Strict Emissions Laws Push EV Plans for China

All automakers are planning to produce significant volumes of electric vehicles in China. They don’t have much choice – the Chinese government has enacted policies that make it difficult not to.

Foreign automakers in China have diverse strategies to deal with the mandates. The end goal is the same, however: to keep the Chinese government happy.

“Most of these companies feel they are being forced by the government to produce a certain amount (of electric vehicles) per year,” says Scott Laprise, founder of Lth Consulting, a private research firm in Beijing.

China’s policies do, indeed, force automakers to produce a certain number of electrified vehicles or face stiff fines. The approach is twofold: China has a carbon credit system modeled on California’s Zero Emission Vehicle program under which automakers must earn a certain number of carbon credits per year.

China also has strict emissions standards which automakers would find nearly impossible to meet without including some electrified vehicles in their portfolios.

There also is strong pressure from the Chinese government to produce battery-electric and plug-in hybrid electric vehicles to meet Beijing’s target of such vehicles accounting for 20% of China’s passenger-vehicle production and sales by 2025.

Ford has pledged to produce by 2025 an electrified variant of all models it manufactures with its Chinese partner Chongqing Changan Automobile Co. But Ford has gone a step further. It is forming a joint venture with China’s Zotye Auto to produce lower-priced EVs.  

The aim, says Trevor Worthington, Ford’s vice president-product development for Asia Pacific, is to sell electric vehicles in as many segments as possible.

“We know that there are fully electrified segments that we are not going to be able to hit the way we do things,” he tells WardsAuto during Auto China in Beijing in April. “Everybody is trying to be in the right place with the right products, and to make money.”

Producing electrified vehicles with different partners for different segments also helps Ford develop relationships with battery suppliers, the real key to an EV’s cost.

“If you start dealing with (the suppliers) on a more regular basis, they become part of the family,” says Worthington.

Volkswagen is forming a joint venture with Anhui Jianghuai Automobile Co. to produce lower-priced electric vehicles.

“Our new joint venture with JAC will produce battery-electric vehicles for the competitive mass market,” says Jochem Heizmann (see photo below, left), president and CEO of Volkswagen Group China.

VW also will produce electrified vehicles with FAW and SAIC, its two long-standing partners in China. In 2020, it will begin to produce vehicles at both JVs based on its MEB platform, a modular architecture for EVs.

By 2021, Volkswagen will produce EVs with its three partners at six plants in China, says a VW spokesman.

“We are prepared to deliver up to 1.5 million NEVs to Chinese customers annually by 2025,” he says, referring to new energy vehicles, which include battery-electric, plug-in hybrid and hydrogen fuel-cell vehicles.

General Motors doesn’t need to form a new joint venture to produce lower-priced electric vehicles. It already has Shanghai General Motors Wuling Automobile, a three-way venture between SAIC, GM and Liuzhou Wuling Motor Co.

Established in 2002, the partnership produces the Baojun brand of vehicles, including the Baojun E100, a small EV. GM just announced it has extended the E100’s range from 155 km to 200 km (96 miles to 124 miles) and expanded sales to another city. The E100 starts at RMB46,800 ($7,308 at current exchange rates) after national and local government subsidies.  

GM SAIC, the automaker’s main passenger-car JV in China, produces the Cadillac CT6 Plug-in and Buick VELITE 5 extended-range EV. VELITE is the name GM uses in China for the Chevy Volt.

Like all foreign automakers in China, GM has announced an aggressive electrified model launch schedule. It is “on track” to deliver 10 new-energy vehicles in China between 2016 and 2020, and “will maintain momentum by doubling the number of new energy vehicles available” between 2021 and 2023, the automaker says in a press release.

All automakers’ numbers should be taken with a grain of salt, says Laprise, who previously was a China auto analyst for investment research group CLSA. 

Beijing threw a monkey wrench into foreign automakers’ planning by announcing in April that it would allow 100% foreign ownership of companies producing EVs. Previously foreign automakers could own only 50% of a company producing automobiles for the domestic market.

While foreign OEMs have reaffirmed their commitments to their local partners, they would like to have wholly owned EV plants in China, says Laprise. “They are struggling with how to form these companies,” he says.

He also expects Beijing to modify its EV targets and policies.

The bottom line is that the best laid plans in China often change.

“(Automakers in China) often make initial decisions based on what they think, only to find once they learn more they will do something different,” Laprise says of the government.