China’s Electric Vehicle Development Failing to Meet Ambitious Targets

Despite prioritization by China's central government, the country's Electric Vehicle industry does not seem to be on track to meet its targets.

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BY ERIC YUE | JULY 29, 2013 

Over the past 30 years, China’s rapid economic growth and industry development have been driven in large part by specific national plans that set very ambitious targets for certain industries. The electric vehicle (EV) industry is no exception. Yet even with prioritization by the central government, the EV industry does not seem to be on track to meet its targets.”

According to the Ministry of Science and Technology’s (MOST) 12th Five-Year Plan for Electric Vehicles and the State Council’s Energy-saving and New Energy Automotive Industry Development Plan released in 2012, 500,000 EVs and plug-in hybrid electric vehicles (PHEV) are to be deployed by 2015, along with 400,000 charging piles and 2,000 charging or battery-switching stations. The nation is targeting 5 million EVs and PHEVs on the road by 2020.

New Electric buses and a charging station in Chengdu City


In addition, MOST and other governmental entities, such as the Ministry of Finance, Ministry of Industry and Information Technology, and National Development and Reform Commission, initiated the “10 Cities and 1,000 Vehicles” program in 2009 to support EV development in 25 cities by providing subsidies.

Although these ambitious targets are developed and supported by the central government, they seem overly optimistic and unattainable given the current situation. According to the China Association of Automobile Manufacturers, only about 20,000 new energy vehicles (EVs, hybrid-electric vehicles (HEVs), and PHEVs combined) were sold in 2011 and 2012, meeting only 4 percent of the 2015 target.

Moreover, the total amount of new energy vehicles deployed per year in the 25 pilot cities under the “10Cities and 1,000 Vehicles” program remained around 10,000, even far from the initial ambitious goals set by some cities, such as increasing the number of new energy vehicles by 10,000–30,000 within four years. In fact, by the end of 2011, those 25 pilot cities had 11,949 new energy vehicles in operation, achieving just 22.7 percent of the set goal; by July 2012, only four cities (Hangzhou, Zhengzhou, Suzhou, and Beijing) had achieved more than 30 percent of their targets.

Several factors have contributed to the lackluster progress in China’s EV development:

First, EVs are relatively expensive in China. Due to the high cost of batteries, EVs are still not competitive compared with conventional internal combustion engine vehicles (ICEV) in terms of purchasing price. For example, even with subsidies of 120,000 RMB (about 19,600 USD) and up to 60,000 RMB (about 9,800 USD) from the central and local governments (Shenzhen has the highest local subsidy), the off-the-lot price of a BYD E6 (a popular Chinese-made EV) is between 170,000 and 180,000 RMB (between about 27,700 and 29,400 USD). That is twice the price of a conventional ICEV with similar configuration and performance in China’s vehiclemarket.

As a result, more than 80 percent of the so-called “energy-saving and new-energy vehicles” (EVs, HEVs, PHEVs, fuel cell vehicles, and other energy-saving conventional vehicles)across the 25 pilot cities were purchased for public transportation service rather than private use, showing a weak market demand for these types of vehicles among private consumers.

Second, compared to their foreign counterparts, Chinese EV companies don’t seem to have strong brands for the right market segment, which is crucial for market penetration. In the United States, for example, Tesla Motors’ gleaming, well-designed high-end electric vehicles (Model S, Model X, and Roadster), and Elon Musk’s legendary personal brand, have attracted many high-income consumers, especially the wealthy from Silicon Valley and celebrities in Hollywood. Toyota’s Prius, meanwhile, has successfully targeted affluent consumers that are keen to protect the environment, save energy, and adopt advanced new technologies. By contrast, Chinese EV companies, due to their prevailing low-cost strategies and low brand recognition, have found it difficult to gain acceptance from mid- and high-income consumers in China, while low-income consumers simply cannot afford EVs.

Third, Chinese companies lag behind their foreign counterparts in technology, especially in fuel cell and battery technologies. So far, few domestic component suppliers can meet the requirements of EV manufacturers in terms of cost balancing, quality, and delivery reliability, and thus no Chinese EV or HEV can compare with GM’s Volt, Nissan’s Leaf, or Toyota’s Prius in terms of market penetration. It was reported that China’s leading EV model, the BYD E6, overstated its mileage capacity and had other concerns including safety and lifetime issues. In 2010, the "State-Owned Enterprise Electric Vehicle Industry Alliance" (SEVIA) was founded to coordinate research and development of EV-oriented core components and technologies. Little progress has been made so far, however, while significant challenges remain, including alignment of interests and agendas of stakeholders, technology sharing, confidentiality, exclusivity clauses, and horizontal competition.

Fourth, current charging infrastructure is not living up to targets and demand. In April 2013, Shenzhen had over 1,000 street charging piles, while its original target was to surpass 40,000 by 2012. As for Beijing, only 60 charging or battery switching stations and 1,080 charging piles had been built by the end of 2012, making the goal of 256 stations and 42,000 piles by 2015 fairly difficult to achieve. In fact, there were only 8,107 charging piles and 174 charging or battery-switching stations in the 25 pilot cities by the end of 2012. Nationwide, data from the State Grid Corporation of China and China Southern Power Grid show that, in 2011, there were about 16,184 charging piles and 257 charging or switching stations, reaching 4 and 13 percent of the 2015 targets, respectively. The shortage and uneven distribution of charging facilities, as well as conflicting technology preferences and interests between State Grid (favoring battery switching solutions) and most automobile companies (preferring charging solutions), all contribute to the inconvenience of owning an EV.

Fifth, the Chinese central government’s confusing and vacillating policy signals have confounded the EV industry and the market. Lacking industrial standards and policy certainty about relevant technology roadmaps, Chinese auto manufacturers worry about investing in “wrong” technologies that will not be selected by the national government. They therefore tend to wait for clearer policy guidance while foreign competitors move further ahead. Following policy guidance, rather than customer needs, has also made domestic EV manufacturers deviate from market demands and miss opportunities for rapid development.

In short, although ambitious targets and strong government support have contributed to China’s EV development in recent years, the industry’s future remains opaque, unless the government can smartly coordinate both market forces and policy incentives.