China is one of the strongest proponents of EVs in the world. The country’s policies for EVs are part of its comprehensive national innovation programs, including the “12th Five-Year Plan (2011-2015),” to build a green economy and develop future leadership to compete with the more advanced countries.
Most other governments across the world support EV related policies, but China is exceptional because it has led the way in establishing national plans linked to EV policies. The Ministry of Finance, National Development of Reform Commission, Ministry of Science and Technology, and Ministry of Industry and Information Technology are working together to revise and develop systematic support programs. Note that it is highly unusual for multiple government entities to collaborate on strategic planning in a single industry in China. The country established R&D incentives in 2008 and started EV subsidiary programs in 2010. Indeed, EVs represent one of the top priorities for China’s future innovation and growth strategy.
What are the driving forces behind China’s commitment to EVs? Two factors stand out above the rest:
- Domestic market needs
- New opportunities to compete globally
Domestic Market Needs
Reportedly, over 150 finished auto manufacturers exist in China and around 55 vendors are developing electrified vehicles and launching development programs for EV production. The Chinese government plans to enhance the passenger vehicle penetration rate from 5% (one vehicle per 20 persons) in 2010 to 15% (per 7 persons) by 2020. Most of the passenger cars in the future will be EVs and alternative energy vehicles.
As the income level rises in China thanks to a prosperous economy, general consumers will seek personal transportation other than bicycles. The purchase of a personal vehicle is a top priority item for many of the people in China. This phenomenon will continue. As a result, though, the Chinese government faces a challenge in terms of decreasing CO2 levels. Thus, domestic market needs will drive China’s pursuit of EVs.
New Opportunities to Compete Globally
China has another reason to support EVs as a core part of its priorities: EVs will help the country secure new opportunities to compete with incumbent global auto players. To this end, China’s commitment to the auto industry has progressed greatly since the early 1980s. During this time, the country has focused on securing high technology and manufacturing capabilities from foreign players. Chinese and global OEMs, including Volkswagen, SAIC, PSA Peugeot Citroën, Dongfeng, have been collaborating since 1984. More recently, Chinese OEMs have begun looking to acquire the core technologies in the automotive industry. The acquisitions of global brands such as MG Rover, Volvo, and SsangYong Motors are examples of this drive.
In terms of the quantity of vehicles, China has obviously benefitted from these business ventures. The country produced 13.8 million vehicles in 2009, reflecting growth of 48% from 2008. In addition, of the 61 million units produced globally in 2009, China’s manufacturing volume accounted for 23%, followed by Japan (7.9 million) and the United States (5.7 million). The success of the Chinese automakers is especially significant because vehicle production declined in all other regions in 2009 except for India (13% growth from 2008).
It is questionable, though, whether such business ventures and collaboration will enhance the capability of Chinese vendors in terms of their own R&D capabilities and manufacturing technologies. Local OEMs in China such as Geely and Chery accounted for 70% of exported ICE vehicles made in China during 2008. However, most of the exported vehicles were low-end cars with a cost of under $10,000 and they were targeted at developing regions such as Africa and Southeast Asia.
Cars made in China are still considered niche and low-end-oriented products and their competitiveness has not been secured yet. China may realize that it is impossible to be competitive in gasoline engine cars in the foreseeable future. The country believes that the new paradigm and opportunities provided by a green economy and EVs could drive the growth momentum that could enable China to be competitive in the global automotive industry.
As noted above, Chinese vendors may not be successful in fully exploiting the advanced technologies related to ICE vehicles. They do not want to repeat this mistake in the EV industry. Since the hybrid market is already dominated by Japanese OEMs and others, China will impose more weight on pure EVs than hybrids and other alternative energy vehicles. Thus, China’s focus on future advanced vehicles could continue to be favorable to pure EVs.