China's quota threat charges up electric car market

April 23, 2017 by Julien Girault
A DENZA EV car displayed at the Shanghai Auto Show on April 19, 2017. Major manufacturers are announcing plans to boost their electric vehicle offerings in China as the government considers a quota plan for producing 'new-energy' cars

China's electric-car market is already the world's biggest, but a government proposal to introduce "new energy" vehicle quotas for automakers is further charging it up.

With the threat of the measure looming, major manufacturers at the annual auto show in Shanghai are announcing big plans to boost their electric vehicle (EV) offerings in China.

Volvo has confirmed it will introduce its first 100-percent electric car in China in 2019, while Ford will market its first hybrid vehicle in early 2018 and envisions 70 percent of all Ford cars available in China will have electric options by 2025.

Industry players say the push could have a profound impact on the green-car sector, as resulting economies of scale bring down the costs of producing and buying such cars.

Chinese sales of "new energy" vehicles jumped 53 percent last year to 507,000 units, fuelled by government incentives.

Overall, a world-leading 24.38 million passenger cars were sold in China in 2016.

"Right now, the (EV) market has been driven by regulatory and government (subsidies)," admitted David Schoch, Ford's Asia-Pacific president.

"But we do believe that in the very near term, as we scale up more batteries, the cost will come down."

China has offered incentives for EV purchases to help fight chronic air pollution, but has begun scaling back those inducements this year, causing sales to stumble.

Instead, the government intends to force the hand of manufacturers.

An Audi e-tron Sportback concept car at the Shanghai Auto Show on April 20, 2017. China's electric-car market is already the world's biggest, but a government proposal that automakers produce a quota of 'new-energy' vehicles is further charging it up

A proposal published in September could require "green" vehicle production quotas as early as 2018, under a complex system of earned credits.

Gearing up

Market leader Volkswagen sold four million cars in China in 2016 but only a few hundred were "green". The German manufacturer now plans to begin production of an electric car in China next year, in a joint venture with Chinese group JAC.

VW expects to sell around 400,000 new-energy vehicles in China in 2020, said Jochem Heizmann, CEO of Volkswagen China.

The quota plans have brought some pushback, with German Chancellor Angela Merkel lobbying Chinese Premier Li Keqiang over the issue.

Chinese Industry Minister Miao Wei said in March that a reduction or deferral of the quotas was possible.

But automakers plan to get ready.

"We are fully, with all forces, working to be able to fulfil this quota system already next year," Heizmann said.

General Motors says it plans to launch at least 10 new energy vehicles in China, targeting 150,000 in annual sales by 2020.

"We have a pipeline ... that is going to put us in a very good position from a fuel-economy requirement perspective" that will enable GM to meet any EV rules, said Matt Tsien, head of GM China.

People visit the 'new-energy' vehicles area at the Shanghai Auto Show on April 19, 2017. With a quota threat looming, major manufacturers are announcing big plans to boost their electric vehicle (EV) offerings in China
Irreversible trend

The Chinese market is dominated by local manufacturers including sector pioneer BYD, which sold 96,000 EVs last year.

Despite the reduced subsidies, "the trend of electrification is irreversible," said BYD president Wang Chuanfu.

"We have reached the point where (economies of scale) in production will allow for more affordable prices," he said.

Most electric cars in China already sell for less than 250,000 yuan ($36,000) before subsidies, but they are typically models with a limited range.

"The market above 250,000 doesn't really exist yet," said Hubertus Troska, president of Mercedes China.

This has not stopped start-ups from challenging Tesla Motors in the limited niche for high-end EVs.

They include Qiantu, whose 700,000 yuan sports model will be marketed soon; Chehejia, founded by an entrepreneur dubbed the "Chinese Elon Musk"; and Nio, a brand by Chinese electric-car maker NextEV that has received investment from deep-pocketed Chinese IT giants Tencent and Lenovo.

"We feel that now in China, first- and second-tier cities have this need (for premium ), but it is yet to be satisfied," NextEV founder William Li told AFP, while also promising an electric car for the US market in 2020.

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not rated yet Apr 23, 2017
Thank you China: This decision could greatly speed up the availability of the affordable electric car:-
Firstly for the 'economies of scale' reasons mentioned in this article.
But also by reshaping the business plans of the ICE car manufacturers who are currently pushing electric cars as expensive ''added value gadget' models. (To recover their electric retooling costs quickly and pay off their depreciated ICE investments.)
This way the cost of electric cars will much sooner reflect their build costs.
Especially as a low unit cost forces them to adopt newer and newer technologies more quickly.
(Car manufacturers prefer technology inertia and older tech if its more profitable to keep it.)
1 / 5 (1) Apr 23, 2017
I remember when China was granted "Most Favored Nation" trading status with the USA in the early 1990s. The change was sold to Americans as the right way for the USA to leverage the USA consumer market into power to force China to change in order to sell here, despite China's tyrannical treatment of people and its devastating treatment of the environment (which make it cheaper to manufacture there).

Now China is using its market to force US manufacturers to provide more sustainable products, while the USA has never done any such thing.
5 / 5 (1) Apr 23, 2017
EyeNStein, yes, car makers prefer technological inertia but they are also, or should be, justifiably fearful that EVs will be less profitable than equivalent ICEs since they will be ultimately be a smaller market (cheaper to buy and last longer) than ICEs, with at least ½ the fuel costs, inherently more responsive and need far less maintenance (no oil changes, no exhaust system repairs and far fewer brake jobs) than ICEs. Also, autonomous vehicle technology may well enable "car as a service" which would further, perhaps drastically, reduce vehicle sales.
1 / 5 (6) Apr 23, 2017
Once people see how cheap it is to operate an EV they will take over.
not rated yet Apr 24, 2017
justifiably fearful that EVs will be less profitable
Indeed they will be, and for all the good reasons you listed.
But if ALL nations ICE car manufacturers are in the same situation at least its a level playing field. At least until some upstart making only electric cars cheaply with lower overheads appears on the global market and makes the posing-mobiles (Prius and Tesla) rethink their strategies.
( Though I bet they try to ban them in the courts, cheat the patents system, or go 'protectionist nuclear' on them first. )
We haven't seen a Chinese car on the world market yet. They could do as they have recently done in electronics: Or just buy an existing world car company to evade the protectionism. (Anyone for a Chinese Chevy?) Then all bets are off.

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