Foreign rivals are about to find that decades of experience in internal combustion engines means nothing as Chinese electric-vehicle makers speed silently past them
China is putting the pedal to the metal in its quest for supremacy in electric vehicles. With the race to develop EVs accelerating worldwide, China aims to aggregate advanced technologies and factories by imposing production quotas on automakers that sell cars in China, thereby becoming the world’s leading EV manufacturer.
In September, the Industry and Information Technology Ministry shocked the global auto industry by declaring China would set a deadline for ending the production of petrol and diesel cars. No date has been mentioned yet.
“The day has finally come,” said a senior official of a Japanese automaker, expressing his shock China’s declaration that it will move away from fossil fuel cars and tighten its grip on EVs.
There had been omens. In July, France and Britain revealed plans to end the sale of gasoline and diesel vehicles by 2040.
China boasts the world’s largest auto market, with 28.03 million vehicles sold in 2016. This outstrips the 26.55 million vehicles sold in Japan, the United States and Germany combined.
At the 19th Communist Party Congress in October, President Xi Jinping said the party will accelerate efforts to make the country a manufacturing powerhouse and develop advanced manufacturing industries.
Auto manufacturing would be high on his list, and China will need to pursue advances if it wants to catch up with and overtake its target, the United States.
Ever since China began its reform and open-door policy, the country has aimed to become a major automotive power by promoting technology transfers from automakers in Japan, the United States and Europe. In 2009, China became the global leader in terms of number of vehicles sold.
However, in brand strength and engine technology, Chinese automakers still lag behind their rivals in Japan, the US and Europe.
China has thus turned to EVs in an effort to get ahead. In 2015, China’s EV sales were larger than anywhere else in the world, according to the International Energy Agency. In 2016, about 260,000 EVs were sold in the country, further surpassing sales in the US and Japan.
China appears to have given up trying to achieve parity in fossil-fuel vehicles and switched focus to accelerating from major power to a superpower in the realm of EVs where technology is similar across all major auto-manufacturing countries.
Quotas as the supercharger
The “tool” necessary to realise its ambition is tighter regulations. At the end of September, China’s central government announced it will introduce regulations obliging automakers to manufacture a certain percentage of “new energy vehicles” – EVs, plug-in hybrids (PHV) and fuel-cell vehicles (FCV) – from 2019.
The regulation is administered through a point system. For example, a Japanese automaker that sells around 1.2 million cars a year must locally produce 20,000 to 30,000 EVs annually. If an automaker does not meet its quotas, it must buy points from automakers that do meet the requirements.
Currently, Chinese makers, including BYD Auto Co, dominate the country’s new energy vehicles market. By pressing automakers to comply with regulations in the world’s biggest market – in effect holding them hostage – China is promoting the formation of industrial clusters and nurturing its own EV manufacturers. It is a hard-nosed industrial strategy.
Beijing has said one reason for introducing new regulations is to fight air pollution, but the real reason is likely industrial development. That is because the EVs being driven throughout China are in fact not so eco-friendly.
Coal-fired power generation accounts for 70 per cent of electric power in China. Coal emits a great deal of carbon dioxide at the power generation stage. According to the Natural Resources and Energy Agency, China’s EVs generate 82 grams of CO2 every kilometre in terms of well-to-wheel indicators, which show how much CO2 is emitted during the entire process from fuel production to driving. That figure is significantly higher than the 69 grams generated for a hybrid vehicle.
There are three major hurdles that should be overcome if China is to actually become an EV superpower: infrastructure expansion, a dearth of batteries and performance inferior to fossil-fuel vehicles.
In its mid- to long-term growth plan for auto manufacturing announced in April, China set forth a goal of selling 7 million new energy vehicles in 2025. Simply having this number of cars on the road will require a considerable expansion of charging facilities. If power plants and power grids are not drastically expanded, the power necessary for EVs will be unattainable.
Another issue is how to secure the large quantity of batteries installed in EVs. If mass production systems are not established at an early stage, sooner or later a virtual war over batteries will erupt.
Also, EVs can travel only a short distance on a single charge. Drivers will fear that their batteries will run out of power while on the road. In China, where big cars are increasingly popular, it is uncertain whether consumers will embrace EVs.
Despite this, the world’s automakers are making moves. In October, major Chinese automaker Changan Automobile Group announced the so-called Shangri-La plan in which it will end sales of gasoline and diesel vehicles by 2025 and invest 100 billion yuan (about US$15 billion) in developing 33 new energy vehicle models. Germany’s Volkswagen AG announced in November that it will invest 10 billion euros (about $11.8 billion) in the development and manufacture of new energy vehicles through 2025 and sell 1.5 million new energy vehicles annually.
Tech powerhouse Japan, meanwhile, could be left behind. At present, only Nissan Motor Co is selling EVs in China, with Honda Motor Co planning to market them in 2018 and Toyota Motor Corp in 2020.