Does the U.S. or China need to “win” the electric vehicle race? Maybe not.

In his State of the Union address on January 25, President Obama challenged the U.S. to be “the first country to have one million electric vehicles on the road by 2015.”  http://abcnews.go.com/Politics/State_of_the_Union/state-of-the-union-2011-full-transcript/story?id=12759395

That may prove as elusive as China’s goal to have five million battery-electric and plug-in hybrid electric cars on the road by 2020. (China also aims to be producing one million such vehicles annually by 2020.) http://www.reuters.com/article/2010/10/16/retire-us-autos-china-idUSTRE69F0J820101016

Regardless of whether or not those targets are met, however, the race to grow the electric vehicle segment could be a win-win for China and the U.S.

China may grab the number one spot in the electric vehicle market, just as it has in the overall vehicle market.  But that doesn’t mean foreign automakers and suppliers can’t benefit from China’s push to develop electric vehicles.  And, foreign automakers can be major players in the electric vehicle market in China. 

Let’s do a little comparison of some measures the two countries have announced to develop the sector (this is clearly not an exhaustive list.).

The day after the State of the Union address, Vice President Joe Biden laid out steps the government proposes to reach that goal:

http://detnews.com/article/20110127/AUTO01/101270345/Biden-touts-jolt-for-electric-cars

• Transform the US $7,500 tax credit consumers currently receive for purchasing certain alternative fuel vehicles to a rebate. That would allow the buyer to get the money back quickly rather than waiting until the tax returns are filed.
• Increase R&D investment in new vehicle technology in the 2012 budget by 30%.
• Include funding in the 2012 budget to offer up to US $10 million in competitive grants to 30 communities. To win the grant, the community would need to foster electric cars by building a recharging infrastructure and providing other incentives such as commuter lane access, streamlined regulations, and public vehicle fleet conversion to electric vehicles.

How does this compare to China’s plan to promote new energy vehicles?  Measures include:

• Budgeted RMB 100 billion (US $15.2 billion) over the next decade to develop electric vehicles.
• Designated six cities to develop an electric vehicle recharging infrastructure.
• Offered up to RMB 60,000 (US $9,100) to manufacturers for each new energy vehicle sold.
• Subsidized electric vehicle fleet operators in 25 cities.

The U.S. should seriously xuexi (study) that fleet subsidy policy. But I digress.

Despite the large number of Chinese companies with plans to produce electric vehicles, China still lacks good battery management technology. It also has issues with product consistency. It needs foreign technology to develop its electric vehicle sector.

It is getting that—through joint ventures.  There are new announcements all time about foreign firms teaming up with Chinese companies.

For example, battery manufacturer Ener1 Inc. www.ener1.com announced recently it would jointly manufacture batteries for the China market with Chinese supplier Wanxiang Electric Vehicle Group Ltd. http://www.wxev.com.cn/ (An aside: I interviewed Wanxiang Group founder Lu Guanqiu about eight years ago in his office in Hangzhou. He had a lot of chocolate bars in his little office fridge. Twix Bars, I think.)

So Ener1 will benefit from growth in China’s electric vehicle market.

American companies also need China’s low-cost manufacturing, even if they aim to sell in the U.S.

Atul Kapadia, CEO of storage systems manufacturer Envia Systems of Newark, CA, www.enviasystems.com  told me a few days ago that Envia has 30 people in China producing Envia’s high-capacity manganese rich cathode battery cells. Why China, I asked?

The U.S. was simply too costly, he said.  “China is the least expensive place, and business is all about finding the right resource,” said Kapadia.

Of course, the issue of intellectual property rights looms large. Kapadia emphasized that all of Envia’s core intellectual property will remain in the U.S.

Let’s face it, tech transfer—and some outright IP theft—is going to occur. As suppliers tell me all the time, it’s just part of doing business in China.  As they also tell me, it just means they have to keep innovating. 

As China’s electric vehicle market develops, who will grab market share? Well, let’s consider the market now. Though China’s domestic brands as a group hold about a third of the passenger vehicle market, none have more than about 3% market share.  Volkswagen, Toyota, Hyundai, Nissan, and Honda were the top five brands in China in 2010.  Why should the EV market be any different?

China is working with the Argonne National Laboratory www.anl.gov in Argonne, IL on a wide range of issues centered on batteries.  

Said Jeff Chamberlain, leader of Argonne’s Energy Storage Initiative: “The complicated aspect is to find a way in which we can collaborate in the science while recognizing ultimately we will be competing.”

Competing, yes.  But both countries can gain much from the race itself.  So let the competition begin!