Hybrid vehicles can rev up China's push for 'new energy' cars

Andreuw Gunawan says consumers aren't ready to embrace Beijing's push for battery-powered cars

PUBLISHED : Monday, 27 January, 2014, 3:21am
UPDATED : Monday, 27 January, 2014, 3:21am

With toxic smog reaching China's inland cities and pollution levels breaking records in Shanghai, it's clear why the government is pushing Chinese companies to develop fully electric battery-powered cars, with the goal of radically changing the market by 2020. It is offering purchase subsidies, tax exemptions and research and development incentives.

Other electric vehicles such as hybrids and plug-in hybrids enjoy government benefits too, but the Communist Party wants local and international companies to focus on developing battery-powered electric vehicles.

Some believe this is an effort to give domestic companies the chance to develop new technology in a highly globalised market dominated by foreign firms. As auto executives know, cars sold to Chinese consumers need to be produced from start to finish on Chinese soil.

By 2020, China's energy consumption is set to double, according to projections by Liu Zhenya, president of the State Grid Corporation. By then the number of private cars, the largest energy consumers and worst carbon-dioxide emitters, is projected to hit 200 million. In contrast, public transport - buses and taxis - account for over 80 per cent of the hybrid vehicle market.

With the number of first-time car buyers at unprecedented levels, and continuing to grow, now is the time to direct consumers towards green, or "new energy", vehicles.

China's 12th five-year plan aims to reduce energy consumption by 16 per cent.

The government launched a "10 Cities, Thousand Vehicles" programme in 2009 to support electric vehicle development by providing subsidies, a plan that was eventually extended to 25 pilot cities. Further, in 2012, the State Council announced plans to put 500,000 battery-powered vehicles and plug-in hybrids on the road by 2015.

Green vehicles have been divided into two categories: energy-saving vehicles and new- energy vehicles. The former, or those with biofuel engines and hybrid electric engines, receive purchase subsidies of only 3,000 yuan (HK$3,800). In contrast, buyers of plug-in hybrids are eligible for 35,000 yuan purchase subsidies, while battery-powered electric vehicles attract 60,000 yuan in subsidies.

Yet, even with such large subsidies and pressure from the government, car companies are struggling to make battery-powered vehicles attractive to Chinese consumers, who worry about performance, maintenance and access to recharging stations. Sales of domestically produced vehicles, such as the BYD e6, have been disappointing.

Chinese consumers are mainly shunning battery-powered vehicles because of fears about unreliable technology; in particular, the vehicles' poor range compared with regular cars and a lack of charging stations.

Companies responsible for designing infrastructure worry about meeting government targets by 2015 (2,000 charging stations). A vicious cycle is created in which consumers won't buy battery-powered cars because they can't charge them, and producers don't build charging stations because people won't buy electric cars.

But a third way exists. Hybrid vehicles, especially plug-in hybrid electric vehicles, could be a stop-gap measure to reaching government targets. Toyota and Nissan are working to localise production of their hybrid and plug-in hybrids. BYD , the Chinese car producer, is hoping to make up for 2012's low battery-powered vehicle sales following the launch last year of a new hybrid electric vehicle series.

The secretary general of the China Association of Automobile Manufacturers, Dong Yang, believes hybrid vehicles should be the "main technology" to promote energy saving and emission targets in the automotive sector.

Hybrids not only increase market demand and meet consumer requirements, but also buy producers more time because they work with existing infrastructure. They suit Chinese consumers in three major ways: price, efficiency and ease of use.

Much rests on how willing the government is to support hybrid electric vehicles as a transitional technology. It should encourage international companies to localise and compete with domestic companies. Subsidies could be tied to a vehicle's fuel efficiency instead of its type or engine.

The question is, would this be enough to substantially reduce China's energy consumption and reliance on oil? Without a doubt, citizens are already paying for its breakneck development with their health. The anger that existed over land seizures is now also directed at environmental pollution.

Without drastic changes and programmes such as the pilot carbon-tax initiative, the market will not meet the health needs of the people. At the same time, battery-powered electric vehicles will fail without the necessary time for improvements to the current infrastructure.

Andreuw Gunawan is a senior consultant at Solidiance, an Asia-focused marketing consultancy firm which has recently released a white paper titled "EV In China - Moving Forward but not as fast as expected"