If China Government Doesn’t Clarify Support for EVs, Market Won’t Grow

By · June 24, 2011

BYD Taxi Fleet

Subsidized fleet sales are where many see opportunity in China, but it's not clear how long government support for will last.

China has audaciously proclaimed that it will be the largest market for electric vehicles by 2020. That might happen, but it won’t get there without clarifying what kind of government support the market for new energy vehicles will get over the long term. And it hasn’t done that yet.

Government support for the sector is crucial at this early stage. The technology is new, and consumer acceptance is uncertain. That is especially true in China, where a majority of consumers are first-time car buyers, and the pool of “green” consumers is tiny. Chinese buyers will buy a new energy vehicle—the name used in China for alternative powertrain cars—if they think it will pay off for them.

Many of China’s automakers may have proclaimed that they are producing hybrid, electric, or other new energy vehicles. But most have only produced a prototype. Without clear market acceptance, a growing infrastructure to support EVs, and most importantly a clear indication of what kind of support they will get from the government, automakers in China are reluctant to do more than dip their toes in the NEV sea, much less jump in.

To be sure, China has some supportive policies in place. In five cities nationwide, buyers of battery electric or plug-in hybrid electric vehicles can receive subsidies of 60,000 RMB and 50,000 RMB respectively.

But the money goes to the auto manufacturers, not directly to the consumer. Just as there is a call for the $7,500 tax break in the U.S. to become an immediate rebate, there is a call in China for the subsidy to go directly to the consumer. Additionally, the China rebate is only offered for vehicles produced in China. So, the Nissan Leaf and Chevy Volt, both of which are sold in China as imports, are not eligible.

There is also confusion about what technologies qualify for the rebates. Battery electric vehicles were initially a government favorite. But battery technology is immature. So it seems that plug-in hybrid electric vehicles are now catching the government’s eye. But, Chinese companies don’t have world-class PHEV technology, and U.S.-based companies trying to market their PHEV technology to China are unclear exactly how the Chinese government will define PHEVs. That makes them reluctant to enter the market.

Fleet sales are where many see opportunity in China. They are also getting a boost from the government. In 25 cities, governments receive 3,000 RMB per kWh for buses and other fleet vehicles that are battery electric or plug-in hybrid electric. But, it is not clear how long this policy will be in place, either.

Bridging the Technology Gap

China still aims to be a big player in the battery electric vehicle sector. But is the government willing to support BEVs until battery technology matures? Without some reassurances, the big investments needed to advance batteries won’t happen.

In fact, Chinese firms don’t have some of the key technologies needed to produce electric vehicles. And without a clear indication of government support, they won’t invest in those technologies and so will fall farther behind.
China’s government is aware that China is behind in three crucial EV technologies—battery management systems, engine management systems, and electric vehicle control systems. Why else would it have floated a draft policy that would may require any foreign company producing those three components in China to form a 50/50 joint venture?

The wording of the policy is unclear—it may mean that only 50/50 JVs will receive preferential treatment. That’s typical—the Chinese government often floats vaguely-worded draft policies for comment. And foreign companies are commenting plenty on this policy, I know. So I think it is unlikely to be enacted. Nonetheless, it is a clear indication the government recognizes China will have a hard time becoming an EV powerhouse on its own.

A recent study by consultancy BCG predicted that China and Europe, not the U.S., will be the largest markets for electric vehicles in 2020. Government subsidies will be key to the development of China and Europe’s EV markets, said BCG. Well, unless China’s government is more clear on its support, perhaps the U.S. still has a chance.

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