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No, Beijing can’t make Chinese buy EVs. But eventually they will. So get there early.

April 18, 2011

If you build it, will they come? For Jason Forcier, vice president of automotive solutions group at lithium ion battery cell manufacturer A123 Systems Inc., the answer is yes. Forcier is A123’s point man in its joint venture with Chinese automaker SAIC.  Advanced Battery Traction Systems, Co., as the JV is known, will develop battery packs for an SAIC electric vehicle to be launched in 2012. It will also sell battery packs to other automakers in China, said Forcier.

Forcier thinks the Chinese government can tell Chinese consumers to buy eletric vehicles. In any case, A123 wants to be in China now so it doesnt miss future market growth.

I asked him if he believed the ambitious targets put forth by the Chinese government for production and sales of hybrid and electric vehicles would be met. He said: “The Chinese government has the ability to drive change like no other government in the world. The same way China has the ability to build the cars they have the ability to get people to buy the cars. They have the same ability to drive adoption.”

I beg to differ. Beijing can tell its automakers they need to produce electric vehicles. Those automakers can play lip service to the request, announcing significant targets for electric and hybrid vehicle production. They can even build facilities to produce those vehicles. But the automakers don’t have to produce them. And, Chinese consumers certainly don’t have to buy them.

A just-released study by market research firm Synovate found Chinese consumers are concerned that electric vehicles will be too expensive to buy, difficult to charge, and expensive to repair. The study also found consumers are concerned they will have no chance to test drive an electric vehicle before buying.

But eventually they will get to drive them. And they will buy them. China can’t artificially suppress the rising price of fuel forever. And technology will improve, so electric vehicles will become more affordable. It may take up to a decade for there to be real demand for electric vehicles in China (or anywhere else in the world). It depends on how quickly the technology develops, and how quickly the price comes down. So though I disagree with Forcier regarding the Chinese government’s ability to drive adoption, I think A123 is smart to get in the market early.

Forcier admits the adoption rate in China for electric vehicles will be slow for at least the next five years. Range anxiety is the biggest issue, he says. The enabler will be improved battery technology that doubles the energy density, thus increasing the range while the cost stays the same. In the next ten years that should be available, says Forcier.

A123 is taking the longer view where China is concerned. And trying to learn from history. Forcier mentions how some automakers—here you can fill in Ford—got to the market late and are now playing catch up.

A123, based in Waltham, MA, has made a smart choice where partners are concerned. SAIC is a powerhouse on China’s automotive scene. Shanghai GM and Shanghai VW together sold more than 2 million passenger cars in 2010, according to J.D. Power and Associates. Its light commercial vehicle and passenger car venture with SAIC and Wuling  sold nearly 1.2 million units.

Don’t think A123 wasn’t eyeing those connections to VW and GM when it formed the JV with SAIC. “We are working with both of them on the development level, and hope to provide cells to them in the future,” says Forcier. “That was one of the reasons to partner with SAIC.”

I have to think a contract to supply cells to GM would be especially sweet to A123. It lost by a hair to LG Chem in the competition to supply the battery to GM’s Volt hybrid. At the time, it couldn’t manufacture the type of cell the Volt required, explained Forcier. Working with SAIC in China can, to use a Chinese phrase, allow A123 to use the hou men, or back door, to land a supplier agreement with GM.  Says Forcier: “We have continued to work with GM on a development level; we believe we will be a supplier to GM in the future.”

SAIC’s ties to western auto manufacturers gave A123 another level of comfort with the Chinese automaker, says Forcier. The Chinese company is familiar with western business practices, he says. Other factors weighing in SAIC’s favor: “Lot’s of English is spoken,” says Forcier. And it is easy to get to Shanghai from A123’s east coast location. “It’s really hard to get to Changchun,” where FAW is based, says Forcier. And it’s really cold in the winter there, I might add. Though the miles of FAW dormitories and schools and hospitals are fascinating. This is China’s original state-owned automaker remember. And the central government is the owner.

But I digress. In case you don’t know, dear reader, SAIC is also a state-owned company. The Shanghai government owns it. But, Shanghai is the commercial capital of China, and SAIC wants to make a buck as much as any western company. Its management does, finally, answer to the state, however. Fortunately for A123, the state’s interest align with its own for the time being.

That brings me back to the Chinese government’s ability to drive the market for electric vehicles in China. By 2020, the government’s plan calls for China to produce and sell one million battery- and plug-in hybrid EVs. Some five million such vehicles will be plying China’s roads by then, if all goes according to plan. Mild and full hybrid vehicles play a role, too. Annual production and sales are planned to hit 3 million by 2020.

Forcier admits A123 takes a “guarded look” at such volume estimates. But, he says, “Even if (the Chinese government) are half right, it is still a tremendous opportunity. To ignore it would be to your own peril.” And there is no doubt the Chinese government is committed to promoting the EV sector. As John Du, director of GM’s China Lab told me last year when I asked him if the government’s plans for the EV sector would be realized: “The train has already left the station.” The question, of course, is how meandering the track to an EV-filled future will be.

3 Comments leave one →
  1. April 18, 2011 7:04 am

    Don’t forget that intiatives such as Beijing’s 150,000 RMB subsidy for an EV and a guaranteed registration without participating in the number plate lottery are going to be big incentives for Chinese commuters to go electric.

    As more cities follow Beijing’s lead, if someone can come up with a half way affordable model the target numbers should actually be achievable.

    Don’t forget Chinese consumers are pragmatists at heart, and if getting to work is made a little easier and they don’t have to wait 5-10 years to get a car, they’ll go EV even if they aren’t all that great.

  2. April 19, 2011 1:32 am

    The subsidies aren’t being taken up right now, though that may be for lack of choice. And that doesn’t alleviate the worries about recharging and after sales service. There are plenty of cheap ICE cars out there is that’s all people want. For the same price as an EV, after the subsidy. Many OEs and suppliers actually think city cars–small, inexpensive EVs–will be big in China. Maybe, but only if they are super cheap. And then there are quality issues.

  3. April 21, 2011 9:42 pm

    An additional comment, Nick. The subsidy is 60,000 RMB for an EV, 50,000 RMB for a hybrid. Plus another 60,000 RMB from the local government for 120,000 for an EV. For a hybrid, the max would be 100,000 RMB, it seems. Where did you get 150,000?

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