Opinion

China's chance to lead in 'green cars'

By Benjamin Asher (China Daily)
Updated: 2010-05-31 13:22

Only 1 million hybrids and 25,000 battery electric vehicles will be sold globally this year

We hear a lot of talk these days about the "green economy"- and the automotive industry is certainly a big part of that - but the market for "green cars" is driven far more by government command than consumer demand.

For many years governments have been tightening vehicle emissions regulations. And companies have been experimenting with alternative energy vehicle solutions. We remember that GM developed the EV-1 in the 1990s. Hybrids have been around for 15 years.

Yet even today, sales of alternative energy vehicles - including hybrid and battery electric vehicles - are still insignificant. The global sales of hybrid-electric vehicles last year was 1.21 percent of total light vehicle sales.

Globally in 2010 we expect to see sales of about 1 million hybrids and 25,000 BEVs.

A big challenge for the industry is to decide where to invest.

Some companies have taken a clear stand. Carlos Ghosn has made a strong commitment to electric vehicles and Nissan is introducing the Leaf.

BYD seeks to leverage its leadership in battery technology to become a leader in BEVs.

But most automotive executives are less sure. They ask the fundamental question - is there sufficient enough demand for these vehicles to scale up existing and future technology and develop a mass market?

At JD Power, we believe that will take a long time for alternative energy vehicles to reach a critical mass.

We will see some growth in the next five years. By 2015, we forecast that sales of hybrid and BEVs will increase to 3.4 percent of the total light vehicle market.

The development of a market for BEVs in particular will be limited by concerns about range, price premiums, battery production capacity and the need for a battery charging and disposal infrastructure.

Certainly, we can expect the technology to improve so that a battery can support acceptable range between charges.

Moreover, governments can impact the price premium by offering subsidies to consumers. It is also likely that we will need governments to help create the battery charging and disposal infrastructure.

This is where China can lead. China has the fastest growing car market in the world. By 2020, it will be by far the largest. China would be in a position to create a scalable market for alternative energy vehicles by regulatory intervention and financial investment.

With a $34.6 billion investment in wind, solar, and other green energy products in 2009, China is already emerging as the world's clean-energy powerhouse.

With a similar focus on alternative energy vehicle development, and particularly in battery, with subsidies to consumers to help stimulate the demand and strong support for a battery charging and disposal infrastructure, China could accelerate the development of the BEV market.

Policy makers were scheduled to release details of an extensive alternative energy vehicle road map in March, but this has been delayed. But some initiatives have already been announced, including subsidies for hybrid, fuel cell and BEVs in 20 cities across the nation.

Charging infrastructure is being put in place in these cities to ease concerns many consumers have about the limited range of electric vehicles. Though policy regarding charging standardization, has yet to be made.

A target of 500,000 units of alternative energy vehicle production capacity has also been made, with an ambitious deadline for this set at 2011.

If the government is able to convert many of the public transport vehicles in these 20 cities to alternative fuels, such as the taxis and buses, it will be a good deal closer to utilizing its 500,000-unit capacity and to the critical mass needed to make these vehicles cost effective.

China is in a unique position to be able achieve these goals.

Related readings:  US, China focus on hybrid, electric vehicles  Hybrid redefines concepts on performance, emissions  Electric taxis take to the streets of Shenzhen  China to have 15% of electric auto sales by 2020

However, absent vigorous government support will see BEV demand limited.

Moreover, one has to ask whether our forecast for global hybrid sales in 2015 of just over 3 percent represents sufficient volume to allow all the companies scheduled to introduce hybrids by that time to make a profit on those vehicles.

By contrast, in 2015, we expect petrol driven internal combustion engines to represent 68 percent of the market.

The time for hybrids and BEVs will come. The best course of action for OEMs is to listen closely to the voice of the consumer. But it is going to be a Long March.

The author is an analyst JD Power and Associates