To support the development of stringent yet cost-effective fuel efficiency standards for Chinese passenger cars for the 2025–2030 time frame, this study evaluates the potential technology pathways for and incremental costs of meeting the preliminary fuel efficiency target outlined in Made in China 2025. Based on methods developed in previous ICCT studies, the authors evaluate the fuel efficiency impacts and costs of a number of engine and vehicle technology packages by leveraging detailed vehicle simulation modeling and teardown analysis, and then combine the results to derive cost curves for the entire Chinese passenger car fleet and its major market segments. This helps answer two key questions for policymaking:
- How much would it cost for industry to comply with a set of more stringent carbon dioxide (CO2) standards?
- Would an accelerated electrification timeline ease the compliance burden for auto manufacturers?
The preliminary target of 3.2 liters (L) per 100 kilometers (km) is equivalent to about 75 grams of CO2 per kilometer from average new passenger cars by 2030. Results show that, given the current state of internal combustion engine (ICE) technology, the target can be attained for around CNY4,900 in direct manufacturing cost (DMC) or CNY6,700 in total cost (TC), which includes DMC and markups per vehicle compared with the 2017 baseline. Additionally, the figure below compares the compliance cost to meet the target in 2030 through ICE technology only with a strategy that combines ICE technology with electric vehicle (EV) uptake. Because the incremental cost of most EVs will be cheaper than ICE vehicles by 2030, increasing EV share in the passenger car fleet will be a more cost-effective pathway to comply with fuel consumption standards. To meet the 3.2 L/100km target, the total incremental cost of compliance is CNY1,100 per vehicle with a fleet average EV penetration of 20%. When the target is met by a fleet average EV penetration of 40%, the incremental compliance cost turns into a cost saving of CNY5,000 compared with the 2017 vehicle production cost.
These incremental compliance costs are technology neutral and the study does not consider the impact of any potential regulations or incentives. Additionally, the cost estimates are conservative and all fuel-saving technologies are evaluated on a constant-performance basis. Still, the results demonstrate that increasing EV penetration will likely reduce the incremental cost to comply with future fuel consumption targets in 2030. In the meantime, before EVs become fully mainstream, there are still many cost-effective ICE technologies that can reduce CO2 emissions and fuel use.