The Electrical Vehicle Market in China - The next wave ? www.solidiance.com

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Based on Solidiance’s forecast, there could be between 2 to 4 million green cars on the roads in China by 2020, given a 5-10 % penetration rate of the Chinese Electric Vehicle Market. This China Market Intelligence whitepaper reviews the drivers and barriers to growth in the China Electrical Automotive sector and covers the issue of electrical batteries as well.

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The Electrical Vehicle Market in China - The next wave ? www.solidiance.com

  1. 1. Electric Vehicles in China –Are They Worth the Hype? A Paper on the Growth of the Chinese Electric Vehicles Market中国 September 2011
  2. 2. Government Support Will Alleviate Gaps Between ICEs and EVs2010 10 contents Price Premium Appendix A: The Future for Electric Comparison of Vehicles in China for EVs Remains Too High for Most Petrol and Electricity Seems Bright: PricesElectric Vehicles Consumers 01 11&12 in China –Are They Worth the Hype? Advantage #1: China’s Growing and Largely When Would Fuel 23 Untapped Automotive and Electricity Prices Credits Make EVs Cheaper 24 Market per Kilometer? 02 13&14 Advantage #2: The Extent of Support Where Will the from the Chinese Chinese EV Industry Government Be in 2020? 03&04 15-18 The Role of the Could Some Auto Government Is Crucial Manufacturers Be Too to Give the Industry Optimistic? Direction 19&20 05 In the Interim, But Growth Will Not Be Hybrids are the All Smooth-Sailing Bridge between ICEs and EVs 06&07 21 Government Support Summary Will Alleviate Gaps Between ICEs and EVs 22 08 The Need For a Flexible Charging Infrastructure 09Electric Vehicles in China – Are They Worth the Hype? Solidiance ... 01 ...
  3. 3. The Future for Electric Vehicles in China Seems Bright: Electric vehicles, it seems, are the way of the future. China appears to believe so. The Chinese Contemporary electric vehicle (EV) technology has government looks set to develop the always seemed to the everyday consumer innovative industry, pledging to finance infrastructure and ahead of its time, yet lacking in accessibility and and research into EV technology; practicality. But has this finally changed? Along with automotive manufacturers also seem the green movement that has been increasing in certain, with many forming joint ventures momentum across the globe over the past years, with domestic automotive companies, like it seemed only natural that the market would seek General Motors and Shanghai Automotive out a more environmentally-friendly alternative Industry Corporation (SAIC), to break into to traditional internal combustion engines (ICE). the market. Industry players have been experimenting with gasoline alternatives through concept cars powered The plan is certainly ambitious for the by hydrogen fuel cells and bio fuel as two examples. Chinese government – to have 500,000 to 1 million green cars (including electric and hybrid cars and buses) Are electric vehicles the answer to by 2015, thereby decreasing average the call for green technology that fuel consumption by 30% among new is also commercially viable? cars1. Yet, if we were to consider the sales of the Toyota Prius (a dismal 1,500 to 2,000 in 2009) as a benchmark in China for the market of environmentally friendly, electric vehicles, the future for electric vehicles in China does not seem especially optimistic. So what might the factors be that account for such confidence in pure EVs? And is the Chinese EV market indeed worthy of its hype? 1: China Association of Automobile ManufacturersElectric Vehicles in China – Are They Worth the Hype? Solidiance ... 02 ... / 01
  4. 4. Advantage #1: China’s Growing and Largely Untapped Automotive Market Passenger Cars per 1000 People, 2007 In 2009, China had only approximately 57 car owners 600 566 for every 1000 people in its 500 463 451 population while already being 400 the largest auto market in the world. The potential for growth 300 248 in the Chinese market to reach 200 car ownership levels similar to 113 100 57 developed countries like the 0 Germany and the US where Germany UK US South Singapore China there are at least 9 times more Korea passenger cars per 1000 people Source: World Bank. Figures for China are dated 2009. should not be underestimated. In fact, the Chinese With growth of the market fueled largely by first-time car owners, many industry players are convinced that it will automotive market be easier for the growing Chinese market to leapfrog is expected to grow traditional ICEs, instead embracing “green”cars –both pure EVs and hybrids –more readily than matured auto at a rate of 10% markets. Indeed, it is encouraging that approximately 60% every year in the of Chinese consumers “wouldconsider”buying an electric next decade. car, far outpacing respondents in US (12%) and Japan (5%) (see graph).70%60% Respondents expressing interest in China “definitely” or “most likely as soon as it50% is available” purchasing40% Italy a pure electric vehicle, 201030% Source: Ernst & Young, Global Automotive Center survey20% France Germany10% UK US Japan0%Electric Vehicles in China – Are They Worth the Hype? Solidiance ... 03 ... / 02
