Auto Industry, Talking Point

Highly charged

Can a Sino-German pact win the standards war for electric vehicles?

Germany's Chancellor Merkel delivers a speech at the opening ceremony of the Sino-German Electronic Vehicle Charging Project on the campus of Tsinghua University in Beijing

Germany's leader Angela Merkel at the opening ceremony at Tsinghua University

“Second class firms sell their brands. The best ones set the standards.” The origin of the phrase is unknown but it has become business doctrine. The struggle to impose an international standard usually coincides with the emergence of new technology. Years ago it was Betamax fighting for primacy against VHS in the video cassette market. More recently Blu-ray has battled HD DVD. But skirmishes over standards date back much further, including the advent of the executioner’s electric chair, or ‘Old Sparky’ as it was then dubbed. During the “war of currents” in the 1880s, inventor Thomas Edison squared up to tycoon George Westinghouse on whether direct current (DC) or alternating current (AC) flow should be used to power America. Edison supported DC and his collaborators built Old Sparky to make the point that AC was more dangerous. (Edison even suggested a new name for the capital punishment procedure, saying that the condemned men should be “Westinghoused”.)

In response Westinghouse employed the Austrian Nikola Tesla, another ingenious inventor. In the end the higher cost of DC power distribution proved decisive and the AC format prevailed.

Tesla’s influence lives on today – although he is perhaps better known to most less for the AC/DC war, than as the inspiration for Elon Musk, the co-founder of PayPal and chief executive of rocket launcher SpaceX. Another of Musk’s high profile firms, Tesla Motors, bears the Austrian inventor’s name. And appropriately enough, it is also fighting a critical battle over technical standards, in its case how to charge the batteries of its electric vehicles (EVs). Standing in the American carmaker’s way are other, more conventional manufacturers, including powerhouses from Germany. China is likely to have a say too, because of the market potential for green cars there. And the bad news for Musk is that the two countries have joined forces following German Chancellor Angela Merkel’s visit to China last week.

What’s in the EV pact?

“Elon Musk may have thousands of orders for Model S sedans in China this year. But Germany’s automobile delegation has returned home with a much better trophy: a unified charging standard for electric vehicles (EVs),” Shanghai Morning Post announced last week.

In fact, the cooperation dates back to 2011 when the two countries signed a strategic partnership on “electric-mobility”. That was a fairly nebulous deal which specified only that both governments would promote greater use of electrics cars.

But Merkel’s latest China trip, her seventh since 2005, took the collaboration to a new level. This time,the so-called Sino-German Electric Vehicle Charging Project was signed, bringing automakers and research institutes together in pursuit of a common standard. In the launch ceremony at Tsinghua University, Merkel and China’s Minister of Industry and Information Technology, Miao Wei switched on a charger powering various Chinese and German EVs next to the podium. Also present were senior executives from the likes of BMW, Volkswagen, Daimler, BAIC and BYD. The project’s primary objective is to ensure that EVs made in either country are compatible with the other’s charging standards, avoiding the costs of further modification or adaptation.

In fact, Merkel’s three-day visit was pretty focused on the wellbeing of the German automakers. Before announcing the EV charging project, she visited Volkswagen’s plant in Chengdu and the next day she signed off VW’s $2.7 billion joint venture deal with China’s FAW Group to build plants in Tianjin and Qingdao. It is part of Volkswagen’s $25 billion of planned investment in China from now till 2018.

Likewise, the German automakers have been drawing up bigger plans for the Chinese EV market. BMW will launch its i3 and i8 electric models in September in four leading cities. Daimler is also teaming up with its local partner BYD to launch the DENZA electric car later this year.

“Unified standards between China and Germany will be particularly favourable for German automakers, as China represents a big market for them,” was the verdict of the China Securities Journal.

What are the competing standards now?

What really matters is fast charging: the ability to power a vehicle up in a short period, at speeds on a par with refilling conventional cars at petrol stations.

It is here that charging standards come into the equation. “Charging an electric car isn’t ‘plug and play,’” a spokesman from State Grid told Century Weekly magazine. “There also needs to be a control circuit and communications protocol to ensure charging safety and interchangeability. One can’t simply add a converter and expect it to work.”

In fact, there are already a number of competing standards in the major markets of Europe, North America and Japan, according to the China Electric Power Research Institute. So far Japan’s CHAdeMO (an abbreviation of ‘charge for moving’) has been the most widely used, thanks to the popularity of Japanese models such as the Nissan LEAF. Two years ago eight of the largest American and German automakers agreed to promote a leading single-port fast charging approach known as the Combined Charging System, a format recognised by the industry standards bodies in both markets.

China has its own standard too. But because its automakers have a number of different joint ventures with foreign partners, the current EV charging format is a set of broad guidelines that are “recommended” to carmakers. Nothing is mandatory yet, says China Auto News. But this is expected to change. “Because everyone is standing their ground, we are taking into account everyone’s opinions and moving along according to the stipulations of the standardisation law,” Liu Yongdong, the deputy director of the standards centre at China’s power industry federation, told Century Weekly this month. “We’re about three-fourths of the way there, and by the end of 2014 we will reach a conclusion.”

