Hot Green Wheels

By HU YUE

Hot Green Wheels

By HU YUE

China hands out subsidies for purchases of new energy vehicles to spur green car interest

After months of waiting, the Ministry of Finance announced on June 1 a trial program to subsidize purchases of new energy vehicles in the world’s largest and fastest-growing auto market.

Based on the capacity of the battery packages, a 3,000-yuan ($439) subsidy is offered for each kilowatt-hour for green cars, with a cap of 50,000 yuan ($7,322) for each plug-in hybrid car and 60,000 yuan ($8,784) for each pure electric car.

Instead of handing out subsidies to consumers directly, the government would allocate the money to carmakers, which would then lower the prices of relevant models accordingly, said the ministry, without indicating when the program would begin. The levels of subsidies will then be reduced once carmakers have sold 50,000 green cars.

The subsidies will initially go on a trial run in five cities—Shanghai, Changchun of Jilin Province, Shenzhen of Guangdong Province, Hangzhou of Zhejiang Province and Hefei of Anhui Province.

In addition to the new program, the government will also offer nationwide subsidies of 3,000 yuan ($439) on purchase of each car with 1.6-liter engines or smaller that consume 20 percent less fuel than current models.

The Chinese Government, in its auto industry revitalization plan released in 2009, has made no secret of its ambition it wants to have 500,000 electric vehicles rolling on the streets by 2011, accounting for 5 percent of all passenger cars.

The favorable policies are bound to spark customer interest in the green cars and prompt automakers to jump on the bandwagon, said Jia Xinguang, a Beijing-based independent auto analyst.

“But it’s unrealistic to expect it to work like magic,” he said. “The market still counts on product quality, mature infrastructure, as well as a better understanding among consumers.”

Obviously, the hand-outs focus on electric vehicles and plug-in hybrids over regular hybrids, refecting the government’s intention to foster domestic brands in the relatively undeveloped feld with no clear champions, said a report by China International Capital Corp. Ltd. Unlike Toyota’s gasoline-electric Prius, which gathers energy from the operation of the vehicle to increase fuel effciency, plug-in hybrids and electric cars can be recharged from power sockets and produce zero emissions.

Automakers were not over-excited about the news. “It could get more customers interested in the new energy vehicles, but price is not the only barrier to market acceptance,” said Wang Jianjun, a spokesman for the Shenzhen-based BYD Automobile Co. Ltd.

Yuan Tao, Vice General Manager of Chery Automobile Co. Ltd., agreed. “It will take time for drivers to go green,” he said.“We will not expand production just because of the subsidies.” Both BYD and Chery are pioneers riding the wave of transport electrifcation.

Going electric

When it comes to making internal combustion engines, Chinese manufacturers are apparently falling far behind their Western counterparts. But the playing field for new energy vehicles is nearly level.

As automakers shift from gasoline to voltage, most need lithium batteries that are light and compact enough to fit into cars. This gives China, producer of nearly 20 percent of the world’s lithium batteries, a foot in the green door.

INFRASTRUCTURE IMPROVEMENT: The first public charging station in Hangzhou, capital of east China’s Zhejiang Province, was opened on June 3. The station is capable of recharging 80 electric cars at the same time

Indeed, excitement about battery-powered cars is fowering across the nation, with a number of automakers taking the plunge. BYD, backed by U.S. investor Warren Buffet, is already selling its plug-in hybrid F3DM model, a saloon that promises to travel 100 km on a single charge with the capability to shift to gasoline if the battery runs low. Its pure electric E6 cars have also hit showrooms and are expected to cruise into the market in the near future.Meanwhile, the Shanghai Automotive Industry Corp. also plans to roll out its first hybrid car later this year.

The emerging industry, however, is still in its infancy, travelling on wobbly wheels. Very few types of China’s pure electric vehicles have been ready for mass production and the sales of plug-in hybrids are also stalling due to high price tags. BYD, for example, sold a minimum 14 F3DM cars in April 2010 while sales of its most popular F3 conventional cars reached 21,080 sets that month.

