China needs to clarify EV incentives if it wants the market to grow. Oh, and it needs better technology…

This is, admittedly, a rehash of a blog I wrote for auto163.com, a Chinese-language website I blog for.  http://alyshawebb.blog.163.com/ It is part of Netease. Actually, the blog appears in Chinese and English. If you click on the title, both versions appear.

Hey, it’s hard to come up with new ideas sometimes. And its a good blog.

China has audaciously proclaimed that it will be the largest market for electric vehicles by 2020.  I’m very skeptical that will happen.   But it certainly won’t get there without clarifying what kind of government support the market for electric vehicles will get over the long term.  And it hasn’t done that yet.

To be sure, the central government has supported the consumer market for new energy vehicles with purchase subsidies of up to 60,000 RMB for some electric vehicles. But that hasn’t boosted sales much, judging by the numbers.

Price is one issue. The few electric vehicles for sale in China are still fairly expensive compared to a comparable gasoline-powered car, even with a rebate. Yet a study by market research firm Synovate found that, in direct comparison with their current car, only 4% of China’s owners would accept a price increase to buy a battery electric vehicle. http://www.synovate.com/news/article/2011/04/consumer-product-experience-critical-to-market-success-for-battery-electric-vehicle-technology-in-mainland-china-reveals-new-study-by-synovate.html

Another problem is the lack of actual electric vehicles available for consumers to buy. Recommendations from friends is an important factor in Chinese consumers’ car-buying decisions, yet few know anyone who drives an battery-electric vehicle, or even a hybrid.  So no one is recommending them. And, there are few models to test drive, so comparison shopping is pretty much impossible.

That brings us back to the need for a clear subsidy policy. Without one, the number of electric vehicles available will remain tiny.

Many of China’s automakers have proclaimed that they are producing hybrid, electric, or other new energy vehicles. But most have only produced a prototype. Without clear market acceptance, a growing infrastructure to support EVs, and most importantly a clear indication of what kind of incentives the government will provide–and for how long–automakers in China are reluctant to do more than dip their toes in the EV sea,
much less jump in.

There are some positive signs from the government. 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.

But, a purchase tax reduction is attacking the problem at the “bottom end,” an executive at a U.S. company hoping to sell its PHEV technology in China pointed out to me. The government needs to foster innovation at the initial stage, he says.  That is sorely needed, because Chinese companies don’t have world-class PHEV technology. They may never catch up with foreign companies in that area, but a lack of clear government support certainly doesn’t help.

In fact, Chinese firms don’t have several key technologies needed to produce electric vehicles. And without a clear indication of government support, they won’t invest in those technologies, and China will fall farther behind.

China wants to be a big player in the battery electric vehicle sector. But is the government willing to support BEV purchases until battery technology matures? Without some reassurances, the big investments needed to advance batteries won’t happen.

China’s government is aware that China is behind in three crucial EV technologies— battery management systems, engine management systems, and electric vehicle control systems.  Why else would it have floated a draft law that may require any foreign company producing those three components in China to form a 50/50 joint venture?

The wording is unclear—it may mean that only 50/50 JVs will receive preferential treatment. That’s typical–the Chinese government often floats vaguely-worded draft laws for comment.  Nonetheless, it is a clear indication the government recognizes China will have a hard time becoming an EV powerhouse on its own. That should spur the government to issue clearer policies.

A recent study by consultancy BCG  that China and Europe, not the U.S., will be the largest market for electric vehicles in 2020. Government subsidies will be key to the development of China and Europe’s EV markets, said BCG. Well, unless China’s government is more clear on its support, perhaps the two largest markets will be the U.S. and Europe.