Tesla, on the other hand, has a reputation for trailblazing a course of its own, something that it has demonstrated again with its Supercharger system. It opened its 100th Supercharger station in the United States this month. But in order to create a similar network in China, Tesla has to negotiate with the powerful State Grid (it has also held talks with real estate developers including SOHO China). That’s led to a slower rollout than in America (Tesla only unveiled its debut Chinese Supercharger station last month). For Tesla drivers, the delay has been frustrating, and even prompted one of Musk’s richer Chinese clients to install 20 charging pillars of his own, so that he could drive his newly delivered Model S from Beijing to his hometown of Guangzhou.

If only a national solution was so straightforward: regulators must approve a vast array of differing technical choices. For example, choosing between DC and AC flows, voltage levels, safety requirements, communication protocols and charging interfaces. The final outcome will be crucial to the EV car firms. As the Beijing News notes, the rules will pave the way for mass production of charging facilities, creating entry barriers for outside competitors.

Can China’s choice tip the balance?

Back in 2006, China tried to roll out a single national standard on mobile phone chargers. All handsets regardless of the brand were supposed to share a standardised power plug. But no deadline was set for compliance and the rule has been rendered less important by the emergence of smartphones. The failure is pretty much down to the popularity of Apple’s iPhone. Apple was able to grow its market share and (as in most thing) follow its own standards.

Beijing evidently doesn’t want the same thing to happen in the EV market. By pairing China’s potential market with technologies developed by German engineers, the Sino-German partnership could outmuscle the EV charging standard now being promoted by Tesla, Securities Daily says.

“Obviously Tesla wants to duplicate Apple’s success formula, to dictate the industry standard,” it argued.

Are there parallels? Apple developed ‘stickiness’ through its apps (which others build and sell on its App Store). Tesla has said that it will open up its EV patents to other carmakers. Presumably that is designed to create critical mass for its own standards, which will in turn support the Supercharger as the de facto method for powering up the growing fleet of green cars.

But Taiwan’s Business Today pointed to Tesla’s broader ambitions. “Elon Musk doesn’t want Tesla to be just an automaker, but an energy firm in the form of Exxon Mobil with its own filling stations.”

Just count the number of gas pumps around the world, the magazine suggested, and then substitute them with Supercharger stations.

Musk said last month that he plans to offer Tesla’s patents for free in hope of fostering a “common, rapidly-evolving technology platform”, although details are yet to be made public. The Financial Times has reported that Nissan and BMW are both keen on talking with Tesla on common charging facilities. Between them, the trio account for 80% of current electric car sales globally. At this stage, however, the identity of the final winner is unclear.

What is more definite is that all the parties to the debate know how much there is to lose. For instance, China Auto News has noted that the European Parliament prepared draft legislation last year curtailing its endorsement of the Japanese CHAdeMO standard by 2018. If Germany could lure China to a charging standard closer to the European camp, the Japanese automakers would be further isolated.

“Japan’s only chance is to win over China when the Sino-German alliance is still at initial stage, or else Japanese automakers may lose their leading position completely in the future,” the newspaper said.

But is finding common ground with the Chinese for an EV charging network likely when Beijing and Tokyo are at loggerheads over so many topics, including disputed islands in regional seas?

So the decisive factor is…

Winning the war over charging infrastructure only matters if EVs emerge as the auto industry’s future. At a Politburo meeting in May, Chinese President Xi Jinping made plain that the industry is regarded as a key sector for his government. A series of supportive policies have since been announced. For a start, major cities including Beijing and Shanghai have unveiled an expanded list of new energy models eligible for government subsidies or tax exemption. That move was significant, breaking away from the longstanding practice of local governments only offering subsidies for cars made by automakers from their own territories.

Also this month, the State Council said that all alternative-fuel vehicles – local or imported – will be exempted from a 10% purchase tax. It then announced that at least 30% of vehicles purchased by central government ministries over the next two years must be new energy cars. And after 2016, local governments are also obliged to meet the target. Under the rules, new sedan purchases for the government fleets shouldn’t cost more than Rmb180,000 each, which seems to be designed to help Chinese EV makers that sell cars at lower prices (By comparison, Tesla charges about Rmb734,000 for a Model S sedan with an 85 kWh battery).

The latest initiatives aim to deliver on Beijing’s promise to have five million EVs on Chinese roads by 2020 (fewer than 100,000 vehicles have sold so far, so there’s some way to go).

But China wants to be a major supplier of EV cars too. Shaping the rules of the game will help its automakers become bigger players in the global market, where they can also expect to benefit from economies of scale as manufacturers not just of vehicles but of charging stations too.

Hence the industry excitement this month on the publication of a plan by the Beijing Municipal Science and Technology Commission for the installation of rapid chargers at major transportation hubs in the city, including airports and train stations, as well as car parks and expressway service areas.

The goal is for every driver within the city’s Fifth Ring Road to be within 5 kilometres of a charging station by 2017, although presumably installations won’t begin on the new network until there is agreement on the appropriate technology to install. But when the charging infrastructure is built, EV makers will be hoping for a rapid pick-up in sales. The capital’s charging network is set to exceed in size any other currently in use, and thus should give the technology that supports it an immediate boost in the standards war.

“China has a huge potential market in EV,” Chancellor Merkel confirmed at the unveiling of the Sino-German charging pact. “Who owns the biggest market will be the one with the biggest say in setting the standards.”

As for Musk he’s been getting a more mixed response in China than Merkel. Last week a dissatisfied Chinese customer smashed up his Model S car in front of the firm’s Beijing showroom, saying it was “a protest against the company’s arrogance”.

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