China gets more realistic about electric vehicles, though the media may not yet be

China’s government is already getting a bit more realistic in its goals for the new energy vehicle sector. That is China’s name for alternative fuel vehicles. Not too many months ago, the government was aiming to make China the number one producer of, and market for, battery electric vehicles by 2020. Since the technology was still nascent in all countries, China figured it could take the lead in the field.

Well, just a few months later reality has struck home. China has realized that, while it may be a big market for alternative fuel vehicles, some of those vehicles may not be all that advanced, and the technology will not all be home-grown.

That’s not to say China is not still interested in being the battery electric vehicle capital of the world. But low-speed or “city” EVs may be a big part of that plan. Fleet vehicles—can you say bus?—will also figure largely. And foreign technology or even foreign nameplates may be big players in
the sector, too.

Meanwhile, the lowly (I mean that facetiously) hybrid, a technology that Toyota www.toyota.com has most successfully commercialized, has become much more acceptable as a stepping stone towards battery electric cars. Plug-in hybrid electric vehicles are also getting some respect now.

Of course, if the government doesn’t clarify the extent of its support for the sector, the domestic content of new energy vehicles may be even smaller. See my recent blog at www.plugincars.com  for more on that topic, however.

One clear sign of a more friendly attitude towards hybrids and PHEVs:  A draft law on vehicle taxes posted on the State Council website in mid-June includes eliminating taxes for battery electric, fuel cell, and most significantly plug-in hybrid electric cars.  Taxes on regular hybrid vehicles
would be cut by 50%.  The draft law is circulating for comment right now; it will likely become law on January 1, 2012. http://www.caam.org.cn/zhengceyanjiu/20110615/1605057362.html

Let’s revisit early plans for the new energy vehicle sector.
A plan for revitalizing the auto industry released in March, 2009, called for China to have installed capacity to produce 500,000 NEVs–including EVs, PHEVs, and HEVs—by 2012.  http://preview.subscribers.wardsauto.com/chinaauto/auto_industry_readjustment_090330/

Then, in August of 2010, details of a plan appeared in the local press that called for China to have 1 million electric vehicles on the road by 2015.
By 2020, China was to produce and sell one million battery-electric and plug in hybrid electric cars annually.  Some five million such vehicles would be plying China’s roads by then. Annual production and sales of mild and full hybrid vehicles was to hit 3 million by 2020.

Now, I am not saying China has changed in those plans. But the way these targets will be reached seems to be morphing into something more
achievable than, say, five million full-fledged battery-electric sedans and/or SUVs plying China’s roads. Now, the government seems to be figuring on a chunk of those being low-speed vehicles, or city EVs. Fleet vehicles will also loom large.

That is probably doable given that China—especially Shandong province—is filled with low-speed vehicles manufacturers. Of course, I think
encouraging these low-speed EV makers too much is a mistake. Then they start eyeing the full-sized EV market, and wasting resources trying to enter it. I’ve blogged about that. But making really good low-speed EVs is a worthy goal.

Also  promising is that major auto makers such as General Motors www.gm.com , and others, have told me the city EVs are a segment they think will be huge. They are working on products for the segment.

GM showed the EN-V electric car at the Shanghai Expo (here in its lobby in Shanghai.). It sees the market for small city EVs such as this--though perhaps with a more conventional shape--as a big future market.

Why the subtle shift in the government’s vision for the new energy vehicle sector? Well, it turns out that China’s electric vehicle technology was not as advanced as the government imagined, and that it is considerably more difficult than imagined to produce an electric vehicle capable of everything an internal combustion engine car is capable of.

Some of the signs of that realization were not too subtle, actually. A few months ago, the National Development and Reform Commission and
the Ministry of Commerce, floated a revision to the Guiding Catalog for Foreign Invested Industries policy that showed the government recognized the weak position China was in regarding some EV technologies.

The revision refers to joint ventures producing key components of electric vehicles such as battery management systems, engine management systems, and electric vehicle control units.  Only JVs that are at least 50% owned by the local (Chinese) partner will be “encouraged” in the new wording. Of course, it likely means that only those JVs will receive preferential tax treatment, though it may mean only those will be allowed. That hasn’t been made clear. And implementing either version would meet with stiff resistance from foreign firms. Nonetheless, it shows thgovernment recognizes China’s EV sector needs foreign technology to succeed.

Finally,  a confession. Perhaps some factions in China’s government have always figured that China would not become the top producer of battery electric sedans, or any other type of alternative fuel passenger car, in the near or even medium term. Perhaps low-speed EVs and fleet vehicles were always a significant part of the mix. To be sure, Chinese media did write about the difficulties of achieving the lofty NEV goals. http://www.chinadaily.com.cn/business/2009-10/26/content_8846285.htm

But the press—both foreign and Chinese—chose to interpret the early announcements about investments in the NEV sector as full speed ahead
with passenger cars. And Chinese automakers rushed to announce plans to produce NEVs.  One in particular, whose name  won’t mention but you know the initials, comes to mind.

In any case, things seem to be sorting themselves out now. Will China be a big market for NEVs of one kind or another in the next decade? Yes. Will it be the technological leader in the sector? Probably not.