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By: Neil King

In my recent piece, China’s EV Push Could Reap Rewards in Europe, I alluded to the “growing campaign in China to promote electric vehicles.” I thought I’d elaborate on the numerous government initiatives in effect and also on consumer attitudes, ultimately explaining why China is on track to become the largest EV market in the world, possibly already in 2015.

Government Initiatives

One of the Chinese government’s initiatives to combat rising pollution is the introduction of brand-average fuel economy targets of 6.9l per 100km from 2015 and 5l per 100km from 2020. According to a comment piece by Yang Jian in Automotive News China, manufacturers that assemble vehicles in China “can easily reach their target of 6.9 liters next year by diversifying their product mix with more small vehicles, electric cars and plug-in hybrids.” In addition to these fuel economy targets, there are also central government and city-specific subsidies in place which can amount to discounts of up to CNY100,000 CNY (approximately US$16,000). Another boost to the fortunes of electric vehicles will come from the restrictions imposed on the number of cars that can be registered in certain cities (currently six cities to be precise but many more are expected to follow suit), from which electric vehicles are exempt. Finally, the latest initiative is that “China, the world’s biggest carbon emitter, is mandating that at least 30 per cent of new government vehicles be powered by alternative energy sources by 2016 in the government’s latest move to combat pollution” according to a Bloomberg article on October 24. To put this into perspective, government vehicles are commonly reported as accounting for 20% of vehicle sales in China.

In the context of these numerous government initiatives to stimulate demand for electric vehicles or NEVs (new energy vehicles) as they are commonly known in China, 38,000 units were registered in the country between January and September according to CAAM, the Chinese Automotive Manufacturers Association. This is still less than half the 88,000 units that were registered in the US in the first nine months of 2014 according to EDTA, the Electric Drive Transportation Association. Crucially, however, Chinese EV sales are reported as “increasing 2.8 times year on year” through September whereas EV sales in the US have increased by a mere 30% in comparison.

Consumer Attitudes

Aside from the relatively low purchase price of EVs because of the numerous initiatives in effect, the healthier attitude towards EVs among Chinese consumers is a key factor. As discussed back in February 2013 in “Red Turns to Green: Could China Spark an Electric Vehicle Revolution?”, the lack of a deeply ingrained petrol-driven motoring legacy handed down from generation to generation in China means there is less aversion to electric vehicle technology than in more developed markets. Furthermore, the technology has largely been sanctioned through electric bicycles and this also helps to explain why Chinese consumers express greater intent to buy environmentally-friendly vehicles. This is also supported by Cui Dongshu of the CAAM, quoted in Automobilwoche on October 28 as saying that “In the next two years, a large number of people will be encouraged to buy electric cars.”

Working on the premise that there will be 52,000 EVs registered in China in 2014 and 117,000 in the US, if the respective growth rates enjoyed thus far in 2014 are replicated, it will be a close call but China could even overtake the US already in 2015 to become the world’s largest market for EVs. The resulting economies of scale will reduce battery prices and, in turn, vehicle costs and technological developments such as supercapacitors will eventually increase driving range but the issue of charging infrastructure still remains. However, even this could be resolved if Chinese government proposals for a US$ 16 billion investment are realized. Overall, the pieces of the EV puzzle could yet come together in China. VW is certainly alive to the opportunity, with plans to introduce 20 new EVs over the next four years and some models will be imports (at least initially) and therefore wouldn’t even benefit from the subsidies available.

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