ArrowArtboardCreated with Sketch.Title ChevronTitle ChevronIcon FacebookIcon LinkedinIcon Mail ContactPath LayerIcon MailPositive ArrowIcon PrintIcon Twitter
Business

Carmakers look to China to improve fuel economy

Foreign manufacturers pairing with local companies to meet the new rules

With China ready to introduce new legislation related to "new energy vehicles" next year at the earliest, automakers from around the world are scrambling to comply. 

Chinese car industry groups will hold an international forum "New Concepts and New Business Forms," from Sept. 8 to Sept. 10 in Tianjin, southeast of Beijing, with many government officials and executives of car and autoparts makers from around the world expected to attend. 

Facing drastic regulatory changes in the world's largest car market, automakers in the U.S., Europe, Japan and South Korea will be looking for strategies for products and technology development to help them make more new energy cars in China. 

Western carmakers are tying up with their Chinese counterparts to build electric vehicles. So far, Volkswagen of Germany has allied with Anhui Jianghuai Automobile Group, Daimler of Germany has joined hands with BAIC Motor and Ford Motor of the U.S. has gotten together with Anhui Zotye Automobile. In addition, Volvo Cars of Sweden, now under the umbrella of a Chinese company, recently announced that every new model it introduces beginning in 2019 will be either a hybrid or fully electric.

The main thrust of the new energy vehicle legislation will be to threaten passenger-car makers with double jeopardy. Their fleetwide average fuel economy must meet a minimum, and their ratio of NEVs to total cars sold must reach a certain ratio.

Let's explain two acronyms:

  • NEVs are electric cars, fuel-cell vehicles or plug-in hybrids.
  • CAFC refers to the average fuel economy of a carmaker's fleet.

Failing to meet the targets will result in penalties, perhaps even a gradual ban on sales of internal-combustion engine vehicles.

The CAFC minimum mileage standard will be incrementally raised. It will start at 100km per 6 liters in 2018, then go to 100km per 5.5 liters in 2019, then to 100km per 5 liters in 2020. By 2025, it will be set at 100km per 4 liters. From 2026 through 2030, it will be 100km per 3.2 liters.

By meeting these CAFC minimums, automakers earn credits, otherwise they will be charged. Credits can be bought and sold to comply with the law. Companies with negative credits can buy them from others, in addition to earning them themselves.

NEV sales quotas, expressed as the share of NEVs to total passenger cars sold, will also rise incrementally: from 8% to 10% to 12% in the three years from 2018 to 2020. Each automaker's NEV credit goal is obtained by multiplying annual sales volume by the quota percentage for the year. Actual NEV credits are calculated by the number of each type of NEV sold. When the actual credit exceeds the target, the automaker is meeting government requirements, otherwise it must purchase credits from others.

The Chinese government's desire to promote electric cars is apparent in the new rules. While these receive two to five credit points per vehicle, depending on how far they can travel on a single charge, less environmentally friendly plug-in hybrids get only two points, regardless of their mileage.

The double credit system is having a significant effect on automakers. In 2016, Honda sold around 1.25 million cars, while Toyota sold 1.21 million cars, both record figures. But neither offers NEVs in China. To comply with the law, Honda Motor has announced that it will introduce electric cars designed exclusively for the Chinese market in 2018. Assuming Honda maintains its 2016 sales volume in 2018, it will need 99,817 NEV credit points, meaning it must sell 19,963 electric cars with a range of 350km per charge.

Toyota Motor, on the other hand, will need 97,136 credit points to maintain its 2016 sales volume in 2018. Although it announced the introduction of plug-in hybrids in the Chinese market, because each hybrid sold earns only two points, it must sell 48,568 of them to comply with the NEV requirements.

Having determined that meeting these targets will be very difficult on their own, U.S. and European automakers are pushing ahead with joint ventures with Chinese companies that already sell electric cars. Ford partner Zotye Auto sells only EVs -- 36,900 of them in 2016, which translates to about 100,000 points. Ford, on the other hand, sold 1.27 million cars in the country last year, but no NEVs. Partnering with Zotye will make it easier for the U.S. automaker to hit the target.

Originally published online by Nikkei Technology Online on Aug. 30, adapted by Nikkei Asian Review

Sponsored Content

About Sponsored Content This content was commissioned by Nikkei's Global Business Bureau.

You have {{numberArticlesLeft}} free article{{numberArticlesLeft-plural}} left this monthThis is your last free article this month

Stay ahead with our exclusives on Asia;
the most dynamic market in the world.

Stay ahead with our exclusives on Asia

Get trusted insights from experts within Asia itself.

Get trusted insights from experts
within Asia itself.

Try 1 month for $0.99

You have {{numberArticlesLeft}} free article{{numberArticlesLeft-plural}} left this month

This is your last free article this month

Stay ahead with our exclusives on Asia; the most
dynamic market in the world
.

Get trusted insights from experts
within Asia itself.

Try 3 months for $9

Offer ends October 31st

Your trial period has expired

You need a subscription to...

  • Read all stories with unlimited access
  • Use our mobile and tablet apps
See all offers and subscribe

Your full access to Nikkei Asia has expired

You need a subscription to:

  • Read all stories with unlimited access
  • Use our mobile and tablet apps
See all offers
NAR on print phone, device, and tablet media

Nikkei Asian Review, now known as Nikkei Asia, will be the voice of the Asian Century.

Celebrate our next chapter
Free access for everyone - Sep. 30

Find out more