China eyes 1m electric, hybrid cars in 2018
Last year, Beijing proposed a law to put a cap on carbon emission that requires automakers to allocate 8 percent of their sales to the production of electric and plug-in hybrids. In a market estimated at more than 12 million cars annually, this 8 percent translates into almost 1 million vehicles.
This move, designed to mitigate rising levels of pollution in China’s industrial megacities, is likely to change the entire landscape of the country’s auto industry. Last year, electric cars constituted only 1.8 percent of the total car sales in China — and mostly supplied by local companies. Now all major manufacturers have plans to develop electric and plug-in hybrids with the Chinese market in sight. This was evident at the recent Shanghai Auto Show.
Despite German and American companies’ requests for delay in the implementation of this rule, it is headed for legislative approval and is likely to be enacted as a law in 2018.
This explains the pace at which major companies are developing electric cars, as they do not want to miss their share in the Chinese market.
Last year, deliveries of electric and plug-in cars doubled to just over 500,000 vehicles in China. The Chinese government expects the figure to rise this year to around 800,000 vehicles. However, Chinese companies, which now control about 97 percent of the local electric car market, are keen to defend their share. They are introducing new models at very competitive prices making it difficult for foreign companies to gain a foothold.
Despite the stiff competition, global companies are not willing to give up the Chinese market. On the contrary, they were out in force at the Shanghai Auto Show with a superior variety of electric and plug-ins albeit mostly con- cepts to be launched by 2020.
Analyst Michael Dunne, who runs a consultancy in Hong Kong, said that the Chinese market has four distinctive features: Vehicles made locally, low prices, limited range and dubious quality. Reuters reports that cheap Chinese electric cars are profitable because of generous government subsidies. It gives an example of the Cherry eQ electric sedan, which is sold in Shanghai for $8,600 after subsidies, while its real cost without subsidies is $14,500.
When subsidies are phased out gradually, local Chinese companies would find it increasingly difficult to maintain their rising sales and market share. Meanwhile, in the next three years, global companies would come in with superior electric vehicles at higher prices seeking an elite consumer segment with high disposable income. For that segment, an electric German or American car would be a new status symbol.
The emission restrictions in Europe and the US may have influenced the auto industry to seek alternative powertrains including electric and plug-in hybrid vehicles but in fact, it is China that has the greatest impact in pushing the industry toward the use of cleaner energy.
The next wave of electric and hybrid products is likely to appear in the next Shanghai Auto Show in 2019. Companies are spending huge funds on developing those vehicles. Mercedes-Benz is leading by allocating a $10.7 billion budget plan to develop electric vehicles, while Volkswagen (VW) is leading in numbers by planning to introduce 15 electric and hybrid models by 2020. VW hopes to sell 400,000 electric and hybrid units annually. Ford said it would electrify 10 percent to 25 percent of its Chinese model mix by 2020, which exceeds the Chinese government requirement of 8 percent. Other companies such as Audi, Nissan, Tesla, BMW and Toyota also have big plans of their own. There are also plenty of start-ups, Chinese and foreign, that would emerge between now and 2020. Some of them aspire to capitalize on a growing segment by investing heavily now. All that momentum toward electric mobility is a huge gamble on a segment that is not proven yet. There is no guarantee that Chinese consumers would rush to spend their money on electric vehicles as companies expect. But no company can afford to hold back in this new rush to electrify their vehicles, as they believe it to be the next source of growth in the industry.