Reading Chinese Tea Leaves: 20,000 EV Sales, or Maybe Not

By · July 18, 2012

Kandi EV

Some 20,000 of these small Kandi Technologies' electrics could soon be on the road in Hangzhou. But maybe it will take longer. (Kandi photo)

Chinese electric vehicle sales will either rapidly overtake the U.S. because of government will, infrastructure development and lucrative subsidies, or—frankly—they won’t. And reading the Chinese tea leaves isn’t that easy. But the news from China can be exciting!

The Big Order!

Case in point, a report that little-known Chinese EV maker Kandi Technologies is preparing to lease 20,000 electric vehicles to the city of Hangzhou. An article in Forbes describes it as “the largest EV sale ever announced” and “effectively the largest scale trial of the use of EV batteries for vehicle to grid (V2G).” Wow.

But is it actually going to happen? I heard about all this from Art Porcari, who is a shareholder in Kandi. The value of investment in the company is hotly debated, especially in Seeking Alpha. Porcari seems to think it’s a small-dunk. “With a Hangzhou population of 11 million,” he told me, “does anyone really think there is any risk that 20,000 prospective lessors at $126 a month, free battery exchanges included, will not be found?” He said the company’s market cap has increased $23 million since the news first leaked out. He pointed out that Tesla Motors recently increased its market cap by almost $200 million “on no news.” So are the checkbooks coming out?

In Kandi’s July 16 announcement, the company said the locally based State Grid would work with Kandi and China Aviation Lithium Battery Company to “produce automobile-use lithium batteries and purchase 20,000 electric vehicles for personal leasing.” The State Grid is responsible for building a charging network, the release said, and the Hangzhou municipal government will provide financial subsidies for consumers to make low-cost leases possible.

Raising Doubts

That all seems plausible enough, but other Seeking Alpha posts cast Kandi as a risky prospect for investors. The 20,000-car order, Andrew Cherna writes, “is not happening anytime soon. Instead, there will be a 100-vehicle pilot program.”

Indeed, a Chinese article from the First Financial Daily, translated none too clearly by Google, makes that point. “The source said the plan Hangzhou electric car rental project will start in August, the most important 100 test run of electric cars.” According to the same source, the 20,000-car order will happen “within two years,” and “mainly for the working-class customers.”

So it doesn't look like there will be an immediate big lease sale. The article also quotes China Association of Automobile Manufacturers statistics that 10,202 “new energy” vehicles were sold in the first quarter of 2012, 1,830 of them pure electrics. Not yet a flood of plug-in cars in the world’s largest auto market, apparently, though all the pieces are in place for such a launch.

Chinese Sales Slow

Chinese car sales were very slow in the first quarter of 2012, though there was something of a rebound in June. After spectacular growth, it’s not the healthiest market right now.

Pike Research said early this month that China will fall well below its goal (enshrined in the five-year plan) of selling 500,000 plug-in cars by 2017. Pike thinks actual sales will be something over 152,000 by that year, less than one percent of total light-duty sales.

According to research director John Gartner, “The Chinese government initially overestimated consumer demand for electric vehicles, and has made adjustments to its incentive policies. Many members of the emerging middle and upper classes prefer imported vehicles with nameplates from the United States or Germany—especially larger sedans in which owners can sit comfortably while their drivers navigate China’s often-congested roads.”

Changing the Mandates

The incentives, Gartner, said, are being adjusted to be more favorable to hybrids and plug-in hybrids. Interestingly, that’s the same path followed by the California Air Resources Board, which—under industry pressure—canceled a tough mandate for 10 percent battery cars on the road by 2003. The bottom line, for investors and the rest of us, is that China’s path to electrification is no straight road. There will be speed bumps and obstacles, just as there are everywhere else.

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