In China, new energy cars have for some time been the hope upon which local manufacturers have pinned their dreams of world automotive market leadership. China’s government ambitiously seized an early advantage over foreign OEMs and suppliers by enthusiastically backing local new energy vehicle manufacturers, aiming for a million new energy vehicles on the road by 2015, five million by 2020. Small wonder, then, that this grand vision encouraged Chinese OEMs to focus their efforts on the new market.
But, like all dreams, the government’s plan and its optimistic timetable have faced a few realities in recent months, and analysts fear legislators’ ardour for new energy vehicles may be cooling. Take the government’s new tax policy, for example, which went into effect on 1 January 2012. The vehicle and vessel use tax regulations encouragingly exempt pure electric vehicles (EVs), fuel cell vehicles and plug-in hybrids (PHEVs). But while new energy buses will feature on the government’s procurement list, new energy passenger vehicles will not.
The stop-start nature of Chinese government policy has started to make the car industry nervous, and several industry sources are expecting less investment in the new energy passenger vehicle sector over the next few years.
The Chinese government’s ambiguous and non-committal policy to new energy vehicles can also been seen in government subsidies of up to Yuan 60,000 (US$9,370) for pure EVs and Yuan 50,000 for a new generation of PHEVs, which are available in five cities, but only on a trial basis. The government has also dragged its feet on a Yuan 100bn (US$15.8bn) subsidy to “support R&D and commercialise” new energy vehicle technology. Although launched in 2010, it was shelved the following year after several new energy vehicles caught fire. The safety concerns have made the government wonder if it is too early to spur the industry’s investment in new energy vehicles when Chinese OEMs lack the core technologies.
The stop-start nature of Chinese government policy has started to make the car industry nervous, and several industry sources are expecting less investment in the new energy passenger vehicle sector over the next few years. “The Chinese new energy vehicle sector is still policy-oriented rather than market-oriented,” one industry source told Mergermarket this week. “The vague expectation of the policy would slow the pace of OEM investment.”
Similarly, Jinliang Liu, Geely’s vice president, questions whether the market is ready to shift to new energy vehicles. Selling traditional cars to consumers is a totally different scenario to the government’s procurement of new energy buses and taxis for public transportation, says Liu. Others point to the difficulty of promoting new energy vehicles to customers due to issues like durability and safety.
Perhaps would-be foreign and domestic investors in China’s new energy vehicle market should temper their frustration in the knowledge that the government’s long-term goal will not change particularly if oil prices continue to rise.
The effect of these twin problems of government policy ambiguity and consumer reluctance can already be seen in the frustrated plans of Chinese car and battery producers such as BYD, Zotye and Yintong. All three plan to gain advanced new energy vehicle technology through overseas acquisitions, but are expected to suspend plans because of limited domestic sales capacity and the corresponding difficulty of financing these deals. Cash-rich state-owned OEMs like FAW Auto, Dongfeng Motor and BAIC Motor are also likely to be prudent until the government’s subsidy policy is clarified.
This does not, however, present an opportunity for foreign new energy vehicle manufacturers; Chinese regulations restricting overseas OEMs to local joint ventures, and then only with a holding of less than 50%, will make sure of that.
Perhaps though, as Liu explains, would-be foreign and domestic investors in China’s new energy vehicle market should temper their frustration in the knowledge that the government’s long-term goal will not change particularly if oil prices continue to rise. “It would take at least two more years before the market is ready for new energy passenger vehicles,” Liu says. “But the industry may still get there in the end.”
The opinions expressed here are those of the author and do not necessarily reflect the positions of Automotive World Ltd.
Olia Wang and Wentao Wang are Mergermarket reporters.
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