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Beijing Poised to Rethink Electric Car Policy

Stocks in this article: FTMNSANYGMAONEHEV


By the Financial Times ( Financial Times) -- Beijing appears to be rethinking its singular focus on electric vehicles to reduce fuel consumption and improve air quality as it becomes increasingly clear that its targets for mass producing electric vehicles in China were unrealistic.

China had originally planned to leapfrog an entire generation of conventional engine technology to develop what Beijing hoped would be an early advantage over the West in electric vehicle technology. No formal decision has been taken to abandon that plan, but top decision-makers in Beijing are understood to believe now that the original timetable was too optimistic.

Wen Jiabao, the Chinese premier, reflected intense debate within the bureaucracy recently when he published an article in a Communist Party journal questioning China's "road map" toward alternative powertrain vehicles. Peter Huang, powertrain forecast manager at IHS Automotive in Shanghai, expects Beijing to shift its focus now to "hybrids and all vehicles that can reduce fuel consumption". "The shift in focus means that even traditional internal combustion engines could now see beneficial policies," he says. China's targets of 1 million new-energy vehicles on the roads by 2015 and 5 million by 2020 could be revised to include conventional hybrid vehicles, as otherwise the government will struggle to meet these goals, IHS said.

Other Chinese analysts say while there is a battle on for the future of China's alternative fuel policy, the exact outlines of any new policy have yet to be agreed upon.

Whatever the outcome of the debate, industry analysts say Beijing has been disappointed by slow progress toward developing a domestic electric vehicle industry. China's highest profile electric vehicle maker, BYD -- which is backed by Warren Buffett -- has repeatedly delayed plans to commercialize and export its electric vehicles. Government subsidies of up to Rmb60,000 ($9,370) for pure electric vehicles and Rmb50,000 for plug-in hybrids are already available in five Chinese cities on a trial basis, but very few buyers have taken them up.

"It was simply never realistic for a fledgling auto industry to skip conventional hybrids and immediately electrify," says Bill Russo of Synergistics auto consultancy in Beijing, former head of Chrysler in China. "However, I believe this will not deter China from a long-term goal of pursuing such an endgame. They have planted the seeds for the future EV industry: it is just going to take much longer than they anticipated".

Chinese buyers have, up to now, shown little appetite for conventional hybrids: last year, Toyota sold only one Prius in China, produced by its local joint venture with FAW, according to Namrita Chow of IHS Automotive. Boosting sales of conventional hybrids would depend on whether government subsidies currently available for electric vehicles are extended to other fuel efficient vehicles, she said.

Beijing's review of its policy comes in the context of a growing industry debate over the viability of electric cars. All of the world's big carmakers are developing electric or rechargeable hybrid models in order to comply with more stringent regulations on their cars' fuel efficiency and carbon dioxide emissions.

However, because of the electric vehicle's limited driving ranges and high prices compared to conventional cars, there are doubts over how many consumers will buy them. Early reviews of Nissan's all-electric Leaf, while mostly positive, have emphasised the car's limited driving range and relatively high price for its size.

Toyota, the industry's top-selling producer and leading champion of hybrid technology, is among the producers who think that pure electric vehicles will be a small niche market. Rival producers including Ford Motor and Volkswagen, while developing their own hybrid and electric models, also emphasise the major gains in fuel efficiency and CO² emissions that can be gained by downsizing and turbocharging of conventional engines.

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