EV sales and a command economy not a good pairing

China’s leaders are feeling frustrated regarding electric vehicles.  They have set a target of 5 million battery-electric and plug-in hybrid electric (and hydrogen fuel cell but we will just forget about those for now) vehicles on the road by 2020 and are very far from that target.  They have been taking the “crossing the river by feeling for the stones” approach to boosting EV (which for the purposes of this blog will refer to BEVs and PHEVs) sales, announcing a rash of incentives and policies to try to convince Chinese consumers to go electric.  such as allowing EVs to drive on China’s congested highways all the time — unlike gas-powered cars, which face restrictions in some cities — and free licenses plates for EVs.

It hasn’t worked. To be sure, production of New Energy Vehicles, as China likes to call EVs, surged in November. China’s automakers can’t ignore more or less direct orders from the Central government to produce EVs.  So production rose sixfold, to around 30,000 passenger BEVs, 7,509 passenger PHEVs, and a bunch of commercial PEVs as well.  Sales figures haven’t been released yet, but I’m sure they will also show impressive growth.

BAIC is giving away charging station to buyers of its EVs to alleviate a shortage of charging infrastructure.

But the numbers are still far short of what is needed to hit the magical 5 million by 2020. So Beijing has fallen back on what it knows best – a command economy. As my friend Yang Jian wrote in Automotive News China, the Central government has now assigned each province a sales quota for EVs. (go to http://www.caam.org.cn/zhengceyanjiu/20151216/1605181551.html and click on link at bottom of story).

Of course those quotas will be met. As Yang Jian points out, local government officials’ promotions are tied to meeting central government targets.  Exactly how local government officials will achieve those sales quotas given the lack of enthusiasm for EVs is unclear. My bet is on some numerical slight of hand  plus a lot of pressure on local government-owned companies to buy EVs.

This kind of policy isn’t entirely new. Beijing a few years ago issued a mandate for all local governments to buy NEVs and to make 30 percent of their new fleet purchases NEVs. That didn’t work. The same policy required 30% of those purchases to be from an auto manufacturer not in the same region. This was meant to prevent local government from just buying a bunch of EVs from the local automaker, which would have suddenly begun producing EVs. Or from the newly-formed EV manufacturer in town. Both would likely be invested in by the local government.  So the money would stay local.  But neither mandate seems to have been enforced.

Which brings us to a real problem with the most recent quota move — enforcement hasn’t been specified.  Implementation is frequently the weak point in Central government policies in China because enforcement is weak.  That is because of push back from vested interests. China’s central government has no problem enforcing a policy if it really wants the policy or regulation or law to be followed.

When enforced, these kind of command economy quotas haven’t worked so well for China in the past. Overcapacity, shoddy workmanship, and huge waste of resources is often the result. I predict that will also occur with EVs, and could have some dire consequences since a shoddily-produced car going even 50 km/hour is dangerous. Which reminds me to ask, will low-speed vehicles be included in the quota? If so, meeting the sales quota may be possible. But I doubt LSEVs will be included.

The other recent EV-related command is to build charging infrastructure. This is desperately needed and much less expensive.  Plus, there isn’t a huge downside to too many charging stations (which will never happen anyway).   But how different is this from the numerous earlier policies aimed at boosting EV charging infrastructure? In 2014 the government was going to spend 100 billion RMB on charging infrastructure and promoting EVss.  That was supposed to happen in 2015, as well.  Okay, that is the same policy, I suppose. But there isn’t anything very new about the recent pronouncements and they haven’t worked yet.

One thing I will say for China’s Central government, it hasn’t wavered in its commitment to EVs. (For an excellent overview of the entire history of China’s legislative and policy efforts to boost NEVs check out this report.)

China faces the same issues as the U.S. in expanding its EV fleet, mainly high cost, lack of charging infrastructure, and consumer uncertainty (produced by the previous two issues).  Is commanding provinces to sell more EVs the answer? I don’t think so but I do understand why China is trying this approach. I am just skeptical it will work. But the it is better than just giving up, I suppose.