  5. 5. Advantage #2: The Extent of Support from the Chinese Government The Chinese government is highly supportive For a 3-year trial (from 2010 to 2012) in 5 of the development of the domestic EV cities in China: Changchun, Hangzhou, Hefei, market – they are committed to the goal Shanghai and Shenzhen, $147 million will be of placing 500,000 to 1 million electric and invested in research and development for hybrid cars and buses on the roads by EV technology, in addition to $737 million to 2015, and have pledged substantial funds subsidize EV purchases. to finance their plans. The Chinese government has also pledged long-term support for the industry, investing $192 million in the alliance of 16 state-owned enterprises involved in various segments of the EV industry, including power providers and R&D institutes. A further $14.7 million will be invested in the research and development of energy-efficient technology by 2012 . Such continued government support will help build a strong ecosystem for the EV industry in China, and in doing so, create the foundations for the growth of the industry past its initial emergent stage in the coming years.Electric Vehicles in China – Are They Worth the Hype? Solidiance ... 04 ... / 03
  6. 6. While it is unlikely that consumers would switch to EVs en masse in the next decade, strong government support will help lay the foundations to facilitate industry growth. The demand for EVs will be sustained by manufacturers and power grid companies which innovate and provide products and services aligned to the preferences of consumers. Thus, government support in facilitating such development is crucial, and the advantage of the Chinese market is the enthusiasm Advantage #2: of the government in doing so. The Extent of As represented in the diagram of the EV industry ecosystem on the right, government intervention in Support from the Chinese market targeted at power grid companies, OEMs, and R&D institutes will help encourage constant the Chinese innovation in technology and enable the provision of a charging infrastructure, thereby creating a conducive Government environment for growth. EV Industr yE cos ys Source: Solidiance te m Government Consumers Distributers Raw Materials Suppliers R&D Institutes Power Grid Original Equipment Companies Manufacturers (OEMs)Electric Vehicles in China – Are They Worth the Hype? Solidiance ... 05 ... / 04
  7. 7. The Role of the Government Is Crucial to Give the Industry Direction The need for a A Short Introduction well-defined road map ECOtality is a leader in EV technology, and aims to help - An interview with Mr. Peter Nimmo, introduce EVs in countries across CEO ECOtality Australia the globe. Besides R&D and the manufacture of EV charging equipment, an aspect of their For a sustainable EV industry, ECOtality believes that business is assisting governments all facets of the EV ecosystem have to grow together: to build an integrated “EV Micro- developments in vehicle technology, increased knowledge Climate Infrastructure” through about consumer choice and preferences, the establishment bringing together and supporting of a comprehensive charging network that is also flexible different sectors of the industry, in dealing with power needs, and necessary government including OEMs, energy providers, legislation to guide the EV industry all have to come together. and charge operators. ECOtality has entered the Chinese Hence, the Chinese government needs a well-defined road EV industry through establishing a map to guide the development of its EV industry, and which joint venture with Shenzhen Goch requires the collaboration of various government units and Investment Limited to manufacture industry players. and assemble EV charging equipment. ECOtality China notably And on that note, even though the Chinese government is secured a $300 million credit line in enthusiastic in developing the industry, they are, in the wordsMarch 2010 to finance its expansion. of Mr. Nimmo, “not as far progressed as they want to be”.Electric Vehicles in China – Are They Worth the Hype? Solidiance ... 06 ... / 05
