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Carmakers unveil electric ambitions for China despite subsidy cuts

Chinese and international brands eagerly unveil their latest electric vehicles on day one of Auto Shanghai 2017

PUBLISHED : Saturday, 22 April, 2017, 12:31pm
UPDATED : Saturday, 22 April, 2017, 12:31pm

The atmosphere at Shanghai’s annual motor show is always electric.

But this year, that statement has taken on extra meaning as carmakers unveil aggressive plans to boost their electric car offerings in China.

Even as policymakers drastically cut subsidies for new energy vehicles – a move guaranteed to intensify competition in an already crowded market – local and international brands eagerly unveiled their latest electric and hybrid models on the opening day of Auto Shanghai 2017.

China has already overtaken the US to become the world’s biggest electric car market, thanks to central government policies favouring new energy vehicles – in particular, generous industry subsidies over the past four years.

The grants, which are applicable to all-electric and plug-in hybrid vehicles, were reduced by 20 per cent at the start of this year and are set to be phased out altogether by 2020.

That hasn’t stopped car manufacturers diverting more and more of their resources into electric car development, although market watchers expressed concerns over falling sales and rising competition.

Hangzhou-based Changjiang EV, the flagship brand under FDG Electric Vehicles – in which Hong Kong tycoon Li Ka-shing owns a stake – entered the arena last year with a focus on electric vans and buses. It showcased its first all-electric passenger car at the Shanghai motoring extravaganza on Wednesday.

“The penetration rate of new energy vehicles in China is only 2 per cent, while all-electric cars are below 1 per cent. They will squeeze the gasoline vehicles market in the future,” said Jiang Anning, vice president of Hangzhou Changjiang Auto.

The government is still aggressively promoting electrification with new beneficial policies because air pollution is so serious
Jiang Anning, vice president, Changjiang Auto

“The subsidies will be cancelled in 2020 anyway, but the government is still aggressively promoting electrification with new beneficial policies because air pollution is so serious,” Jiang added, citing the carbon credit scheme and rules limiting corporate fuel consumption.

Hybrid Kinetic Group, a Hong Kong-based producer of lithium-ion batteries and hybrid vehicles, showcased two SUVs and a sedan concept at the show.

The company is aiming to establish car assembly facilities across mainland China, with an initial production capacity of 300,000 units for the models on display within three years.

Under the subsidy scheme, a conventional vehicle installed with new energy batteries would receive up to 100,000 yuan (US$15,000). The scheme undoubtedly helped China surpass the US in electric car sales in 2015 after selling 25 million units. That number grew to 28 million last year.

The gradual elimination of the grants is designed to drive competition in research and development as well as to eliminate an epidemic of subsidy fraud in which manufacturers were padding out their sales or creating fake new energy cars to qualify for the payments.

The policy change is not expected to hit the market too hard, although sales of new energy cars in China plummeted in January before rebounding. A total of 31,120 fully electric cars and hybrids were sold in China in March, a 35.6 per cent jump from a year ago.

Meanwhile, at least five global brands are adding electric cars to their lineups in China to accommodate Beijing’s push for clean energy vehicles.

Detroit-based Ford this month said it would start building electric cars in the mainland, with a goal to roll out an all-electric small SUV within five years.

Honda said it would launch its first electric model for the China market next year. The Japanese automaker is also planning to debut a plug-in hybrid in 2018, two years ahead of schedule.

“Honda has made a significant shift in direction,” and is expediting the development of electric vehicles as the world is pursuing electrification much “faster than expected”, president and CEO Takahiro Hachigo told reporters at the Shanghai show.

Even Toyota, which had long resisted full electrification, made a U-turn in strategy to go full blast into all-electric battery cars.

The carmaker set up its EV Business Planning Department in December. In a pre-show event this week, senior manager Hiroji Onishi said they were looking into the “specifics for the development and introduction of a new EV in the Chinese market”, but did not give a clear timeline.

Although the electric car is widely expected to subvert the auto market, it faces several hurdles before becoming a mainstream choice among Chinese motorists. There are concerns over the high cost of batteries, the distance the vehicles can travel on a single charge and the as yet limited network of charging stations.

Arthur Wang, McKinsey’s partner for the automotive industry, expects the expensive batteries will continue to hinder electric cars’ profitability over the next two or three product life cycles.

China has set a target to get 5 million hybrids and electric vehicles on the road by 2020.

“We home-grown brands must hurry up developing electric cars to grab market share before foreign brands seriously enter this field,” Changjiang’s Jiang said.