The 40b yuan cost of new emission rule
Upgrade may force small carmakers out of business as Beijing becomes the first mainland city to ban registration of non-compliant vehicles
Stringent new emission standards that will be imposed on mainland carmakers from March 1 may cost the industry about 40 billion yuan (HK$49.28 billion), but well-prepared manufacturers say that for them, it is as much about opportunity as extra costs.
From the beginning of next month, Beijing will become the first city in the world's largest car market to ban registration of petrol vehicles that fall below the new National V emission standard.
Earlier this month, the State Council said the new requirement would be extended to the whole nation by 2017.
The undertaking came after various parts of northern China were blanketed in thick smog that prompted renewed calls for the adoption of cleaner fuel and vehicles.
Copied directly from Euro V emission standards, the new standard requires that the sulphur content of fuel should be no more than 10 parts per million (ppm), five times more stringent than the National IV standard of 50 ppm and 15 times the National III standard of 150 ppm, which are still widely followed at present.
While the technology required for the upgrade posed few challenges to carmakers, especially European and Japanese manufacturers that have long been under stringent emission controls at home, analysts said the extra costs involved, estimated at 2,000 yuan per car, would pose a bigger burden for local brands than their foreign counterparts.
"While a cost increase of 2,000 yuan is meagre for a European car that sells for more than 300,000 yuan, it is a much bigger sum for a domestic car that sells for 100,000 yuan or less," said John Zeng, an analyst with global vehicle-industry consultancy LMC Automotive.
According to a list of car models compliant with the BJ V emission standard from Beijing's Environmental Protection Bureau, 33 per cent are imported models and 40 per cent locally made foreign models. Only 27 per cent are local models.
But Geely Automobile's executive director Lawrence Ang said the mainland carmaker was much more prepared for the upgrade this time than when the Pearl River Delta and major cities like Beijing and Shanghai raised their emission standards to National IV from National III.
"Now most of our cars are priced in the area of 100,000 yuan. That makes the additional costs of 2,000 yuan per car much less significant than the last upgrade when most of our cars were priced at around 30,000 yuan," he said.
Some of Geely's most popular models, such as its sport utility vehicle EC7, already met the new emission standard, Ang said, and the company would not pass the extra costs incurred by research and development as well as accreditation of the new models directly on to buyers.
"It's impossible to increase the price of your products simply because you upgrade their emission standards," he said. "But if you also upgrade the design of your cars or use leather instead of [cloth] seats, then it is alright for you to raise prices. In fact, the increment may more than cover our expenses on the upgrade."
In a guideline issued last Monday on future fuel efficiency requirements for combustion engines, the State Council said it would study options such as offering tax waivers or subsidies to enterprises that could achieve the target before the deadline.
While all major carmakers are ready for the change, Shanghai-based analyst Yale Zhang Yu said the upgrade could squeeze a few small domestic carmakers out of business.
"Small domestic brands that sell only a few thousand cars per year have neither the scale nor resources to develop new cleaner models and absorb the additional costs," Zhang said.
It is not just small carmakers that may feel the pinch of meeting the new standard. The Beijing showrooms of foreign-car dealers that still depend on imports may be empty for a few months until their new compliant models arrive.
"The new models have to gain accreditation from relevant authorities," said Renault China's managing director Robert Chan. "We also have to launch a new publicity campaign and clear our old stock. It all takes time."
The upgrade was made known to the car industry about two years ago, but it was only October last year that Beijing gave a date from which the new measure would take effect.