A Glimpse at the State of Electric Vehicles in China

 In EV Industry

From its Great Wall; to its huge population; to its leading automotive market, China has always been renowned for its superlatives.

Now China’s achievements with EVs—known in China as new energy vehicles (NEVs; and not to be confused with Neighborhood Electric Vehicles)—continues to reach superlatives.

  • It is the world’s largest market for EVs (NEVs)—In 2016, 45% of all EV sales were in China.
  • It features the world’s largest EV OEM—BYD is a Chinese company.
  • It has the world’s largest growth rate for EVs—China’s 2016 growth-rate was more than 85 percent while the global average was 42 percent.
  • It has become a global leader in developing renewable energy capacity. China leads in wind, solar, and hydropower.

In 2016, 351,000 NEVs were sold in the passenger car category in China, along with 160,000 commercial vehicles which were mainly all-electric buses. The following figure shows the 2015 and 2016 plug-in sales for the 5 top countries and regions.

2016 World Plug-in Sales

2015 and 2016 world EV sales.

An Environmental Paradox

Unfortunately, China owns another superlative that totally contradicts its impressive NEV advances. The principal source of electricity in China is coal—the dirtiest fossil-fuel source. Furthermore, China continues to expand its use of coal. Although the newer plants will use premium, cleaner burning coal, the country produces some of the worst air pollution and greenhouse gas emissions in the world.

Beijing smogAdvancing the Adoption of Electric Vehicles

In 2009, the Chinese government decided to subsidize its EV industry to reduce air pollution, decrease its oil dependence, and create a manufacturing industry for jobs and exports. The government began its program with pilot projects in selected cities, which participated by introducing local subsidies.

Incentives included exemptions from traffic restrictions (Beijing), reductions in vehicle purchase prices, reductions in registration restrictions, and perks such as parking benefits.  Many of the larger cities in China encourage NEVs by exempting them from the lottery system used to award permits to own a conventional vehicle.

The emphasis on individualized incentives for each city in the pilot project resulted in a wide variety of incentives both for buyers and producers, but there are some, which are applied countrywide.

Tax Incentives

Some of the tax incentives the government introduced are:

  • Consumption Tax — Purchasers of NEVs exempt from this tax.
  • Purchasing Tax — NEVs exempt from Sept.1, 2014 to Dec. 31, 2017.
  • Vehicle Registration Fee — 50 percent reduction.
  • Import duty — NEVs and NEV products exempt for personal use.

Other Purchase Incentives

  • In 2011, China introduced a subsidy (paid to approved manufacturers rather than to the purchaser) of up to 60,000 Yuan ($9,281 US). Originally this was to be applied only to the first 50,000 units.
  • In 2013, these subsidies were changed to 67,710 Yuan ($9,800 US) for cars and 563,790.71 Yuan ($81,600 US) for electric buses. Auto blog reported in November 2016 that the national, provincial and local government incentives could be as high as 138,184 Yuan ($20,000 US) per vehicle.
  • In 2014, the Chinese government passed a requirement for 30 percent of all new government vehicle purchases to be NEVs by 2016.

A Change of Plan?

China has cut NEV subsidies by 20 percent for 2017-2018, and originally didn’t plan to renew these subsidies when they were set to expire at the end of 2020.

The plan now is to continue a 20 percent reduction each year until they expire. Part of this phasing-out could be due to the cheating around subsidies that the government discovered last year (more on that in a second).

The State of Electric Vehicles in China

NEVs are usually painted green.

NEVs are usually painted green.

China currently boasts about 645,000 NEVs. Almost 600,000 of them are compacts, sub-compacts or cheap city cars that have a top speed of less than 30 miles/hour. Many of these vehicles wouldn’t be considered viable or safe on any highways in developed countries.

China has dozens of NEV manufacturers because of the large incentives from national, provincial, and local governments that can get these producers up to $12,000 US per vehicle. One of these manufacturers is BYD, which is the largest manufacturer of NEVs in China and the world. BYD, which has Warren Buffet as one of its largest shareholders, has benefited tremendously from these subsidies.

Subsidy Cheaters

Both Forbes and Bloomberg have disclosed that many reported NEV sales could be fake.

In late 2015, the local Chinese media reported around 108,000 new NEV registrations for the first 10 months in 2015. Meanwhile, NEV manufacturers claimed sales of 171,145— 63,145 more than the total registrations for that same period. Then, abruptly at the end of December, the official production number for NEVs rocketed to 379,000.

China NEV sales jump in 2015

China NEV sales jump in 2015.

The state media proclaimed that the government was investigating this inconsistency. They suspected that car companies were assembling substandard quality vehicles and selling them to their own car rental companies. The purpose of the scam was probably the collection of undeserved subsidies. In September of 2016, 5 companies were initially accused of defrauding the subsidy program. By October, all five had been fined and an additional 20 more were being investigated.

China is exploring ways to limit the number of start-up companies, due to the fraud and need to control the explosion of NEV manufacturers. Green Car Reports estimates the number of these manufacturers at more than 190, with hundreds of new NEV models.

A Chinese Monopoly

China’s confusing mix of pro-electric policies is a challenge for global automakers, and the majority of the registered NEVs are made by Chinese companies. This dominance is mainly because China has unofficial, but assertive “guidelines” which manufacturers must follow to qualify for subsidies.

