Are plug-in electric vehicles now China’s destiny? Government adjusting ambitious plan

Ah, how a year can change things. Or more concisely, reality bites. That’s what China is discovering regarding the overly-ambitious new energy vehicle development program that first appeared in the Chinese media in October of 2010. That plan called for huge numbers of battery electric vehicles to be on the road by 2020.  http://wardsauto.com/ar/china_pushes_plan_101110/

Now, however, a top executive at a foreign supplier told me “the wheels are coming off” the government’s EV plans. Executives at several of China’s domestic automakers have told him the plans “will just not work,” said the foreign supplier executive.

For sure, the original plan—which basically assumed China would dominate the battery electric vehicle sector by 2020—is not tenable.  The plan will change; the plan will be revised, multiple times if necessary. (The old “crossing the river by feeling for the stones” strategy.)  But China is still committed to growing its new energy vehicle sector.

And, the government’s admission that China needs foreign technology to develop its EV sector will mean lots of opportunity for foreign firms who are willing to take their technology to China. (And possibly leave it there. The old risk and reward equation.)

China started out with a false assumption regarding its ability to produce electric vehicles. Since no nation was producing large numbers of battery-electric or plug-in hybrid electric vehicles, and China already produced most of the world’s lithium-ion batteries for consumer goods, China figured it could lead the world in applying that know-how to the electric vehicle sector and be a leader there, too.

Well, that hasn’t happened. China has thrown a lot of money at the sector—100 billion RMB in the program announced in 2010, but much more if the “863” tech funding program http://www.most.gov.cn/eng/programmes1/200610/t20061009_36225.htm  is included.  I hear much of that initial 100 billion RMB has already been allocated.

But, China’s indigenous firms lack crucial electric vehicle technologies that prevent them from producing safe,  good-quality electric vehicles. And by that I mean passenger vehicles, not low-speed EVs. So in the past few months, numerous articles questioning the goal have appeared in the Chinese press—including an essay by premier Wen Jiabao. I just read a piece taken from Caijing Guojia Zhoukan suggesting that a new NEV plan expected–or hoped?– to be released later this month or in September would have a “small adjustment” i.e. it would be more realistic where the goals are concerned.   Declared the author: “Battery electric vehicles are our destiny, but PHEVs are just transitional.” http://www.china4auto.com/news/show.aspx?id=263977

But who knows how long that “transition” will last?

Also noteworthy—many of these articles have suggested that China will need to turn to foreign technology, especially in the areas of batteries, electric motors,  and electronic control systems.  Of course, foreign firms may be reluctant to bring that technology to China, fearing intellectual property theft. But let’s face it, that is sort of the price of doing business in China.

And, foreign firms can adopt the strategy (and attitude) of battery maker Ener1 Inc. www.ener1.com of New York. It formed a joint venture with China’s largest automotive component maker, Wanxiang, www.wanxiang.com in February.  At the time, I asked Tom Goesch, president of the transportation group at Ener1, if Ener1 worried about intellectual property theft. He said: “We feel the strategy of having a partner like Wanxiang, a China-based company, will provide us the best protection we can find. Wanxiang has all the reason in the world to protect that intellectual property.”

Foreign firms with good plug-in hybrid electric vehicle technology can also benefit from the apparent shift in focus of the government’s NEV plan. Efficient Drivetrains Inc. http://www.efficientdrivetrains.com/ of Dixon, CA is hoping that will be the case. EDI already is working with Ankai Bus Co. of Anhui, China to develop PHEV buses. And, it just landed a $1 million investment from Silicon Valley China Venture Management LLC to further develop its China business.

Many other foreign suppliers are trolling China’s EV water for business, as well. There is a potential glitch. The government floated a draft law earlier this year that would call for foreign firms with certain key EV technology—mainly in the areas mentioned above—who wanted to manufacture their products in China to form a 50/50 joint venture with a Chinese partner.  That hasn’t been mentioned since then though it could still rear its ugly head. But the government seems to positively hunger for foreign EV technology these days, and issuing a law such as that would not be a good way to feed that hunger.

The main casualty of China’s shift in NEV development strategy looks to be those forecasting firms who swallowed the government’s initial announcements without looking behind the façade. I won’t name names, but you know who you are. As I’ve written here before, China will likely be the world’s largest market for electric vehicles one day. But just how it will arrive at that point is still being worked out, like so many other elements of the whole electric vehicle story.