Sunday, November 15, 2009

Chinese Government Investment in Electric Vehicles

With tens of millions of electric bicycles and scooters already on its streets, China is well on its way to wide acceptance of electric vehicles (EVs). The Chinese government must consider strategies for managing its burgeoning fossil fuel consumption. China is already the second largest importer of oil in the world and unless they are able to curb their appetite, they will face supply shortages that could seriously harm their economy.

The adoption of EVs is a strategic decision for governments around the world. Japan plans to invest $200 million dollars annually into developing batteries for EVs in the next five years and France will invest 400 million euros over the next fours years into research on hybrid power and EVs. The US, French and Japanese governments are already offering about 7,500 dollars to consumers who buy zero-emission cars. The Chinese Central Government now provides the equivalent of a US$9,000 tax credit for the purchase of an pure electric car; and US$7,500 for a hybrid.

The city of Beijing has set a goal of producing half a million hybrid and plug-in vehicles annually starting in 2012. Shanghai expects to have a capacity of 10,000 green vehicles in 2010, 100,000 in 2012 and 300,000 by 2015. Guangzhou plans to produce 800,000 green vehicles by 2020. Altogether, the goals of automakers and cities would well exceed China's target of 1 million green cars by 2012.

Already China is the largest EV manufacturer in the world with a vehicle output expected to surpass 10 million units this year. With Chinese government's ambitious targets, this number is destined to grow. "The fuel-efficient and new energy vehicles should account for 10 percent of the total industry in 2012," Science and Technology Minister Wang Gang said recently in Beijing.

In a video from "The Business Of Plugging In 2009" conference, Yibing Wu, the the Managing Director of Beijing-based Legend Holdings, reviews why the Chinese government is well situated to advance the adoption of EVs.

Reducing dependence on oil and cutting its carbon foot print are part of China's national strategy. With 40-55% of pollution in China coming from its transportation sector developing electric powered alternatives makes a lot of sense. EVs represent an opportunity for China to leap frog past the internal combustion engine the same way it was able to skip the massive investment in hardwired phones through the introduction of cell phone technology. China's largest cities and have short commute distances which are ideal for adoption of plug-in cars. The Chinese government also has monopoly control of the national power grid.

Nissan and Renault CEO Carlos Ghosn said, "The Chinese government is conscious of the fact that in order to promote electric cars they have to give something to the consumer, because there's no way electric cars are going to become mass marketed products unless you give something to the consumer."

Chen Qingtai, a researcher for China's State Council Development Research Centre, said electric car development should be a priority for China. "For the electric car industry...we don't have economies of scale," Chen said. "If we increase the size of production, then the cost per unit will drop tremendously."

The adoption of EVs will serve the objective of reducing China's reliance on fossil fuels. However, Chen Bin, director of the commission's Department of Industry acknowledges that, "Many [Chinese] companies simply do not have the research and development capabilities." Some that cannot master core technologies have to outsource key components for assembly, he added. This provided the West with an opportunity to profit from the spread of EV technology into the world's largest market.
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