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Chinese cities race for subsidies in fuel cell gold rush

Authorities and automakers join hands to plan new industry hubs

A fuel cell bus unveiled by Chinese automaker Geely. (Photo courtesy of Geely)

TOKYO/BEIJING/NAGOYA, Japan -- China's push to promote hydrogen fuel cells as the next big thing in the auto industry has led to a slew of ambitious plans to develop the sector as local authorities vie for hundreds of millions of dollars in incentives.

State-owned SAIC Motor, based in Shanghai, recently announced its first medium-term strategy for fuel cells. The automaker aims to roll out at least 10 models and gain the capacity to produce 10,000 vehicles per year by 2025, and will shift to domestic sourcing as it looks to become globally competitive by 2030.

SAIC's announcement represents part of a plan by the Shanghai government, which oversees the automaker, to cultivate the city's fuel cell industry. The municipal government said last month that it aims to have 10,000 fuel cell autos in use by 2023 and build up the sector's output to 100 billion yuan ($14.9 billion).

The Chinese government has subsidized purchases of fuel cell vehicles for some time. A hydrogen-powered bus, for example, can qualify for as much as $100,000 in local and central government incentives in some cases. Yet a total of just 7,200 or so fuel cell vehicles had been sold as of this past July.

The government is shifting its approach, focusing on support for related areas such as parts and hydrogen fueling stations, which are seen as essential for bringing fuel cells into broader use.

Under a new program announced last month, certain municipalities will be designated as "model cities," with each receiving up to 1.7 billion yuan in funding for fuel cell vehicle development over four years.

The cities of Chongqing and Chengdu have already submitted a joint application. Yang Liqiong, deputy director of the Chongqing Economic and Information Technology Commission, told reporters that the city will "establish a hydrogen-power corridor with Chengdu."

Shanghai, Guangzhou and Beijing are also set to apply before the mid-November deadline, according to a source familiar with the situation.

Local authorities plan to supplement central government funding with subsidies of their own to support businesses in the field.

China seeks to make all new autos sold in the country "eco-friendly" by 2035, with "new-energy vehicles" such as electrics and hydrogen-powered cars making up half the total, according to a road map announced Tuesday. The government aims to boost cumulative sales of fuel cell vehicles to 1 million by that year.

These targets will be essential to reaching the country's goal of net zero carbon emissions by 2060.

Fuel cells are seen as especially promising for commercial vehicles such as buses and trucks, as they are lighter and have a longer range than electric batteries.

China also has a ready supply of hydrogen, which is generated as a byproduct of chemical plants and steel mills. Switching to fuel cells from gasoline would help improve energy security for a country that imports 70% of its oil.

The fuel cell push is particularly good news for Toyota Motor, which is a trailblazer in the field and also has many partner companies in Beijing and Guangdong Province, which are seen as likely candidates for the "model city" program.

The government's policies are "very welcome," a Toyota executive said.

Toyota supplies parts for fuel cell vehicles to Chinese partners including FAW Group under a 2019 tie-up. The Japanese company also formed a joint venture this past August with FAW and four other automakers to develop fuel cells for commercial vehicles, which is slated to begin shipping fuel cell systems for Chinese buses and trucks in fiscal 2022.

Toyota supplies cell stacks made in Japan's Aichi Prefecture, where its headquarters are located, aiming to promote fuel cell technology in China while minimizing the risk of technology leaks.

But some in Japan regard China's progress on this front with alarm. Tokyo's strategic hydrogen road map calls for the total number of fuel cell autos in the country to reach 40,000 by 2020, but only about 4,000 had been sold as of the end of fiscal 2019.

While Toyota and compatriot Honda Motor are at the forefront in terms of technology, developing a supply chain will be difficult until fuel cells enter broader use.

"Looking at China's momentum is worrying," an executive in the Toyota group said. "We want to see stronger policies from the Japanese government."

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