  8. 8. But Growth While foreign companies have been collecting data in regions like North America and thus Will Not Be have the expertise of doing so, the current challenge is for foreign companies with that expertise to overcome cultural barriers to All Smooth- enter China. Sailing All things considered, there are multiple facets of the EV ecosystem that have to be addressed and developed simultaneously to build a sustainable EV industry tuned to the needs of consumers. The efficacy of such an effort is contingent first on the successful This road map first has to be collaboration of industry players and Chinese preceded by a study of consumer policymakers, and second on data collection driving patterns and preferences. To on consumer preferences. enable the sustainable development of the EV industry, Chinese policymakers need such data to establish efficient infrastructure tuned to the It will be challenging to attempt to change needs of consumers (e.g. to locate adequate our reliance on ICEs over the past 100 charging stations at convenient locations) and years in just 10 years. There needs to improve driver experience. be a cultural shift away from petrol use, and also changes in the entire auto Such data, which could be obtained though industry, including infrastructure and working with tertiary and R&D institutes, will legislation. then give policymakers direction to address support issues. For example, how should we react to the increased load from charging EVs We are talking about a on the power grid? paradigm shift.Electric Vehicles in China – Are They Worth the Hype? Solidiance ... 07 ... / 06
  9. 9. But Growth Will Not Be All Smooth-Sailing Adoption Barriers for EVs Source: Solidiance Affordability Limitations of Issues of of EVs Infrastructure Convenience - Price of - Lack of - Limited range battery packs comprehensive of EVs charging network restrictions on -Network has to spontaneous be tuned to or long drives consumer choice and preferences EVs: 5%-10% penetration rate in 2020Electric Vehicles in China – Are They Worth the Hype? Solidiance ... 08 ... / 07
  10. 10. Government Support Will Alleviate Gaps Between ICEs and EVs Issue 1: Due to their familiarity with gasoline In addition, this also means that the engines, consumers feel more at ease with convenient use of EVs is limited only to the reliability of traditional ICEs driving within cities, preventing drivers from taking impromptu or long-distance Among EV models scheduled for sale in China, the range drives. The reliance on special charging of electric cars varies from around 120km to 300km. stations also implies that before drivers This range would theoretically be feasible for city travel, adopt EVs, a comprehensive network since the typical urban Chinese commuter travels for of such charging stations has to be in short distances averaging only 25 km and, during peak place to convince them of their ability to hours, at low average speeds due to gridlock. charge their vehicles at a place and time of their convenience. However, the consumer’s concerns of convenience, especially given the price premium of EVs, are hard to Source: General Motors change in the short-run. The government’s response to the need for a comprehensive charging network is encouraging for the market… State-run State Grid Corporation of China has invested 250 billion yuan ($37 billion) to build 75 charging stations and 6,209 charge points across 27 provinces by the end of 2010. if paired with the use of a new quick-charge technology which allows for the EV battery to be fully charged in approximately 15 minutes, drivers could possibly extend the range of their EVs within a day. Source: State Grid Corporation of China … but is not without its limitations 1 2 3 Is there land Will the power Will the available grid be able infrastructure for charging to sustain the suit consumer stations? additional load? behavior and preferences? Source: SolidianceElectric Vehicles in China – Are They Worth the Hype? Solidiance ... 09 ... / 08
  11. 11. ECOtality wants to give consumers flexibility and choice within the charging network… - An interview with Mr. Peter Nimmo, CEO ECOtality Australia, continued A successful and sustainable infrastructure network not only has to be accessible, but also flexible enough to cater for consumer behavior and preferences. The Need For We have to consider the consumer’s choices with respect to how, where, and when they plug into the grid, and also a Flexible the possibility of offering different payment options. Just as how an ICE driver may select different grades of petrol at Charging a pump, an EV driver could have the option of paying for a quicker but more expensive charge, or a slower but more Infrastructure affordable one. … as well as create an infrastructure capable of reacting to patterns of power consumption Plugging in to charge EVs would increase the load on power grids, and flexibility in power allocation would be a more sustainable and efficient method of providing for that increase as opposed to increasing overall energy production. Image: Paul Martin Eldridge / The charging infrastructure needs to be able to react FreeDigitalPhotos.net to changes in patterns of power consumption by controlling the amount of power directed towards charging EVs. For example, during periods of peak energy use, power stations could reduce power directed towards charging EVs and restore it only after there is spare capacity. / 090 01Electric Vehicles in China – Are They Worth the Hype? Solidiance ... ...
