China plans to become the industry leader in electric vehicle development. The Chinese government wants to have 5m new energy vehicles (NEVs) on its roads by 2020. What are China’s chances of meeting its ambitioyus development plans? Does China need to expand its definition of EVs to include some low-speed vehicles? What does this mean for the automotive industry as a whole? This report also gives an assessment of how China's EV plans compare with those of other countries, notably the US, and what effect China's public investment in the technology will have on carmakers' own investment plans. Download the free summary and share with your colleagues.

1. A target too far?
China’s ambitions for electric vehicle
development
A report from the Economist Intelligence Unit
www.eiu.com

2. A target too far?
China’s ambitions for electric vehicle development
Executive summary
T he stakes could barely be higher. To reduce its dependence on imported oil and lessen the life-
threatening air pollution in many of its cities, China has set itself the goal of becoming the world
leader in electric vehicles (EVs). China is far from alone in its aims. Global carmakers are already vying
for leadership in this area, and so are the developed, technically savvy and automotive-focused nations
of the US, Germany and Japan. The US president, Barack Obama, is aiming to put 1m electric vehicles
on US roads by 2015.
For its part, the Chinese government wants to have 5m new energy vehicles (NEVs) on its roads by
2020. Its targets also state that, by 2015, the country’s total annual production capacity for NEVs will
be 500,000 units. As a mark of how seriously it is taking these aims, it has set aside over Rmb100bn
(US$15bn) of public funds to spend on the sector by 2020. This report assesses China’s chances of
meeting its targets, by canvassing senior executives in the automotive industry in order to map the
country’s progress and outline the problems it faces.
It concludes that the new legislation, in particular over the extent and sophistication of the market
incentives used, will be critical to the market’s development. Many of the local barriers to growth—the
lack of recharging infrastructure, vehicle and technical standards, and an unstable electricity supply—
could be addressed relatively quickly if the Chinese government chooses to devote its energy and
investment to solving them.
Even then, EV and battery technology remains unproven. Although many carmakers claim EV
launches are imminent (see table), the reality is that they could be years away from going on general
sale in China. Indeed, evidence is emerging to suggest that Chinese OEMs are not as advanced in this
field as they would like the rest of the world to believe. Meanwhile, global OEMs refuse to give firm
Chinese launch dates for their own EVs, which are only just starting to go on general sale elsewhere.
Judging by the slow progress of both domestic and foreign carmakers, therefore, it seems unlikely
that the country will achieve the first of its aims, by raising EV production capacity to 500,000 a year.
As for the second, of selling 5m EVs by 2020, there are plenty of obstacles, not least the country’s
low incomes, regional disparities, and a lack of recharging infrastructure. We suspect that it is only
by expanding its definition of new energy vehicles that the government will be able to meet its target
within the time frame it has set.
Yet by setting that target and pouring investment into the project, the government will encourage
global carmakers to invest in EV technology too. China’s push is also likely to affect carmakers’ EV
model strategies, by increasing their focus on affordability. Combined with the efforts being made
in other important markets such as the US, the EU and Japan, therefore, China’s EV ambitions have
provided a huge boost to electric car development worldwide.
1 © The Economist Intelligence Unit Limited 2011

