China Charges Ahead for EV Dominance as Auto Sales Slow

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State of Industry: International

China’s goal to become the global industry’s leader in electric-vehicle technology so far is not grounded in confidence, as the majority of car buyers shrug at current offerings and Western auto makers duck demands for their proprietary technology.

Due to a variety of factors, including their cost, EVs have accounted for just a sliver of Chinese car sales so far this year. WardsAuto data estimates the industry saw less than 600 EV factory sales through August.

BYD, China’s heavily touted domestic EV maker, which famously attracted billionaire-investor Warren Buffet, may be able to sell “a few units” of its e6 electric cross/utility vehicle to Chinese consumers this year and less than 100 vehicles in 2012, IHS Automotive says.

The Chinese government’s fervor for EV dominance appears to remain strong. Indeed, Beijing officials recently decided to exempt battery-electric cars from Beijing’s congestion-curbing license-plate lottery. The city is limiting new registrations to 240,000 vehicles this year, with the winners picked in monthly lotteries. Last year, sales of new vehicles in the city topped 800,000.

Nevertheless, Prime Minister Wen Jiabo reportedly has ordered a review of the overall policy that favors all-electric vehicles and plug-in hybrids over conventional hybrids.

China last year announced a goal to sell 1 million loosely defined “new-energy vehicles,” by 2015, which include EVs and PHEVs.

Some Chinese media reports suggest domestic auto makers are beginning to realize the high cost and extensive degree of technology required to develop electrified vehicles is beyond what they initially anticipated.

Perhaps that, plus the tepid consumer response to existing alternative-powertrain models, is driving the central government to require foreign joint-venture companies, such as Nissan and General Motors, to share their advanced EV technology.

Nissan to sell Leaf in China, develop all-new EV with FAW.

U.S. politicians have come out swinging, spurred by the news.

“The Chevrolet Volt represents intellectual property developed in the United States and paid for by General Motors research and development dollars,” U.S. Senator Carl Levin, D-MI, tells U.S. Trade Representative Ron Kirk and Acting Secretary of Commerce Rebecca Blank in a September letter.

“The U.S. government must not allow China to coerce American companies to give their technology away to their foreign competitors in order to have access to their markets.”

GM turned down a reportedly generous $19,000-per-EV spiff from the central government to share the Volt’s extended-range technology. The car goes on sale in the market next year. However, GM has agreed to develop an all-new new EV with its Chinese partner SAIC.

The U.S. auto maker follows Germany’s Daimler and Japan’s Nissan in developing an EV expressly for the Chinese market.

Volkswagen has an EV in the works and is establishing a new brand, Kaili, with partner FAW Group that reportedly could begin building and selling electrified vehicles as soon as 2013. And Korea’s Hyundai announced last week it plans to reveal an electric car, developed with its JV partner, at November’s Guangzhou International Motor Show.

Michael Dunne, an expert on the Chinese market and founder of the investment-advisory firm Dunne & Co., says the central government’s leverage in this matter is the yes-or-no answer for Western firms to expand existing capacity in the world’s No.1 new-vehicle market.

“Such approvals will be granted or granted more quickly provided there’s an agreement to transfer EV technology,” Dunne tells WardsAuto via email.

“Once foreign-brand leaders like GM and VW agree to EV cooperation, then others find it almost impossible to hold out,” he says, adding such discussions are being done through informal communications between the auto makers and Beijing officials.

“There is no paper trail,” Dunne adds, asserting EVs are being pursued strongly because half of China’s oil is imported.

The China Association of Automobile Manufacturers says total vehicle sales in September climbed 5.52%, compared with year-ago, to 1.64 million units. Light-vehicle deliveries saw an 8.79% gain on prior-year. CAAM say some 13.6 million, 10.5 million of them light vehicles, were sold in China in the January-September period, up 3.6% from like-2010.

Analysts say China still is on track as the world’s biggest new-vehicle market. However, this year and possibly next, it only will see single-digit increases.

J.D. Power & Associates forecast passenger- and commercial-vehicle sales in China for 2011 at 17.7 million units, up 3% from 17.2 million in 2010. In comparison, deliveries surged 30% in 2009 from prior-year’s levels.

Dunne is more optimistic for 2011, calling for 5%-7% growth in Chinese passenger-vehicle sales, noting discounting by auto makers will ensure growth doesn’t slip below 5%.

But “next year is looking uncertain,” he says. “If Beijing continues to make inflation-fighting a priority, that will mean a tighter noose around bank lending and more slow growth, probably in the range of 5%-10%.”

If lending practices loosen in 2012, Dunne predicts double-digit growth will resume.

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