  12. 12. Issue 2: Developing battery technology and small scale production mean that prices of EVs are not yet competitive with ICEs Batteries may make up “up to 75%” (McKinsey) of the price premium between traditional ICEs and electric drive vehicles (i.e. hybrid and pure EVs), and it will take time before new technology and manufacturing methods are developed for production costs to reach a more affordable level ( the Chinese government has Image: Salvatore Vuono / FreeDigitalPhotos.net announced $149 million in subsidies for the research Government and development of EV technology to help speed up the process). Currently in 2010, the industry average cost for a battery is about $650 per kWh – the battery pack of the electric Chevrolet Volt, for example, costs approximately $600/kWh. For a typical 20 kWh battery, Support Will that would mean a cost of $13,000. Even after trial subsidies at 5 cities, Changchun, Hangzhou, Hefei, Alleviate Gaps Between ICEs Shanghai and Shenzhen for purchases of EVs, at current levels of technology, EVs are still considerably and EVs2010 more expensive than ICEs. 2010 – 2012 Trial Subsidy Program • 5 billion RMB set aside for direct subsidies to manufacturers • Pure EVs with battery capacity > 15kWh: • Subsidy of 3,000 RMB per kWh • Capped at 60,000 RMB per EV • Plug-in Hybrids > 10kWh: • Subsidy of 3,000 RMB per kWh • Capped at 50,000 RMB per vehicle • Hybrids <1.6L • Subsidy of 3,000RMB Source: China Ministry of Finance Source: McKinsey, Electric Shock Electric Cars / 101 01Electric Vehicles in China – Are They Worth the Hype? Solidiance ... ...
  13. 13. Price Premium for EVs Remains Too High for Most Consumers Consider BYD’s E6, BYD’s first EV, with pre-sale price set at 300,000 yuan ($44,248). After a government subsidy and a Shenzhen city government subsidy of 60,000 yuan ($8,850) each, the E6 would cost about 180,000 yuan ($26,548). To Some of the hybrids consider what this implies to majority of potential car buyers and electric cars in China, BYD’s F3, ranked first by sales volume in China in look pretty cool, the first five months of 2010, with 138,000 units sold, costs only 60,000RMB ($8,800). but they are too expensive. I’d As China is still a developing country, the price of a car forms rather spend less a large proportion of an average consumer’s annual income. Hence, majority of potential car-buyers in China are price money on a reliable sensitive, and the mass adoptability of an EV given today’s gasoline car prices is unlikely. Based on 2009 figures, the average annual -Huang Jihai, 51, who bought income in cities was about 18,858 yuan ($2,781) in 2009, his daughter a General Motors making an E6 about 2 times the average annual salary of Co. Chevrolet Cruze as a urban dwellers in China. wedding gift. Source: Bloomberg In addition, potential car owners are able to purchase an ICE with better specifications for the price of an EV. Indeed, for approximately the same price as the BYD E6, consumers may instead choose the Buick Excelle GT, which features A Selected 1.8-liter fuel efficient engine, and is sold for 189,700 yuan ($28,000) in China. Look at Car Prices in China, 2010 50 45 USD, in thousands 40 35 30 25 20 15 10 5 0 BYD E6: Subsidies BYD E6: Buick Honda Fit Chevrolet BYD F3 Full Price Subsidised Excelle GT 1.3L Sail 1.2L 1.5L Price 1.8L Sedan Sources: General Motors, NY Times, and various news articles / 112 01Electric Vehicles in China – Are They Worth the Hype? Solidiance ... ...
  14. 14. Price Premium for EVs Remains Too High for Most Consumers The problem for manufacturers is that prices may only fall when there is sufficient demand for EVs among Chinese consumers. This demand would increase scale of production, allow for economies of scale and create incentive for research institutes to innovate. Yet, the current problem is that demand is impeded by high EV prices, and will only grow when prices fall. Current levels of subsidies are inadequate to make EVs affordable for the masses. For that to be achieved, battery technology first has to approach an affordable level, and manufacturers also have to be able to reduce production costs through increasing their scale of production. / 123 01Electric Vehicles in China – Are They Worth the Hype? Solidiance ... ...
