China's electric vehicle industry needs to raise its game on technology

New research shows that China is likely to miss its 2015 and 2020 roll-out
targets due to weak capability throughout the supply chain

London and New York, 24 October 2012 – Sales of plug-in electric vehicles
in China, including those using plug-in hybrid and battery electric
technology, are likely to fall well short of government targets, according
to research company Bloomberg New Energy Finance.

The Chinese government has supported both public and private purchases of
electric vehicles with some of the most generous levels of support in the
world. It has set ambitious sales targets: 500,000 cumulative sales by 2015
and 5m by 2020, contained in the 2012-20 New Energy Vehicle Industrial
Plan, released in July this year. Its policy reflects the potential of EVs
to reduce emissions, increase China’s energy security and help the
domestic auto industry to catch up with, or even leapfrog, foreign
competition.

However, Chinese electric vehicles sales have been slow: just 13,000
electric vehicles were sold between 2009 and 2011, including buses and
public utility vehicles. Figures for 2012 are not yet available, but are
not expected to be orders of magnitude higher.

There are three main factors holding back the Chinese electric vehicle
sector. First, on the demand side, consumers have shown little interest in
electric cars due to their high cost (despite subsidies), a lack of
charging infrastructure and a string of accidents involving these vehicles.


Second, on the supply side, the leading Chinese car manufacturers have not
yet put their muscle behind major model launches. They and their fleet
customers have been waiting for the government to publish the 2012-20
industrial plan, in order to avoid investing in the wrong technology. The
main electric vehicles on the market are produced by second-tier
manufacturers, and are not fully competitive alternatives to conventional
cars.

Third, and in the long term perhaps more importantly, there is a shortage
of the technological expertise in the supply chain needed to produce a
competitive, safe, mainstream electric passenger vehicle.

This technological expertise will take time to develop endogenously. The
early adopters will be public fleets, where purchase decisions for buses,
taxis, commercial and utility vehicles are decided, or at least heavily
influenced, by the government. Private purchases will initially be limited
to very low-end, compact vehicles – city cars – where consumer
requirements are more modest. Under current policies, we forecast under our
optimistic scenario that the cumulative sales of these segments will amount
to 343,000 by 2015 and just over 1m by 2020. The latter figure would be
equivalent to just 20% of the official target.

Michael Liebreich, chief executive of Bloomberg New Energy Finance,
commented: “China is making a big bet on electric vehicles. But it will
need to bring in expertise and technology from foreign players to create
competitive vehicles, and to deploy the full muscle of its auto industry in
order to produce vehicles the public trusts. If it does this, we could well
see sales in 2020 creeping closer to the target and China playing a leading
international role. But the chances of China going it alone in electric
vehicle, and as a result leapfrogging the world’s auto majors, are
looking very slim”.



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