those cities and provide the necessary infrastructure for the project.

In the absence of nationwide rules that permit the registration of EVs certain cities in China, including Binzhou and Liaocheng in Shandong Province and Hefei, Anhui Province, have developed their own policies that have allowed a limited number of EVs to be used in those locations. Local regulations governing such matters as the registration of EVs, tax rebates and direct financial subsidies are springing up throughout China.

To date, the Chinese government has invested at least 800 million Yuan [US $118 million] in the development of a Chinese EV industry.

State-Ownership of Businesses Is Helping To Grow the Industry

As is true of other renewable energy inudstries we have written about, the role of large state-owned enterprises is helping to catalyze the development of this emerging Chinese EV industry. In June 2007 the State Power Grid Corporation issued a plan that provided for the conversion of a certain number of public transportation vehicles, taxis, waste disposal trucks, etc. to EVs on a trial basis in certain cities and provinces. The plan also included the development of charging stations.

The goal of the plan is to have 4200 electric public transportation vehicles and 535 taxis in its coverage area.

Automotive companies such as BYD Automotive and the Wanxiang Group, who have invested many hundreds of millions of Yuan in the development of an electric car, have advocated that the State Power Grid Corporation speed up its construction of charging stations and the organization has responded favorably.

With an average cost of 250,000 to 300,000 Yuan for each EV charging station, in order for the State Power Grid Corporation to develop a nationwide network of charging stations, the company will need to receive further authority from the NDRC.

Recently certain experts from the Chinese car industry sent a letter to Premier Wen Jiabao suggesting that the central government provide special support and establish preferential policies with respect to electric cars. Their suggestions included establishing differential subsidies for electric-powered vehicles and having government ministries preferentially purchase EVs to encourage the development of the industry.

The experts also suggested that the government research the feasibility of reducing taxes for both electric car manufacturers and consumers. Other suggestions included the development of industry standards and construction of 220-volt charging station power outlets to create a quick-charge network.

Manufacturers Looking at Export Possibilities

Chinese EV manufacturers already are eying the export market for their cars. At the end of last month, the Italian company IDB Group announced that it had entered into an agreement with BYD Automotive for IDB to sell and service BYD cars in Italy. To this end the Technical Subcommittee of the China Electric Vehicle Association is participating in the development of international fuel-cell EV safety standards.

With Chinese automakers on track to build 10 million cars per year in the foreseeable future, the EV industry is not even a footnote in production statistics.

But recognizing that the flood of internal combustion vehicles currently being manufactured and sold in China will continue to exacerbate China’s environmental degradation and dependence on imported oil, the Chinese have shown a willingness to embrace the EV, an eagerness to develop an indigenous EV industry, a desire to migrate to the EV and the capacity to make incremental improvements in the manufacturing process that will bring down costs in this industry as has been done in countless other industries in China.

Continued breakthroughs in the development of battery technology, however, will be a key factor in determining the future of EVs in China and in this regard it is likely that the Chinese will rely on the innovation of the West.

Lou Schwartz is president of China Strategies LLC, and publisher of the China Renewable Energy and Sustainable Development Report and the China Aluminum Industry Report. He has degrees in East Asian Studies from the University of Michigan and Harvard University where he studied Chinese language and literature, economics and law, among other disciplines. Lou also earned a J.D. from George Washington University Law School.

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Lou Schwartz is a lawyer and China specialist whose firm, China Strategies, LLC, focuses on the environmental and renewable energy sectors in China and provides its clients a range of support, including research and analysis, due diligence, merger and acquisition, private equity investment, compliance and data security. Lou has written and lectured widely about China and has taught law and development in China at the university level.

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