  15. 15. When Would Using assumptions for battery Fuel and technology as outlined in Appendix A, we get the following : Electricity Prices Cost per km, ICE = Cost per km, EV Make EVs Fuel cost per km = Cost of charging per km + battery depreciation per km Cheaper Per y = x + 0.065 Kilometer? 12.41 5 where x = price of electricity, To convince consumers to switch to EVs, and y = price of petrol the cost of driving an EV per kilometer has to be less than that of a traditional Hence, depending on the respective ICE. While the price premium of an EV is prices of electricity and petrol in each substantial, including the price of the battery Chinese province, we will be able to in the upfront cost of the EV is similar to predict whether it will be cheaper to drive including the price of tanks of petrol in the a traditional ICE or an EV per km using cost of a traditional ICE – hence, a better the above model, as well as identify the comparison of cost would be to look at the relevant price levels at which an EV will cost of driving each kilometer. be cheaper to drive for 1 km. Price of Petrol ($ per liter) y x = + 0.065 12.41 5 EVs more affordable per km Traditional ICEs more 0.81 affordable per km Price of Electricity ($ per kWh) Source: SolidianceElectric Vehicles in China – Are They Worth the Hype? Solidiance ... 13 ... / 13
  16. 16. When Would Fuel and Electricity Prices Make EVs Cheaper Per Kilometer? Using prices in Shanghai as an example, where the cost of: Image: Idea go / FreeDigitalPhotos.net 93 octane petrol = $1.01/liter (6.87 RMB/liter), and electricity = $0.09/kWh (0.61 RMB/kWh), At existing levels of technology We find that the cost per km, ICE <cost per km, EV, which makes it (i.e. cost and range cheaper for a driver in Shanghai to drive a kilometer in a traditional of batteries), petrol ICE than an EV. prices are currently With electricity prices in China at between $0.07 and $$0.20 per too low to encourage kWh, petrol prices will have to be greater than the range of $0.99 Chinese drivers to and $1.36 per liter for EVs to be more affordable than ICEs. switch to EVs. Price of Petrol y x ($ per liter) = + 0.065 12.41 5 1.03 1.01 Traditional ICEs more affordable 0.81 per km 0.09 Price of Electricity ($ per kWh) Source: SolidianceElectric Vehicles in China – Are They Worth the Hype? Solidiance ... 14 ... / 14
  17. 17. Where Will the Chinese EV Industry Be in 2020? Growth Drivers: Consumer demand for EVs are highly dependent on factors which affect the convenience and affordability of EVs in relation to traditional ICEs. Hence, in the future, the successful establishment of Consumer preferences will also influence a comprehensive, convenient, and flexible network buyers to accept certain levels of price of charging stations, as well as the availability of premium over ICEs, further encouraging adequate subsidies, will directly boost demand. demand. In addition, since convenience and affordability are The extent of growth of the EV industry in consequences of the level of EV technology, there China in 2020 will therefore depend on the is a need for competition within the market and development and interaction of the above constant innovation to encourage the manufacture mentioned factors. of more efficient and affordable vehicles. Government Subsidies to Increase Affordability Convenient, Consumer Flexible, Preferences for Charging Environmentally- Infrastructure friendly Technology Competitive EV EV Constant Innovation and Demand Market R&D Source: SolidianceElectric Vehicles in China – Are They Worth the Hype? Solidiance ... 15 ... / 15
  18. 18. EV Sales: Based on predictions by industry players and Chinese policymakers, new vehicle sales will grow at an average rate of 10% in the next decade, and a total of 38.8 million new vehicles are predicted to Where Will be sold in China in 2020. Following that, estimated growth will then slow down to an average of 8% between 2020 and 2030. the Chinese Optimistic auto companies foresee a 10% penetration rate of EVs EV Industry among all new vehicles sold in 2020, while other industry players Be in 2020? predict a 5% penetration rate as a more realistic possibility. Predicted EV sales in China are shown in the table to the right. New Vehicles Sales Forecast Beyond 2020 an estimate 90 80 70 Total # 60 of vehicles sold In Millions 50 # EVs sold 40 (optimistic) 30 # EVs sold 20 (realistic) 10 0 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 Source: Solidiance Predicted EV Sales: Numbers are given in millions 2020 2030 Total vehicle sales (Predicted): 38.8 Total vehicle sales (Predicted): 100.6 Realistic 1.94 (5%) 8.38 (10%) Optimistic 3.88 (10%) 25.13 (30%)Electric Vehicles in China – Are They Worth the Hype? Solidiance ... 16 ... / 16
  19. 19. Where Will the Chinese Therefore, we predict EV sales in China to EV Industry Be in 2020? be between 1.94 million and 3.88 million in 2020, possibly rising up to between 8.38 million and 25.13 million in 2030. Predicted # of EVs sold 30 25.13 25 20 in millions 15 Realistic 10 Optimistic 8.38 3.88 5 1.94 0 2020 2030 Source: Solidiance High targets are possible with infrastructure at the right places and with proper support -Mr. Peter Nimmo, CEO ECOtality AustraliaElectric Vehicles in China – Are They Worth the Hype? Solidiance ... 17 ... / 17
