China Pushes Ambitious Plan to Become World EV-Technology Leader

Beijing has no minor ambitions these days, with its latest goal to start almost from scratch and make China a world leader in green-car technology.

Reaching this ambitious target calls for the central government to spend RMB100 billion ($15 billion) over the next 10 years to support everything from building infrastructure to developing what officials term as new-energy vehicles (NEV).

The plan was drafted by the Ministry of Industry and Information Technology, formed two years ago to promote China’s global leadership in many industries and now is being circulated among other government organizations for input and approval.

China’s official Xinhua news agency quotes Wan Gang, minister of science and technology, as saying environmentally friendly vehicles are key to the development of the domestic auto industry, noting tailpipe emissions already account for 70% of air pollution in the major cities.

Details are sketchy, but the announcement of a final version of the plan is expected late this year or in early 2011. Opinions vary about what building blocks are needed and how the pieces will fit in place, but there’s no shortage of speculation over what will be proposed.

The government’s reach will be broad and probably include improvements in conventional vehicles and the expanded use of biofuels, as well as development of electric vehicles and the charging stations to support them.

“The government’s key focus is going to be on battery-electric vehicles and plug-in hybrids,” says John Zeng, Asian forecasting director at J.D. Power in Shanghai.

Government foresees 5 million NEVs on China’s roads by 2020.

Chengwu Duan, an industry expert with IHS Automotive in Shanghai, says allocations already have been made for some spending, “but the debate goes on. The government will establish a framework, but no details have yet been revealed to the public.”

He foresees a 2-step plan, with emphasis in the 2010-2015 timeframe on making gasoline and diesel engines more efficient and establishing an industry base to build manufacturing capability and capacity for key EV and hybrid components.

In the second step, from 2016-2020, Duan expects efforts will be concentrated on making and marketing plug-in hybrid and battery-electric vehicles, but emphasizes “the ultimate goal is to develop China as a pure-electric market.”

Zeng agrees. “The government has clearly stated it has no interest in hybrid technology. Since Toyota (Motor Corp.) has such an advantage in hybrids, government leaders figure it would be very difficult for Chinese companies to compete.”

By 2020, the Industry Ministry foresees cumulative sales amounting to 5 million NEVs in China, an average of 500,000 units annually in each of the 10 years beginning in 2011.

This contrasts with “Drive Green 2020: More Hope Than Reality,” a new study by J.D. Power and Associates that forecasts China’s deliveries that year of only 332,000 BEVs and fewer than 100,000 HEVs, against total global sales of 5.2 million electrified vehicles.

Yet, given the remarkable growth and momentum of China’s automotive industry in the last 10 years, from total vehicle sales of 2.3 million in 2001 to projections as high as 17 million for 2010, analysts do not dismiss the ministry’s forecast as totally unrealistic.

“The government projections are only targets, and much depends on how you define hybrid and electric vehicles: Are stop/start vehicles included?” Duan asks rhetorically.

“If sales of hybrid buses and trucks, hybrid and plug-in-hybrid cars and electric vehicles are included, the 10-year sales target may not be too ambitious,” concludes Tomoo Marukawa, a professor and China expert at the University of Tokyo.

BYD F3DM plug-in hybrid uses proprietary lithium-iron-phosphate rechargeable-battery technology.

Getting there from here admittedly will not be easy. Two major hurdles stand tall in the way of Beijing’s green-car ambitions – creating adequate demand and acquiring the necessary technology – and both are challenging.

While there’s no consensus on just how much foreign technology will be needed to meet the target, China may not be as far behind as many believe.

“China now has the world’s largest high-speed railway system, with trains running 350 km/h (218 mph),” says Zeng, who questions whether foreign companies have an edge in EV battery technology.

“Electric-motor technology is already there. And China South Car, part of the railway system, is already producing components for electric cars,” he adds.

But Marukawa argues the only significant advance by Chinese auto makers in EV technology is BYD Auto Co. Ltd.’s F3 DM hybrid plug-in car, first shown at the 2008 North American International Auto Show in Detroit, using the enterprise company’s proprietary lithium-iron-phosphate rechargeable-battery technology.

“The auto maker also plans to produce insulated gate bipolar transistors, a key component of electric-motor-control systems and is serious about becoming an important player in the NEV market, but I doubt the seriousness of state-owned companies,” Marukawa says.

“By combining the battery and motor technology of various domestic enterprises, Chinese auto makers can make new-energy vehicles on their own, but their main problem is the lack of core technology and experience in this new field.”

Compounding that problem are reports that cooperation among Chinese auto makers is more tense than that between Chinese and foreign OEMs.

Whatever the current level of in-country green-car technology, Industry Ministry officials have decided that foreign help would be handy to have.

Shanghai GM to make EV version of popular Sail.

Marukawa reports the government’s draft plan stipulates joint ventures producing batteries, motors and control systems for NEVs must be more than 51% Chinese-owned and, if officially approved, will force foreign partners to share their core technology if they want to become important players in China’s EV market.

“The government always requires foreign companies to share technology with local partners and wants Chinese auto makers to develop NEV technology by leveraging their foreign partners,” Duan says. “But the government will likely find it very difficult to enforce this request. The green-car-technology-sharing issue is very controversial.”

