China is the world’s biggest passenger car market so an announcement by Xin Guobin, China’s vice-minister of the Industry and Information Technology Ministry, that the country is planning to phase out production and sales of fossil fuel cars has sent tremors through the global industry.
Inspired by China’s example, California’s governor said he would consider banning the sale of vehicles powered by internal combustion engines, while France and Britain are planning to ban sales of petrol and diesel vehicles.
While it’s likely to be decades before such draconian policies are introduced, China is already moving aggressively to shift its industry towards electric vehicles (EVs). It has introduced a policy requiring that any automaker producing or importing more than 30,000 vehicles in China must ensure that by 2019 10 percent of them are all-electric, plug-in hybrid, or hydrogen-powered.
China intends to be the leader in this field – not only for vehicle production but as a producer of the lithium batteries required to power them. To achieve this goal, it is rapidly building a local base which will then be used to build economies of scale and capture global market share.
By way of illustration, buyers of electric vehicles in China receive subsidies of approximately 20 per cent of a vehicle’s price as well as other incentives such as the right to get a licence plate – these are tightly controlled for traditional gasoline-fuelled cars. During the initial stage of development, the local industry has been concentrating on producing budget vehicles for the local market so a small battery-operated car such as the Chery eQ model, after subsidies, costs less than Bt300,000.
China is also ensuring it has the resources to grow and has been investing in lithium producers and cobalt mines around the world.
Reflecting the seriousness with which China is developing its EV industry, at the recent Shanghai Auto Show electric vehicles stole the limelight. New models were presented by the likes of Volkswagen, Audi, Citroen, Chevrolet, as well as China’s home-grown brands such as Denza, Chery, Nio and SAIC, which launched Roewe ERX5, the world’s first electric internet-connected SUV. SAIC is focusing on the development of hybrid plug-in models and sales of its Roewe and MG car brands have doubled over the past year.
While most people outside of China may not have heard of these Chinese brands, Chinese smartphones such as Vivo, Oppo and Huawei and are now popular in Thailand so we may expect a similar success story for their affordable cars.
Given China’s scale and Thailand’s strategic focus on EV manufacturing, we must be prepared for China’s rising influence on this industry. Accordingly, the Thai government wants
to revise the free trade agreement with China due to come in next year as it would give Chinese-produced vehicles an advantage over other auto producers which may discourage investors from major car-producing countries such as the US and Germany. However, Thailand will also want to encourage Chinese investment in the industry so will need to manage a delicate balancing act.