Will China Succeed with an Electric Car Technology Grab?

By · May 16, 2011

Chevy Volt production line

China is subsidizing electric vehicles, but GM's Volt doesn't apply because it isn't made in China and so GM isn't providing technology China needs.

If Chinese companies are so strong in electric vehicle technology, why does a draft policy currently in circulation appear to be yet another attempt by the Chinese government to coerce foreign companies to transfer vital technology to Chinese partners? Because Chinese companies still lack vital electric vehicle technologies, of course. But the impact of the policy is unlikely to be as draconian as some reports suggest.

First, it's a bit unclear if the policy actually mandates that a foreign firm wanting to be part of China's electric vehicle sector must transfer technology. The draft policy, jointly issued by the National Development and Reform Commission and the Ministry of Commerce, is a revision to the Guiding Catalog for Foreign Invested Industries. The section that is giving foreign automakers and suppliers indigestion refers to joint ventures that are no more than 50 percent foreign-owned, and producing key electric vehicle components such as battery management systems, engine management systems, and electric vehicle control units.

Here's where the tricky part comes in. The policy says the guidelines aim to “encourage” foreign investment in these areas. How to read that? Does it mean that only the 50 percent locally-owned joint ventures will be encouraged with preferential tax treatment, as some have suggested to me? Or should the word encourage be interpreted to mean the government is mandating that any foreign company that wants to produce these components in China has to form a 50-50 joint venture and hand technology to a local partner?

Produce or Perish, In China

China is already discriminating against foreign firms where subsidies for electric vehicle purchases are concerned. GM told me several months ago that the Volt doesn't qualify for government subsidies because it is not produced in China. But GM already shares technology with its partner SAIC. Kevin Wale, president of GM China, said recently the two would cooperate on developing an electric vehicle architecture that is appropriate—that is, cheaper—for China. So GM wasn't planning to localize Volt production anyway. It is just using the car to prime the market for a future, cheaper model.

What about the Nissan LEAF, which will go on sale in China later this year? Last year, I asked Tsunehiko Nakagawa, vice president of Nissan (China) Investment Co. Ltd., if Nissan would produce the LEAF in China, and if so, was it worried about having to give away its intellectual property?

Nakagawa told me that since Nissan has a 50/50 joint venture with Dongfeng Motor Co, technology transfer would occur if the LEAF was produced locally. That was a given. The real deciding factor for local production of the LEAF was the size of the market in China for electric vehicles, he said. And that was, and still is, unknown.

Nissan was concerned about the cost to build a battery plant in China, which would be necessary if the LEAF were to be produced locally. For a small market, such a large investment would be unwarranted. “Therefore the decision (to produce the LEAF locally) is quite difficult,” said Nakagawa.

Worrying for Nothing?

Foreign suppliers are also worried about the impact of the draft policy. Many suppliers have wholly-owned foreign enterprises in China. Some-such as Ener 1 Inc. of New York, which just formed a joint venture with Wanxiang EV-will willingly form joint ventures. Others, such as Delphi, already have wholly-owned companies in China producing components that go into EVs. The government is unlikely to force them into JVs. Companies looking to supply China's EV sector from new wholly-owned companies may face problems, however.

If China does intend to use the policy to get technology, will it be effective?
Let's use history as a guide. I was in China back in 2004 when the government released a draft of the revised auto industry policy. The section on fostering independent intellectual property rights development caused much consternation among foreign firms, as did the reference to development of independent brands. Did this mean foreign automakers would have to give their intellectual property rights to Chinese partners?

Eight years later, the policy has resulted in a flurry of local brand development by the joint ventures. But the local brands in most cases are using older platforms rather than transferring new technology to the Chinese partner. Foreign automakers haven't been forced to give away intellectual property.
Now let's look back to the beginning of foreign investment in China's auto industry. Aiming to extract technology from foreign brands that would allow Chinese automakers to be more competitive, China mandated that no Sino-foreign joint venture that sold cars in China could be more than 50 percent owned by the foreign partner. Did that result in the massive transfer of technology to Chinese companies? No.

So, even if the new policy does mandate tech transfer, history suggests it is unlikely to succeed.


· · 7 years ago

Sounds like things haven't changed a lot in China since 1995 when I was last time more involved with that market. Joint ventures are still the name of the game. Thanks for your expert perspective Alysha.

· · 7 years ago

Well, nobody is forcing foreign companies to sell in China. If they want a piece of the action, they will have to pay a price.

· Priusmaniac (not verified) · 7 years ago

I don't know if this is really moraly sound to suggest that China is trying to aquire EV technology from foreign companies when we know that Exxon is still sitting on the NiMH battery pattent until 2014 and doing just nothing with it. People should know that the Prius wouldn't be arround if there hadden't been a battle between Exxon and Panasonic. The so called secret agreament ended up in a stale mate situation where Exxon wouldn't have accec to directional drills if it wouldn't allow the Prius to go on. The RAV4 EV, had to go though. From that experiment it would be good for EV's to have more countries having free knowledge of EV technology, this include China.

· · 7 years ago

Well I think China will succeed in a technology grab because the history outside of auto suggests that it will. A tech-sharing mandate wasn't ever part of the deals China made with the telecom industry, yet companies like Huawei + ZTE had no problem stealing tech from companies like Cisco and Motorola. To make things worse their government then subsidized those companies to the point in which they could give their products away for next to nothing.

So unless there is something special about the auto industry that this article doesn't mention, I'm actually convinced that history will repeat itself and cheaper versions of EV's will be exported from China. This might be good for EV's in general for the short term but overall I think it will contribute to ICE's having a larger market share over time.

· Rider I (not verified) · 7 years ago

I think your article is wrong. There are more evidentiary facts showing that the forced joint ventures have seriously affected our countries.

Rider I

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