Electric Car Segment Takes Off in China, Spurred by Government Subsidies

Chinese motorists seemed as indifferent to plug-in electric vehicles as U.S. motorists until the government stepped up incentives for car purchases over the past year. Now the category is taking off. 

In the first nine months of 2015, plug-in electric sales in China totaled 136,733, up more than 100% from the same period a year ago. Still, the total lags far behind government targets and is a drop in the bucket in relation to the 23 million vehicles sold annually in the country. 

"EV sales rely heavily on government policy," said Yale Zhang, managing director of Shanghai-based consultancy Automotive Foresight. 

Financial incentives to carbuyers such as exemption from the $13,000 fee for a license plate that gives access to the elevated highways in Shanghai are only part of the package. Beijing in June began exempting electric vehicles from a rule that keeps private vehicles off the road one day a week to reduce congestion. 

BYD (BYDDY) , a maker of battery-powered electrics, has been a direct beneficiary of the incentives. Year to date, BYD shares listed on the Hong Kong exchange have risen 30.7% compared to a 7.7% decline in Hong Kong's Hang Seng. BYD is backed by Berkshire Hathaway (BRK.A) (BRK.B) . 

Earlier this week, Ford (F) said it would invest $4.5 billion through 2020 to expand its lineup of electrics and gas-electric hybrids. Faraday, a China-based electric car startup , said earlier this week it would build an assembly plant on the outskirts of Las Vegas. 

China has targeted electrification as a strategy for modernizing the country's automobile industry and to make its companies globally competitive to Toyota (TM) and General Motors (GM) . China's leaders also are interested in reducing the country's dependence on imported oil. 

To meet its 2020 goal of 5 million electric vehicles on the road, China will increase its investment sharply, in part to build recharging stations since most consumers don't have garages or easy exterior access to electricity. 

"China will be the epicenter for electrification of the auto industry globally," Bill Russo, the Shanghai-based managing director at Gao Feng Advisory, told Bloomberg News. Russo estimated that China will have invested 100 billion yuan ($15.5 billion) by 2020 on new-energy vehicles. 

In an interview this week with National Public Radio, a Chinese motorist identified as Yang Zhou described how he was able to buy a $24,000 electric vehicle at a 30% discount without the usual purchase tax. Charging the vehicle, however, isn't simple. 

"I have to admit that charging the car is really a hassle," Yang said in the interview. "Every time I do it, I have to lower an extension cord from my apartment, which is on the 11th floor." 

The cord is heavy, the charge takes seven hours and the car's range is only 40 miles between charges. The government's goal of building 12,000 charging stations will make things easier, he said.

 

 

 

 

Doron Levin is the host of "In the Driver Seat," broadcast on SiriusXM Insight 121, Saturday at noon, encore Sunday at 9 a.m.

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.

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