  • All non-Chinese auto producers must form new, joint enterprises with Chinese companies and these joint enterprises must produce NEVs.
  • All technology developed by a joint enterprise is owned equally by the two partners.
  • NEVs produced by the joint enterprise must carry Chinese brand names such as Denza.

Although foreign manufacturers have conformed to these guidelines, the technology restriction has resulted in little research; and consequently, the quality of most Chinese NEVs is poor and uncompetitive on the world market. China is now proposing to moderate these guidelines.

Implementing the ZEV Approach

China is considering a program similar to the California Zero Emissions Vehicles (ZEV) program, which would set a NEV production goal as a percentage of a carmaker’s total vehicle production. They’ve set a goal of 8 percent by 2018 and 12 percent by 2020. Like its California counterpart, the proposed system could use tradable credits and limits on clean vehicles.

The ministry of industry and information technology, which has been drafting new rules for its 8 percent NEV percentage, would have the rules in place by May or June of this year. Non-complying companies could be fined or forced to buy credits from successful manufacturers.

Energy Pricing

Here are some Chinese energy prices.

Basic electricity rate $0.08 US/kWh (OVO Energy)

Time of Use Rate: China has investigated time of use, but hasn’t have introduced it yet. (The deployment of smart meters began in 2011, but probably won’t be complete until 2020 at the earliest.)

Gasoline Price: $1.01/ L ($3.82/gallon US) (GlobalPetrolPrices.com)

Charging Infrastructure in China

Battery swap station in China

A battery swap station in China.

There are some unique characteristics to Chinese charging infrastructure. One distinction is that very few NEV owners are able to charge at home.  Instead, they depend on a network of public and privately owned charging piles and stations.

In China, NEV drivers refer to both charging stations and charging piles. Some countries use these two terms to distinguish between AC and DC charging, but the Chinese mean a single charging unit when they refer to a charging pile, and multiple piles when referring to a charging station.

In 2010, there were 76 public charging stations in China. This number mushroomed to 3,600 by 2015, while charging piles grew from 1,122 to 49,000 during that same time. Private charging piles reached 50,000 in 2015, and commercial ones (for buses, logistics vehicles, and fleets) totaled almost 60,000. The majority of these charging points are currently located in the eastern provinces.

Another unique feature of Chinese charging infrastructure is the combined charging and battery-swap station. These stations accommodate side swapping for buses and sanitation vehicles (battery packs on sides), and rear-swapping (battery packs in the trunk) or bottom–swapping (underneath) for cars. The swapping is controversial (due to safety concerns and manufacturer objections), and consequently, is currently limited to less than 500 combined charging and swapping stations.

China has plans for 12,000 charging and battery swap stations, and 4.8 million charging piles throughout the entire country by 2020. The plan is have one charging pile for each NEV. China recently introduced legislation to standardize the often incompatible and uncoordinated charging infrastructure.

China’s Pollution Dilemma

Coal plants in China

Coal plants in China.

One reason that China pushed for NEVs was to reduce its air pollution, yet over 80 percent of its electricity is provided by coal—not premium coal, but very dirty coal that has a high sulfur and ash content.

In spite of the dirty coal, perhaps there is a good argument for NEVS because the second highest source of air pollution in China is the transportation sector. NEVs could be a first step to emission reduction. At least NEVs remove the pollution source from the cities, and their improved efficiency could help decrease fossil-fuel consumption. The Long Tail Pipe argues that no matter what the source of the electricity, NEVs are always better for the environment.

Remember, NEVs are not the source of the coal-fired pollution. The NEVs always offer the opportunity of a change to renewables while conventional fossil-fuel vehicles (with current technology) will always produce environment-threatening emissions.

China is beginning to decrease its dependence on coal, and has recently cancelled plans for 103 coal-fired power plants.

The Future of NEVs in China

China’s target is to have 5 million registered NEVs by 2020, but continues to face challenges to reach this goal. As with other countries, a relationship exists between sales levels and subsidies. After the government dropped the national subsidy by 20 percent on January 1st, sales plunged.

China is thinking about reducing or delaying the planned ZEV measures because last years sales only amounted to 3 percent of total car sales. Critics thought the introduction of a ZEV program was premature because the car manufacturers wouldn’t have time to make the necessary technological transitions from internal combustion engine (ICE) vehicles.

China is now rethinking its restrictions on foreign EV manufacturers.  The government has realized these restrictions have caused the low technical quality their NEVs and they haven’t achieved the anticipated breakthrough. They now understand they can learn more from foreign manufacturers.

China’s goal is to reach a 10 percent NEV share of its new vehicle sales by 2020. In 2016, NEV sales reached a 1.45 percent market share. There is still a long way to go and January’s drop to just 0.25 percent is a bit discouraging.

China seems to be betting that the large manufacturers can use economies of scale to survive the reduced subsidies, while the small manufacturers will be forced to drop out. This could potentially be a dangerous game because any removal of subsidies that distances NEVs from the price of conventional vehicles has already been shown to reduce demand for NEVs.

Is this industry resilient enough to survive this “pruning” effort?

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