3. A target too far?
China’s ambitions for electric vehicle development
Chinese brands’ EV and plug-in hybrid launch activity, 2010-12
BYD F3DM, BYD E6, Chery A3 BSG, Brilliance Splendor, Brilliance Zunchi, Geely Panda, JAC Heyue hang’an Jie
2010
Xun, Lifan 320, Lifan 620, Zoyte Nomad
Beijing Auto C30, SAIC Roewe 750, FAW Besturn B50, Chana Benni EV, Geely EK-2, Great Wall Haval M3, Hafei
2011
Saibao, Haima Freema, JAC, Tojoy, Shaunghuan E-Noble
2012 Chang’an Joice, SAIC Roewe E1, SAIC Roewe 550
Source: University of Hong Kong
Key findings
l China is unlikely to meet its government targets for NEV production and sales. Despite huge
public and private investment, there are too many barriers to market development, not least the
country’s low income levels, regional disparities, a lack of recharging infrastructure, and a lack of
production capacity. We suspect that it is only by expanding its definition of new energy vehicles that
the government will be able to meet its target within the time frame it has set.
l The most critical barrier to growth is on the supply side. At the time of writing (April 2011),
few, if any, domestically built EVs were on full sale to the Chinese general public, despite claims from
some Chinese carmakers. Chinese carmakers will not be able to match the technical skills of foreign
carmakers in developing market-competitive EVs as quickly as Chinese carmakers or policymakers
may suggest. In addition, few global original equipment manufacturers (OEMs) have confirmed exact
timings for their own Chinese EV launch plans.
l China’s government will find it difficult to implement its policies. China’s fragmented regional
government and the close relationship between local governments and local vehicle manufacturers
will cause problems in implementation, especially for vehicle and technology standardisation. Vested
interests are already delaying the release of China’s all-important Energy-Saving and New Energy
Vehicle Industry Development Plan 2011-20, making it difficult for companies to plan their investment
in EV production and infrastructure.
l China’s EV efforts will encourage global investment in the technology. China is unlikely to reach
its targets, yet by pouring public investment into the technology the government has gone a long way
towards making them viable. With the US also setting ambitious EV targets, global carmakers should
now have enough confidence in the market’s potential to step up their own investments.
l Establishing recharging infrastructure for EVs will be a huge task. Despite the progress
that has been made, the current infrastructure is immature, insufficient and limited in both its
geographical scope and its effectiveness. A strong central push will be needed to change this
situation. China also needs to drive EV charging standards and architecture, on which there is still
no international consensus.
2 © The Economist Intelligence Unit Limited 2011

4. A target too far?
China’s ambitions for electric vehicle development
l China could lose its innate advantages when it comes to battery manufacturing. Its cheap labour,
huge industry scale, and access to lithium and other rare earth metals mean that China is able to
produce lithium batteries very cheaply. These advantages could disappear, however, as labour costs
rise and commodity supplies increase in other countries. More importantly, China’s carmakers need to
iron out existing problems with their battery technology.
l Affordability will be crucial. Even when products do arrive on the market, price will become a huge
barrier to growth on the demand side, especially given China’s reliance on cash sales. At around twice
the price of a conventionally fuelled car, EVs will remain unaffordable for low-income, cost-conscious
Chinese consumers for most of the next decade, even with generous government subsidies. Clever
financing schemes will therefore be vital to the volume of EV sales.
l Subsidies will help, but other incentives could have more effect. China has been generous with
its support for the budding EV market, but there is much work still to be done. In addition to subsidies,
incentives such as allowing EV drivers access to restricted vehicle lanes and parking spots in its
crowded cities could prove even more attractive to buyers.
Acknowledgements
In the research for this report, the Economist Intelligence Unit conducted interviews with several
high-level industry executives and commentators, in order to obtain their views or the views of the
corporations they represent. We would like to thank all the interviewees for their time and insight.
l C.C. Chan, Honorary Professor, University of Hong Kong, and Founder & Past President, World
Electric Vehicle Association & Electric Vehicle Association of Asia Pacific.
l Hideaki Watanabe, Corporate Vice President, Renault-Nissan Alliance Global Zero Emission Vehicle
Business Unit
l Nancy Gioia, Director, Global Electrification, Ford Motor Company
l Ulrich Kranz, BMW - leader project i
l Henry Li, General Manager of Auto Export, BYD China
l Tianshu Xin, Director, Asia Pacific Strategic Marketing, Visteon Asia Pacific
3 © The Economist Intelligence Unit Limited 2011

5. While every effort has been taken to verify the accuracy
of this information, The Economist Intelligence Unit
Ltd. cannot accept any responsibility or liability
for reliance by any person on this report or any of
the information, opinions or conclusions set out in
this report.
Cover image - © Andrey Yurlov/Shutterstock

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