Lessons spark new drive in China

When it comes to electric cars, Chinese manufacturers are looking to move into the fast lane - with gallery.

The BYD e6, while still yet to receive its full launch, is already operating as a taxi in the southern boom town of Shenzhen. BYD plans to sell a more powerful version of the car in the US. Equipped with a lithium-ion phosphate battery, it has a range of 300km and can be 50 per cent charged in just 10 minutes, according to BYD. Bloomberg NewsShow less

China has acted as a magnet to foreign car companies determined to capitalise on the spectacular economic growth in the world's second-biggest economy.

Global giants such as Volkswagen and General Motors have been in the country since the early days of the boom, and as a result the roads are dominated by vehicles bearing foreign badges, even if most of the cars themselves are manufactured in China.

When it comes to electric vehicles, the Chinese authorities appear keen to learn the lessons of the foreign takeover of the conventional passenger vehicle market by giving their own companies a head start.

A string of what some might see as protectionist measures, aimed at ensuring foreign firms transfer electric car technology to their Chinese counterparts, are in place to put home-grown manufacturers in pole position.

While 50-50 joint ventures are permitted with conventional vehicles, draft rules released earlier this year would require Chinese companies to have a majority stake in enterprises that make electric cars.

Already, joint ventures must own the technology for the motor, the battery or the power management system of electric vehicles they produce.

The heavy goods vehicles sector shows that Chinese manufacturers are able, if the conditions are right, to dominate their market before taking the fight to their rivals across the world.

Beijing hopes a similar scenario could unfold with electric cars. Analysts believe the Chinese authorities feel China could become a global leader in green vehicle technology.

If it does, the Chinese manufacturer BYD, which is part-owned by the US investor Warren Buffett, is likely to be at the forefront.

The company, based in Shenzhen, already has dozens of its e6 electric vehicles running as taxis in the southern boom town, and it was recently announced the model would also be supplied to the authorities in Rotterdam in the Netherlands.

"Their future relies on electric cars," says John Zeng, the director of Asia vehicle forecasting for JD Power and Associates, of BYD.

"[BYD] have put in lots of resources and technology and I believe they're the leading company in terms of the electrical car development."

The company, which declined to comment, is considering the US as a market for both the e6 and the K9 electric bus, and has a project with Volkswagen to create new models using lithium-ion batteries. Other Chinese car companies, including Chery, Dongfeng and Geely, have also unveiled hybrid or all-electric vehicles.

Mr Zeng sees the limited success local manufacturers have had in securing conventional vehicle technology from overseas car producers as an indicator that government efforts to promote technology transfer with hybrid and all-electric vehicles are also likely to fall flat.

Some manufacturers such as Nissan, with its Leaf model, are looking to import electric vehicles into China, rather than manufacture them locally and be forced to hand over their expertise to a local partner.

Yet Scott Laprise, an automotive sector analyst at the brokerage and investment consultancy CLSA in Beijing, believes Chinese car firms do not necessarily have to be at the vanguard in terms of technology. If they can undercut their rivals in price, he says, they can achieve sales.

Perhaps of greater importance than whether BYD or any of the several other Chinese electric vehicle manufacturers will become major global players is whether Chinese motorists, who buy more vehicles than anyone else, will embrace greener vehicle technology. The huge increase in the number of cars in China, and the resultant growth in emissions, risks overwhelming efforts to clean-up the country's heavily polluted air by closing dirty industrial plants.

Last year a senior government official told the Xinhua news agency one million electric vehicles could be sold annually in China by 2020.

Yet Mr Laprise believes China's car buyers are unlikely to want to embrace electric vehicles without significant financial reasons to do so.

"This is a country where people are getting used to the car and they're not going to be interested in electric vehicles," he said.

"This is not a natural marketplace like in the West. There aren't green groups going round saying you should buy them."

Instead it is likely to be government incentives that will encourage Chinese car buyers to choose hybrid or all-electric vehicles instead of their conventional models.

Last week the State Council, China's cabinet, began a public consultation on plans to offer tax reductions and exemptions to encourage the uptake of all-electric and hybrid vehicles.

Mr Laprise believes "soft incentives" such as preferential treatment for electric vehicles on toll roads, or exemptions to restrictions on driving, may be effective.

Drivers of electric vehicles might be allowed to ignore rules that say only vehicles with certain number plates may enter Beijing on a particular day.

He still sees major hurdles, however, in particular the high cost of batteries and the burden upon manufacturers of providing warranties for these batteries.

"[The warranty] is going to be a huge cost," he says. "Probably a lot [of manufacturers] will leverage that over time, as they can make it cheaper later - now it's US$5,000, (Dh18,364) maybe in five years it's only $1,000. You just hope it doesn't break in the first year."

On top of this is the huge investment required to set up charging stations, which the central Chinese authorities have been encouraging state and regional grids to create.

It will be a 20 to 30-year project, Mr Laprise suggests, before there are enough charging stations for electric-only vehicles to become feasible other than as taxis or other fleet vehicles used over only a limited geographic range.

In any case, a recent study produced on behalf of the World Bank cautioned that electric vehicles were just one element of what should be wider efforts to introduce green transport to China.

While the study, according to reports, praised China's introduction of what was described as "the most ambitious electrification programme in the world", consultants who produced the document warned the country should not see advanced technology as the way to solve everything. Electric vehicles still contribute to congestion and urban sprawl, and as China generates more than 70 per cent of its electricity from coal, one of the least eco-friendly ways of creating power, they can be seen as substituting one form of pollution for another.