Auto Industry

Battery depleted

China’s ‘green’ electric car revolution looks to have stalled

Battery depleted

Under repair: BYD has struggled to sell its much-hyped electric cars

July 26, 2010 was a groundbreaking day for the world’s car industry – that’s because it marked the first time a Chinese customer had purchased an all-electric car.

The vehicle in question was made by Zhong Tai, a firm that specialises in battery-powered SUVs. The man paid Rmb108,000, benefitting from a government rebate reducing the sale price by Rmb60,000.

Back then the news coming out of this infant industry was resoundingly positive. For example, just over a year ago, WiC reported that China’s electric vehicle industry was getting a further boost from 16 state-owned firms announcing an ‘electric vehicle union’. The aim was to invest Rmb100 billion ($14.7 billion) in battery-powered cars by 2012. At the time the China Daily pointed out: “It underscores the country’s ambition to be a world leader in new energy vehicles… The establishment of a national team to promote electric cars is of great significance to China’s ambition to make the leap from being the world’s biggest auto market to its greenest one.”

Not so fast. Much of the optimism about China’s push into green vehicles has stalled in recent weeks. Indeed, the poster-child for the nation’s green-auto revolution, BYD, recently announced an 89% fall in first half profit. Local media also reported that the firm would lay off 70% of the staff in its sales department.

The extent of the bad news even led the China Daily into a volte face. BYD itself was in need of a “recharge,” it warned. And more ominously, the newspaper declared the market was clearly “not yet ready” for electric cars.

The South China Morning Post agreed, identifying “technical hurdles, foreign dependence and frugal consumers” as factors leading Beijing policymakers to rethink their grand plans to have 20 million ‘green’ cars on the road by 2020.

The Hong Kong-based newspaper also disclosed that BYD had managed to unload a “scant” 53 of its e6 all-electric vehicles last year – and most of those to an experimental electric taxi company that it partially owns.

Further, in Shenzhen, where BYD is based, those taxi drivers using its electric vehicles were said to be “unhappy” with an inadequate network of the charging stations, which take around 90 minutes to power-up vehicles.

China’s premier is now expressing doubts too. In an essay in the Party’s Qiushi Journal, Wen Jiabao wrote: “It remains uncertain whether hybrid and electric cars will be the winners in the end. The next step in the development of new energy vehicles needs to resolve problems: problems with their technical path, problems with core technologies; problems with investment; problems with policy support – all must be addressed as quickly as possible.”

All of this from an engineer by training, which allows his scepticism a little added weight.

But long before Wen was going public with his own reservations, auto industry blogger Greg Anderson had been predicting problems.

On his ChinaBizGov site, Anderson wrote a piece in May 2009 that questioned the prevailing view that China was about to leapfrog the rest of the world into green vehicle leadership. “I hate to be one to stop the music while the party is getting underway, but I have yet to see any convincing evidence that China can inevitably lead the world in this technology,” Anderson warned more than two years ago.

He came to his conclusion by kicking the industry’s tyres in China (sometimes literally) and speaking to local experts.

One auto industry veteran, who had advised the government, gave him a less-than-rose-tinted verdict on China’s electric car ambitions: “All the companies are talking about it, but very little is actually being done. If the United States, Japan and Germany have not yet figured out a way to get consumers to buy these kinds of cars in large numbers, what makes you think China can do it? The Chinese will not pay a premium for a car in order to help the environment. If they can afford the premium, they will use it to buy a bigger car or a more famous brand.”

That has turned out to be a fairly accurate prediction. Chinese consumers have been buying bigger, flashier cars.

Meanwhile Anderson reckons only about a 1,000 ‘new energy vehicles’ have hit the roads in the last two years (sold mostly to local governments and state firms).

Nor is BYD “the darling of innovation it once appeared to be,” Anderson noted in another blog posting last month. BusinessWeek may have ranked BYD as the eighth most innovative company in the world in 2010 but perceptions of the firm have changed fast, says Anderson.

Then again, even if the Chinese were buying electric cars in record numbers, the SCMP wonders if they are even that ‘green’ after all. It says a recent paper commissioned by the UN Commission on Sustainable Development undermines the claim, by pointing to a serious problem: they charge their batteries using electricity from China’s “dirty coal-fired grid”. The paper found that the overall greenhouse gas emissions of an electric vehicle in China were consequently higher than those of a petrol-engine car (it was comparing Nissans of identical size).

If correct, it punctures one of the industry’s best marketing pitches.

© ChinTell Ltd. All rights reserved.

Sponsored by HSBC.

The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.