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Electric cars in China

Chinese electric-car makers charge ahead, powered by state

Wave of vehicles at Guangzhou auto show risks oversaturating market

GUANGZHOU -- Ahead of a mandate for new-energy vehicles in China that rolls out in January, Chinese and foreign automakers are accelerating their shift to electric vehicles, with the latest offerings on full display at the Guangzhou International Automobile Exhibition, which opened Friday.

The momentum lies with Chinese manufacturers, which have a running start from years of state subsidies and protection. Foreign automakers are racing to catch up, as it becomes clearer that the experiment in transitioning from combustion engines will happen here, in the world's largest car market.

But as is often the case in China, a state-led push into a certain field, with little regard for market mechanisms, poses the risk of distorting the industry. Already, there are signs of a proliferation of players in new-energy vehicles that could lead to an oversupply. 

At Friday's opening, China's top electric-vehicle maker, BYD, unveiled its Tang sports utility vehicle, which can travel 600 km on a single charge, outdistancing Nissan Motor's Leaf at 400 km. Tang can also accelerate to 100 kph 0.5 seconds faster than Tesla's Model X, said Zhao Changjiang, head of BYD's auto sales said.

Beijing Automobile Works, China's second-largest electric car maker, debuted six electric vehicle models at the show. The centerpiece was its EX3 sports utility vehicle for mass production, which also can travel 600 km on a single charge.

BYD showcases its new Tang EV at the Guangzhou International Automobile Exhibition on Friday. (Photo by Takashi Kawakami)

Both companies have taken the lead in China's electric vehicle market. New-energy passenger vehicle sales from January to October jumped 91% on the year to 726,000 units. Of that amount, BYD sold about 163,000 cars for a share topping 20%, while BAW sold about 114,000 vehicles.

More than the environment, however, Chinese officials have their sights set on fostering domestic industry. New-energy vehicles are one of 10 core fields in President Xi Jinping's "Made in China 2025" strategy to modernize the country's industry. As the rules of the auto industry change, China sees a chance to assume leadership from American, European and Japanese rivals that dominated the combustion engine age.

New-energy vehicles account for just over 3% of China's new car sales now, but are expected to surpass 30% in 2030, Mizuho Bank estimates. This growth is being propelled by new production and sales mandates.

China will require that a portion of production and sales be devoted to new-energy vehicles for automakers making more than 30,000 cars per year. These companies must earn credits from the production of new-energy vehicles in accordance with their manufacturing and imports of traditional cars. Those that do not meet their credit goals will have to purchase credits from competitors that did.

Automakers will need to earn credits worth 10% of their production and imports of combustion engine cars in 2019 and 12% in 2022. But certain vehicles and capabilities earn more credits than others. Some cars can earn up to five times more credits based on their range per charge, while plug-in hybrids yield relatively low value with only double credits, for instance. The government is also restricting license plates for fossil fuel vehicles in major cities to encourage sales of electric cars, which are easier to obtain.

Chinese companies have hit the ground running toward this goal thanks to government subsidies and favorable regulation. The government began offering subsidies for new-energy vehicles in 2013. It further promoted domestic companies in 2016 by virtually requiring that Chinese batteries be used in these cars to qualify for the subsidies. Nearly $9 billion in support appears to have been distributed through last year.

Chinese battery makers have grown rapidly as a result. They control more than 60% of global market share thanks to companies like CATL, which has emerged as the world leader.

Foreign automakers were slow to enter China's electric-car market initially over concerns about the quality of local battery makers. But the new-energy vehicle mandate has spurred production by these companies, after complaints about insufficient preparation time delayed the mandate by a year.

Honda Motor will begin producing its electric vehicle for the Chinese market in December. It will include a new battery it jointly developed with CATL. Nissan also started local production in August for the first electric vehicle under its own brand in the country. Volkswagen, meanwhile, is building an electric-vehicle factory in Shanghai.

Toyota Motor has launched sales of an electric vehicle branded under partner Guangzhou Automobile Group. Joint venture GAC Toyota Motor handles production, but the credits can be applied to Toyota itself. The Japanese automaker will sell an electric car in China under its own brand in 2020.

But stumbling blocks remain for China's budding new energy vehicle market, such as excessive competition. It is thought that some 250 domestic companies already produce electric cars. The government has set a sales target of 2 million new-energy vehicles in 2020, but the industry is projected to exceed that based on automakers' publicly available production plans.

A slowdown in China's new car sales is also raising concern, with full-year sales expected to drop for the first time in 28 years in 2018.

"Consumer sentiment is cooling because of the U.S.-China trade war," said Yasuhide Mizuno, chief officer of Honda's Chinese operations. "It feels like the Chinese market has plateaued."

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