Despite New Incentives, Chinese Electric Car Market Sputters

GM showed the EN-V concept electric vehicle at the Expo in China in 2010. Now, GM is working on a second generation that will include climate control and personal storage space. Meanwhile, the market for electric vehicles in China is still tiny.

In yet another attempt to jumpstart the sale of battery electric vehicles in China, the government has waived the sales tax on domestically-produced battery-electric and fuel cell vehicles, according to a December 31 announcement on the Ministry of Finance website.

The problem is a lack of battery-electric vehicles and fuel-cell vehicles available for consumers to purchase in China. Even if there was availability, “the tax waiver will have a minimal impact on new energy vehicle sales in China,” Paul Gao, a partner with McKinsey & Co. in Shanghai, told PluginCars.com via email.

China has been touted as a leader in promotion of “new energy vehicles or NEVs,” a term which refers to battery-electric, fuel cell, and plug-in hybrid electric vehicles. But its ambitious plans to grow the sector have run into roadblocks, including lack of technology and Chinese consumers’ unwillingness to buy the vehicles even when they are available. BYD sold only 309 of its e6 battery electric vehicles in the first 11 months of 2011, according to LMC Automotive. While BYD said it had few to offer consumers because of a commitment to provide taxis to the university games held in Shenzhen last year, McKinsey’s Gao said, “The main price barriers are price and perceived lack of technology maturity and infrastructure readiness.”

BYD e6 Taxis

In 2010, China announced it aimed to have 1 million new energy vehicles on the road by 2015—a goal also promoted by President Obama for the EV market in the United States. In recent months, however, China’s leaders have admitted that target was too ambitious, because of the immaturity of battery technology and other barriers. Now, the near-term focus is on hybrids and plug-in hybrid electric vehicles—two areas with a slightly more mature technology.

A sales tax break is not the only incentive the government has thrown at consumers to encourage them to buy new energy vehicles. Subsidies of up to 120,000 yuan (US $18,900) have also failed to attract buyers. Those subsidies—and the sales tax waiver—are applicable only to vehicles that are actually produced in China. Nudged by the government, most of China’s dozens of domestic automakers have announced plans to produce some kind of new energy vehicle though few have actually started production.

Among foreign automakers, General Motors has announced it will develop an electric vehicle with its Chinese partner SAIC. GM also recently announced it is developing a second generation of its EN-V concept, a pod-like two-seater electric vehicle that the company calls “electric urban mobility.” Volkswagen said it may produce several electric vehicles in China starting in late 2013. Ford has also said it may produce electric vehicles with its partner in China.

A 2011 study by market research firm Synovate Motoresearch found that besides concerns about the high price and availability of charging, Chinese consumers worried about replacement parts being too expensive. McKinsey’s Gao added still another concern: “Plus, there is not an established used car market for NEVs, and no ordinary consumer would like to buy something that may depreciate rapidly in value given how fast technology changes.”