Chinese pouring money into electric vehicle development

  • 29-Apr-2011 03:47 EDT

The EV value chain likely will be greater than $250 billion.

The Chinese government has made electric vehicles a focus area for investment, which may make the nation a key player in electrified powertrains, according to a recently released study. China is investing $15 billion to develop an infrastructure for vehicle manufacturing and operation.

The report from the World Bank, "The China New Energy Vehicles Program: Challenges and Opportunities," notes that there are barriers to entry for vehicles with internal-combustion engines, so much of the country’s projected growth will come in electric powertrains. China is poised to become a major automaker, with the World Bank predicting a manufacturing rate of 30 million vehicles in 2030, up from 13.6 million in 2009. If that happens as expected, it could give China a strong competitive position.

“Electric propulsion will introduce a value chain shift that could favor China from both a technological and supply chain perspective. The result of China’s advantages in batteries and motors could provide an overall advantage for Chinese companies in electric drivetrain components and may position Chinese automakers to assume global leadership in electric vehicles,” according to the report.

Much of the input for the report came from researchers at PRTM Management Consultants Inc., who met with several Chinese government officials at the national and local levels. They explained that government support for electrified vehicles is strong. Its $15 billion is more than any other nation has put behind electrified vehicles, the study says.

“China is very bullish on vehicle electrification. They’re ramping up their activity in this area,” said Aaron Tweadey, Principal at PRTM. “The World Bank wanted to understand China’s EV landscape and see how it compared to the rest of the world.”

Among the driving factors are China’s air pollution issues and a desire to reduce its dependency on imported oil, which accounts for more than half of China’s usage. Another is that the centralized government can set policy without the political battles that slow many nations.

“The Chinese government is able to make decisions quickly,” Tweadey said. “They are trying to foster an environment that will put them in a strong position when the economics become viable.”

Tweadey added that the cost of electric powertrains is currently prohibitive. But he said many factors will change that quickly. Along with rising fuel prices, they include tighter emissions standards that will drive up conventional vehicle costs and falling prices for many components such as batteries and motors.

The report predicts that these factors will make electrified powertrains more viable in a fairly short time frame. “In the latter half of the decade, we feel that, on a total cost basis, EVs and hybrids will be at cost parity,” Tweadey said.

He noted that on the consumer side, the U.S. leasing model may make EVs and hybrids viable over a shorter time frame. “Hybrids make sense over the lifetime of the vehicle, but consumers must pay more up front. Leasing reduces some of that initial cost barrier. In China, leasing is a very small part of the market, as opposed to the U.S. where it’s a significant portion of new vehicle purchases,” Tweadey said.

Many Chinese agencies are investing in large government vehicles, which they typically purchase, rather than in conventional passenger cars. That’s typified by the "Ten Cities, Thousand Vehicles Program" launched by the Chinese government in 2009. Originally created to stimulate EV development through large-scale pilots in key cities, it is now focusing on deployment of EVs for government fleets and private purchases in 25 cities.

“In many cities, they’re deploying buses and garbage trucks that have big battery packs, so they’re driving the scale faster,” Tweadey said.

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