By Hou Weili
As expected, Li Lin came up empty once again in the bimonthly license plate lottery in which winners are permitted to purchase a gas-powered car. The let-down nudged her family to finally purchase an electric vehicle (EV) before their new energy vehicle license plate expires.
“I’m tired of waiting, and the operational costs of new energy cars are much lower,” Li told China Report ASEAN.
Li is a typical resident of a Chinese metropolis like Beijing or Shanghai willing to buy economic and environmentally-friendly electric vehicles due to a pressing need for transportation and slim chances of winning the opportunity to license a gas-powered vehicle.
Last December, Beijing’s applications for new energy cars reached a record 420,000. Based on current distribution rules under which the government allocates 54,000 license plates for new energy vehicles annually, new applicants must wait eight years to become eligible to buy such a car. This situation inspired Li Lin to treasure the plate her husband obtained nine months ago. According to local Beijing regulations, the validity period for EV license plates is 12 months.
She plans to buy an electric car by taking advantage of generous government subsidies, which can reach as high as 90,000 yuan (US$13,065) per car. She estimated that using such a car would save about 10,000 yuan (US$1451.6) per year with average annual mileage of 20,000 kilometers.
New Energy Trend
Increasing popularity among consumers has resulted in eye-catching sales of new energy vehicles. Recent statistics from the China Association of Automobile Manufacturers showed that from January to November 2018, China produced and sold 1.05 million and 1.02 million new energy vehicles respectively, soaring 63.63 and 68 percent year on year. Both output and sales surpassed a record 1 million. “Such an achievement is particularly remarkable considering the decline in manufacturing and sales of fuel-powered vehicles after a steady average annual increase of 6.8 percent for nearly two decades,” noted Cui Dongshu, general secretary of China Passenger Car Association. He expressed confidence that sales of new energy vehicles will reach at least 1.6 million in 2019.
As of December 2018, 325 million automobiles were on the road in China according to the Ministry of Public Security. Such a high level of car ownership suggests massive demand for fuel.
Official data reported that consumption of refined oil products in China reached 322 million tons in 2017. And China’s fuel consumption heavily depends on imports. Media have reported that 68 percent of crude oil used in China in 2018 was imported.
Additional pressure on the auto industry came in the form of stricter emission controls as the Chinese government pledged to cut carbon emissions per unit of GDP by 40 to 50 percent by 2020.
Increasing ownership of new energy vehicles is expected to cause big changes. A recent report on the effect evaluation of new energy vehicles validated this prediction. Released by China Automotive Technology and Research Center, the report calculated the ownership of new energy vehicles at 2 million as of June 2018, which saves 10.71 million tons of petroleum annually. In 2017, new energy cars reduced China’s dependence on oil imports by 2 percent.
The contribution to emission reductions was also prominent. In 2017, a total of 1.138 million tons of automobile exhaust was avoided, 890,000 of which was thanks to new energy vehicles. Still at only about 1 percent of total ownership, new energy vehicles contributed 8 percent of vehicle emissions reduction.
A Bumpy Road
Nevertheless, new energy auto makers became concerned as much as they were encouraged last year as the government financial support to the new energy auto sector was sharply tightened.
In 2012, the State Council, China’s cabinet, pledged that China’s accumulative output and sales of pure electric and plug-in hybrid electric vehicles would reach 5 million units by 2020. To this end, the country introduced a raft of favorable policies including generous financial subsidies to new energy car makers. In 2017, more than 40 such measures were rolled out. State subsidies to the sector in 2016 and 2017 totaled 50 billion yuan (US$7.28 billion).
The direct result was affordability and increasing popularity among consumers. A preliminary industrial chain took shape ranging from raw materials supply to research and development of power batteries and key components, design and manufacturing of vehicles and construction of charging facilities.
Song Qiuling, deputy director of the Department of Economic Construction of the Ministry of Finance, warned about China’s weak foundation and poor competitiveness in the sector compared to global leaders. “Generous government subsidies in the sector have led some businesses to count on leveraging favorable policies rather than succeeding through indigenous innovation,” explained Song. “They undervalue the market and consumer demand.” As a result, upmarket products were few, and the market was flooded with low-end models.
Charging facilities were far from enough even though about 440,000 charging stations had been built as of the end of 2017.
Her views were echoed by industry insiders. “Transiting to an auto-society dominated by EVs requires a much longer period, which gives time for technologies to mature and problems, such as battery energy density and charging efficiency, to be addressed,” cautioned Wu Yingqiu, president of Global Auto Media.
Others see a thriving future, however, noting that the withdrawal of government subsidies was far from fatal. Gao Yunfei, an auto analyst, argued that the sector was resilient because demand was huge as EV vehicles became the trend. “The focus of government support has just changed from pervasive subsidies to all EV makers to backing only those with the capability to innovate and become globally competitive,” illustrated Gao, “This shift aims to promote sound sustainable development of the entire industry.”
Another source of confidence is the rapidly declining cost of production. According to the Electric Vehicle Outlook 2018 released by Bloomberg NEF, a market analytics firm, the upfront cost of EVs will become competitive without subsidies by 2024. By 2029, almost all segments will reach parity as battery prices continue to fall, the report predicted.
“China is and will continue to be the largest EV market in the world through 2040,” added the report, noting that sales in China will account for almost 50 percent of the global EV market in 2025.
As for the shortage of charging infrastructure, the Chinese government is ambitious. “We will marshal the private sector and financial institutes to shore up deficiencies and work to create unified high standards for such infrastructure,” Song declared, on the focus of future government support.