Adds Zeng: “The government wants to encourage foreign auto makers to put their technology to work in China, rather than just sell their electric cars here. The main goal of the green-car program is to encourage local research, development and production in China.

“But NEV plans are still under development,” he adds. “Everything is being discussed, and there’s no formal policy yet. It’s not a done deal.”

Marukawa doubts there will be an official plan, citing the 11th Five Year Plan drafted in 2006 to expand the market share of domestic brands that officially never was released. “Such nationalistic plans are opposed by foreign-invested Chinese companies, the Ministry of Commerce and other Ministries,” he says.

However, if push comes to shove, analysts expect Volkswagen AG and General Motors Co., the two largest foreign auto makers operating in China, to be more inclined to cooperate with Chinese partners than other foreign auto makers.

Indeed, GM and its long-time Chinese partner SAIC Motor Corp. last week announced an agreement to deepen their technical cooperation and further integrate SAIC into GM's global product-development system.

The move is intended to allow the two companies to share technology and experience more widely to support the joint development of electric cars and components, GM and SAIC said in a joint press release. It also is aimed at creating a greater role for their joint research and technical center in Shanghai in the development of future vehicles and engines.

But until more details of Beijing’s new plan are revealed, most foreign automotive companies are reluctant to declare their views about sharing their most-advanced EV technology. Just who is willing to do what is muddled by the foggy future of demand and shrouded in generalities.

For example, assembly of Toyota’s second-generation Prius in China began in December 2005 but stopped in April 2009 after disappointing sales of only 3,613 units. A company spokesman declines to reveal plans, if any, to resume local assembly, but says, “We will share technology as is required by our joint-venture agreements.”

The Renault SA-Nissan Motor Co. Ltd. Alliance recently signed an agreement to provide 25 EVs for a market-feasibility study to begin in 2011 in Wuhan City. “We will meet Chinese government requirements, including technology, to make this happen,” is all a spokesman is willing to reveal.

Honda Motor Co. Ltd. Chief Financial Officer Yoichi Hojo is quoted by Reuters as saying the auto maker is considering building hybrid vehicles in China, but there are no official plans yet. However, Japan’s Nikkei business daily reports Honda will begin production of Civic and Fit hybrids at its two JV plants as early as 2012.

GM is taking a different tack. “We are very pleased and encouraged to see the Chinese government taking a proactive role to lead to NEV commercialization in China,” the auto maker says.

Shanghai General Motors Automotive Co. Ltd. confirmed last week it has started making an electric version of its popular New Sail in China and reportedly will roll out prototypes before year’s end.

Under World Trade Organization rules, imports of NEVs cannot be officially banned. But there are ways and means of discouraging them. One non-tariff barrier is Beijing’s subsidy plan, designed only for EVs produced locally. And tariffs always can be manipulated.

Analysts emphasize China’s greatest hurdle will not be EV technology, domestic or borrowed, but finding customers for these new kinds of vehicles.

In June, Beijing unveiled a pilot program in five Chinese cities offering subsidies of up to RMB60,000 ($8,970) for buyers of pure EVs and up to RMB50,000 ($7,475) for those purchasing plug-ins. Imports such as the Chevrolet Volt, Nissan Leaf and Toyota Prius do not qualify.

“The welcome for electric vehicles in China will depend on government incentives, and you’re not going to see tremendous growth in demand,” predicts Zeng. “The general public needs persuasion to buy a new-energy vehicle. The technology is not yet proven. Over 80% of car purchases in China are made by first-time buyers and electric vehicles will be a very hard sell.”

Even so, major Chinese auto makers are gearing up. Reuters reports Dongfeng Motor Corp., for instance, will invest RMB3 billion ($448 million) over the next five years to develop and produce 50,000 EVs by 2015 and 800,000 by 2020.

SAIC Automotive Industry Corp. Vice President Xiao Guopu says his company plans to sell 20,000 PHEVs in 2012 and 50,000 in 2015, and Chang’an Automobile Co. Ltd. is developing a platform dedicated to pure EVs, according to Ren Yong, vice president of the Chang’an New Energy Vehicle Co. subsidiary.

Additionally, the powerful state-owned Assets Supervision and Administration Commission says 16 large state-owned companies in several industries have agreed to form an alliance to research, develop and create standards for EVs.

But there are skeptics.

“We’re not that optimistic about the plan because so many OEMs and other companies have formed different groups and alliances to get some of the RMB100 billion,” says Zeng. “Most of them are small and don’t have any technology.

“They are only interested in the money, and this could lead to a more fragmented automotive industry and a barrier to alternative-energy-vehicle growth.”

Nor, at this stage, do experts always agree.

At an NEV conference in Tianjin in September, Kong Zhaosong, founder and chairman of Tianjin Santroll Electric Science and Technology Co., told attendees NEV demonstrations have shown there still are many issues to be resolved.

“Failure rates, fuel-savings rates, cost and vehicle-participation rates are all below standards and far from meeting requirements for future commercialization,” he is quoted as saying.

But at a Shanghai news conference in mid-October, Maryann Combs, president of the Pan Asia Technical Automotive Center, a Shanghai GM JV, says, “The Chinese government is taking safety, fuel-economy and emissions standards to international levels.”

Analysts believe the government is sincere in its desire to see China become the world leader in electrified-vehicle technology. But how effectively the billions in subsidies will be spent remains to be seen.