  20. 20. Battery Manufacturers: Where Will the Chinese EV Industry Be in 2020? As previously mentioned, the industry average in 2010 for the cost of manufacturing a battery pack is $650/kWh. From developments in battery technology as well as increases in economies of scale among battery manufacturers in the coming years, industry players expect an approximate 5% decrease in cost every year, or a 40% decrease by 2020. In other words, battery costs would be approximately $389/kWh in 2020. Assuming an average battery capacity of between 16 kWh (e.g. SAIC E1, 140 km range) and 60 kWh (e.g. BYD E6, 330 km range), and using forecast figures for EV sales in 2020, We predict that the battery market for pure EVs alone in China will be worth between $28.7 billion and $57.4 billion in 20201. 1. Using average battery capacity = 0.5(16+60)=38, lower estimate = 389*38*1.94 million, higher estimate = 389*38*3.88 millionElectric Vehicles in China – Are They Worth the Hype? Solidiance ... 18 ... / 18
  21. 21. Could Some Auto Manufacturers Be Too Optimistic? The EV industry could be said to have high Hence, could some auto manufacturers be too barriers to entry due to the high initial investment optimistic in their views of the Chinese EV market? capital required. Costs like expenditure for research and development, and the constant While the Chinese government is making a large innovation required for the first few years of the effort to speed up the process of research and industry might convince other auto companies development through research subsidies and to jump on the bandwagon later to leapfrog grants, it remains that new technology has to be available technology. While EV technology has discovered and developed before EVs may be been approaching commercial feasibility, much widely affordable. In addition, the reliability of the development still has to be made to achieve a network of charging stations has to be established certain level of convenience and affordability and the concerns of consumers regarding range with which consumers are comfortable with also addressed, before consumer preferences shift before EVs may become appealing to the towards EVs – both of which will only occur in the masses and start to be profitable. long-run. Electric cars will continue to offer the end-user less perceived versatility and convenience when compared to their liquid-fueled competition -Tom De Vleesschauwer, Global Insight Analyst Source: Business WeekElectric Vehicles in China – Are They Worth the Hype? Solidiance ... 19 ... / 19
  22. 22. Could Some Auto Manufacturers Be Too Optimistic? Geely’s strategy is to focus on traditional ICEs, while developing a diversified range of new energy vehicles -An Interview with Mr. Victor Yang, Case Study: Director of Public Relations Geely Holding Mr. Yang has indicated that in the coming 2 decades, Geely is focused on developing the technology of ICE vehicles and improving the Group efficiency of engines through the use of turbo engines and lightweight car components. Hence, Geely’s focus remains on ICEs, which Geely believes will continue to constitute most of the auto market in China. But the manufacturer Geely: A Short Introduction remains interested in getting a head start in the EV industry, and has released 6 new hybrid and Geely established its auto pure EV models in the 2010 Beijing Auto Show. manufacturing business in 1997, and has grown to become the one of the top For EVs to make up 5% of new vehicle sales ten largest auto manufacturers in China. in 2020 is, in his opinion, “achievable”, but Notably, Geely also purchased Volvo in widespread adoption is not highly probable until early August 2010. issues about the practicality and affordability of EVs are addressed. In particular, the availability Geely is looking at breaking into both of excess capacity of Chinese power plants and domestic and foreign EV markets. land for the construction of large-scale charging The electric version of its affordable, infrastructure are of concern. As these issues, compact model, Panda, will be available as well as the mass affordability of EVs are not in China end 2010, and will also be sold likely to be solved soon, Mr. Yang believes that in European markets as Nanoq. the growth of the EV market will be limited in the next decade.Electric Vehicles in China – Are They Worth the Hype? Solidiance ... 20 ... / 20