“With government subsidies put in place, drivers may face a greater temptation to go electric,” said Han Lei, Deputy Secretary General of the Society of Automotive Engineering of China. “In addition, the unit costs will come down when large-scale production kicks in.”

After all, the country has a great deal of experience in manufacturing cheap electric vehicles, such as electric bicycles and tour vehicles, already in wide use throughout the country, Han said.

But price is not the only concern on the minds of consumers, said Chen Quanshi, an engineering professor with Tsinghua University. “The safety concern, a lack of recharging infrastructure and limited driving range are other critical issues for people to think about.”

As automakers shift from gasoline to voltage, most need lithium batteries that are light and compact enough to fit into cars. This gives China, producer of nearly 20 percent of the world’s lithium batteries, a foot in the green door

Overheating or severe damage to the lithium battery can lead to a short circuit, which can cause the unit to burst into fames. The odds of a battery pack combusting are two or three in 1 million, but when it does happen, the results can be devastating. Meanwhile, recharging is a challenge in a country where few live in houses with easy access to plugs to power their cars, and there is little infrastructure ready for public charging.

“Until easier recharge facilities are available on the road for much longer trips, you probably won’t see massive use of new energy cars,” said Zhou Rong, a senior researcher with the China Automotive Technology & Research Center.

With relatively mature technologies and less reliance on infrastructure, the plug-in hybrids could be the first to achieve mass commercialization, said Zhou.

But eventually pure electric vehicles will be the future of the industry, given a pressing need to save the planet, Zhou said.

Moving hindrance

For global electric vehicle manufacturers, the hype seems to have gotten ahead of reality. But with a booming auto market and a government keen to cut fossil fuel consumption, many pin hopes on China to become a hotbed where green shoots of the industry can fourish.

The Chinese Government has pledged to allocate unspecified funding to bankroll the construction of charging stations and battery recovery networks in the fve pilot cities, paving the way for the green business to take off.

In addition, the government is on the verge of announcing more comprehensive measures to shore up the industry, including tax breaks and fnancial support, the Economic Information Daily reported.

All the same it will be necessary to avert blind investment and waste of resources, said Zhang Muxiang, Director of the Department of Equipment Industry under the Ministry of Industry and Information Technology.

A number of local governments have joined hands with electricity companies to push forward the infrastructure improvements. Hangzhou, for instance, will build six public charging stations and 500 charging points this year while two stations in Shenzhen have come into service earlier this year. The State Grid Corp. of China even plans to build 75 stations in 27 cities across the nation this year.

In addition, manufacturers have come up with a string of innovative ways to address concerns that keep people from buying electric vehicles.

Chery has tied up with Better Place, a U.S. auto manufacturer, to develop a method of using battery swap stations for long trips in which drivers can simply replace a depleted battery with a charged battery rather than wait for it to recharge.

Meanwhile, the Zhejiang Provincebased Zotye Auto Co. Ltd. in January 2010 released a pure electric type Zotye 2008EV. Before putting them on sale, the company has been leasing the cars for 2,500 yuan ($366) per month.

“This has helped overcome the price barrier and familiarized customers with driving an electric car,” said Wu Jianzhong, President of Zotye Auto. “We can also get feedback from the customers and address the technological faws.”

The appeal of electric vehicles will shine if gasoline prices continue to soar in the future, said Dong Yang, Secretary General of the China Association of Automobile Manufacturers. “Of course the automakers are also supposed to improve their product reliability, cost controls and after-sale services.”

Subsidy Program for New Energy Vehicles

Plug-in vehicles: Up to 50,000 yuan for each

Pure electric vehicles: Up to 60,000 yuan for each

Cars with 1.6-liter engines or smaller that consume 20% less fuel than current models: 3,000 yuan for each