  23. 23. There is an electric In the Interim, Hybrids vehicle “fever” in are the Bridge between China… but hybrids are more workable. ICEs and EVs -Mr. Victor Yang, Director of Public Relations, Geely Holding Group Light hybridization is the answer for most cars. -Dr. Karl-Thomas Neumann, Chief Officer for Electric Traction, Volkswagen Group The two current limitations of EVs, convenience and affordability, suggest that plug-in hybrids are a more commercially feasible approach to EVs. Auto manufacturers seem also to acknowledge this – most EV manufacturers currently in the Chinese market are also releasing new plug-in hybrid models. These plug-in hybrids are more affordable and come with fuel tank range extenders, which will allow for flexibility in driving before a comprehensive network of charging infrastructure is put in place. In addition, charging plug-in hybrids will be less demanding on power grids than pure EVs. Hence, incumbent OEMs may use plug-in hybrids to bridge the different stages of development in a company’s product line while remaining innovative and developing EV technology for the long-run.Electric Vehicles in China – Are They Worth the Hype? Solidiance ... 21 ... / 21
  24. 24. Summary The sustained development of the EV industry in China depends on the existence of a supportive ecosystem to address growth drivers of the industry and generate demand for EVs among consumers. That is, the acceptance of EVs depends on the ability of charging service providers, OEMs, and the government to provide a convenient, comprehensive, and flexible charging infrastructure and affordable EVs to influence consumer preferences. While there is strong government support to develop the EV industry, these factors – the existence of a convenient charging infrastructure and the affordability of EVs – are adoption barriers holding back the widespread adoption of EVs in the next decade. For the above mentioned reasons, we predict for the Chinese EV market a 5% to 10% penetration rate in 2020, or a demand for between 1.94 million and 3.88 million EVs, and a battery market worth between $28.7 billion and $57.4 billion in 2020. Since we have admitted that these adoption barriers will only be addressed in the long-run, auto manufacturers could look at plug-in hybrids in the meantime to bridge the shift from traditional ICEs to mass adoption of pure EVs in the Chinese market. While companies like Renault have jumped onto the EV bandwagon and are attempting to establish market share through entering the Chinese EV market early, others like Geely have opted instead to diversify their range of vehicles, pursuing energy efficiency through developing not only EVs, but also hybrids (the Geely Stop and Go system saves fuel at traffic lights and during congestions), as well as light-weight, efficient traditional engines. It is too strong an assertion to make that the Chinese EV market, with a modest 5% penetration rate 2020, is not worth its hype. In the long-run, once these adoption barriers are better addressed, the EV industry will grow at a much higher rate. Hence, industry players should not neglect the development of EVs in the Chinese auto industry. The sheer size of the Chinese auto market would mean a potentially large EV market and growth opportunities for firms in every segment of the EV manufacturing and distribution chain.Electric Vehicles in China – Are They Worth the Hype? Solidiance ... 22 ... / 22
  25. 25. y x = + 0.065 12.41 5 Price of Petrol ($ per liter) EVs more affordable per km Traditional ICEs more 0.81 affordable per km Appendix A: Price of Electricity ($ per kWh) Source: Solidiance Comparison of Petrol and Electricity Prices Assume a 60kWh battery, with 2,000 charge cycles, and 300km range (BYD E6 battery), with $650/kWh production cost. Assume also that average fuel efficiency of cars in China = 12.41 km/l Let x = retail price of electricity, and y = retail price of petrol Assume that we are comparing two otherwise identical vehicles, hence the difference in depreciation of car and powertrain between the ICE and the EV are negligible. Cost per km, ICE = Cost per km, EV Fuel cost per km = Cost of charging per km + battery depreciation per km y x ⁕ 60 650 ⁕ 60 = + 12.41 300 2000 ⁕ 300 y x = + 0.065 12.41 5Electric Vehicles in China – Are They Worth the Hype? Solidiance ... 23 ... / 23
  26. 26. CHINA INDIA INDONESIA Solidiance is a dedicated Asia B2B SINGAPORE THAILAND marketing and growth strategy consulting firm with offices across the region. Our company is fast growing and currently has seven offices in Asia including China, India, Indonesia, Malaysia, Singapore, Thailand, and Vietnam. Solidiance’s DNA is to help VIETNAM multinational clients to understand the emerging Asia market landscape, profile industries and competition, size markets, Damien Duhamel segment customers, analyse distribution Managing Partner channels, boost sales, prepare investment feasibility studies, identify suppliers, review Julienne Chan potential joint ventures/acquisitions and Brand Architect deliver market entry and growth strategy DID: +65 6408 8206 in Asia. Solidiance’s industry focus is on industrial applications, technology and Research: Siya Yang healthcare. For more details please check: www.solidiance.com Design: Shya S www.solidiance.comElectric Vehicles in China – Are They Worth the Hype? Solidiance ... 24 ...

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