www.pwc.com/cleantech Cleantech in China The road to increasing electric vehicle adoption March 2013
China has held the title of world s largest auto market since 2009, when it surpassed the U.S. with a then-record 13.6 million automobiles sold. 1 Projections for 2012 indicate modest growth over 2011 to approximately 16 million passenger vehicles sold in China, but the return of high growth is anticipated and Chinese consumers are expected to buy 25.5 million vehicles a year by 2015. 2 However, the rapid development of the passenger car market and the speedy rise of the automobile culture have contributed to issues such as air pollution and significant roadway congestion in major cities. 3 According to the China Greentech Initiative (CGTI), of which PwC is a Game Changer Partner, new energy vehicles, such as battery electric vehicles, plugin hybrid electric vehicles, and natural gas vehicles, are now a priority for the Chinese government due to their ability to improve energy and resource efficiency while also reducing emissions and minimizing the environmental impact of transportation. 4 As a part of broad, national goals to reduce carbon emissions and decrease reliance on fossil fuels, the Chinese government has enacted several policy initiatives to drive growth in the clean transportation sector. In addition to a New Energy Vehicle Industry Development Plan, new energy vehicles were named one of the seven Strategic Emerging Industries (SEIs) in the 12 th Five-Year Plan, resulting in significant regulatory and financial support across the sector. 5 But the new energy vehicle industry is still in the early stages of development, facing the initial challenges that most nascent sectors encounter. As such, developing a full-fledged clean transportation sector in China will likely be a long journey that requires a combination of policy initiatives, technological advances, and consumer education, but one with ample opportunities for foreign companies to play an important role. National focus on electric vehicles The push for electric vehicles in China is driven by a number of national policies that are intended to result in electric vehicles playing a major role in the country s automotive industry by 2020. Although conventional vehicles with internal combustion engines still dominate China s roads, by placing a strong emphasis on improving the available technology and encouraging widespread adoption of electric vehicles, the Chinese government hopes to 1 Guillaume, Gilles. "China Car Sales Top U.S". Reuters. Accessed Feb 12, 2013. <http://www.reuters.com/article/2010/01/11/us-autos-idustre60a1bq20100111>. 2 3 Mao, Sabrina. "Now Beijing Plans Congestion Fees to Ease Traffic". Reuters. Accessed Feb 12, 2013. <http://www.reuters.com/article/2011/09/02/us-china-traffic-beijingidustre78119i20110902>. 4 "The China Greentech Report 2012". China Greentech Initiative (April 2012): pg. 16. 5
lessen reliance on imported oil, dramatically reduce pollution, and make significant cuts to energy consumption. 6 China s State Council published its detailed development plan for new energy vehicles in June 2012, outlining comprehensive objectives for the automotive supply chain related to electric vehicles, including batteries, electric motors, automotive electronics and advanced transmissions. 7 The plan also calls for the accelerated and coordinated development of related infrastructure, such as a network of charging stations and a smart grid system while also addressing the need for national standards for the vehicle charging interface at charging stations. In addition, a series of additional steps to create a comprehensive consumer-facing electric vehicle market are outlined, including models for leasing, consumer financing, insurance, after sales service and battery recycling programs. 8 China s Ministry of Science and Technology (MOST) has also provided a comprehensive electric vehicle technology roadmap that takes a phased approach to commercializing and deploying battery electric vehicles on a wide scale by 2015. 9 Ambitious development and adoption goals For years, electric vehicles have been viewed as a way for domestic Chinese automakers to match, or even leapfrog foreign competitors by rapidly bringing automobiles with large-capacity batteries to market on a major scale. However, despite a high level of enthusiasm, only 15,000 electric vehicles had been sold in China by the end of 2011, making the ambitious targets set for 2015 (cumulative 500,000 electric vehicles sold) and 2020 (cumulative 5 million electric vehicles sold) challenging to achieve. 10 While the government has made some progress in the electrification of public vehicles (e.g., metropolitan buses), private consumer adoption of electric vehicles has been limited. According to interviews conducted by CGTI, low availability of electric vehicles, limited charging infrastructure and high costs are the primary reasons few consumers have chosen electric vehicles. 11 In response, both national and local governments have implemented a series of monetary and administrative incentives, including subsidies of up to $9,500, cuts in sales tax on qualifying vehicles, and 6 Ibid, pg. 128. 7 China publishes plan to boost fuel-efficient and new energy vehicles and domestic auto industry; targeting 500K PHEVs and EVs in 2015, rising to 2M by 2020. Green Car Congress. Accessed Feb 12, 2013. <http://www.greencarcongress.com/2012/07/china-20120709.html>. 8 9 CGTI Cleaner Transportation Opportunity Assessment #2. China Greentech Initiative (June 2012): pg. 10. 10 CGTI Cleaner Transportation Opportunity Assessment #2. China Greentech Initiative (June 2012): pg. 11. 11 The China Greentech Report 2012. China Greentech Initiative (April 2012): pg. 141.
exemptions from license plate lotteries in cities where it may typically be costly or difficult to obtain registration. 12 At the same time, installation of charging posts has lagged far behind government targets (with 13,283 posts installed at 2011 year-end) and significant acceleration of charging infrastructure deployment will likely be required to achieve the national target of 400,000 installed posts by 2015. 13 But a number of challenges, from limited space in major cities and high upfront install costs to long charging times and potential to overload existing grids, will need to be resolved. Staying on course Some industry analysts have indicated that China s auto industry ecosystem is not yet ready to support the mass production of battery electric vehicles and should instead adopt plug-in hybrid electric vehicles as a bridging technology to ease the transition to battery electric vehicles. 14 As such, it s not surprising that the Ministry of Industry and Information Technology (MIIT) has placed greater policy emphasis on the development of plug-in hybrid electric vehicles in the near future. 15 But promising electric vehicle pilot programs in cities such as Shenzhen and Hangzhou demonstrate that electric vehicles will likely continue to have significant potential. Shenzhen ranks first in China for private electric vehicle sales due to effective implementation of an incentive program and available charging infrastructure, while Hangzhou is demonstrating progress in developing innovative business models and promoting local electric vehicle original equipment manufacturers (OEMs). 16 CGTI has identified the following opportunity areas based on sector trends and developments in 2012 that will likely be vital to continuing to push the electric vehicle sector forward. 17 12 CGTI 2012 Cleaner Transportation Sector Snapshot. China Greentech Initiative (2012): pg. 12. 13 Ibid, pg. 14. 14 World Bank/PRTM study finds global value chain shift resulting from vehicle electrification could favor China from technology and supply chain perspectives. Green Car Congress. Accessed Feb 15, 2013. <http://www.greencarcongress.com/2011/04/chinaev-20110420.html> 15 CGTI Cleaner Transportation Opportunity Assessment #2". China Greentech Initiative (June 2012): pg. 10. 16 Ibid, pg. 33. 17 CGTI 2012 Cleaner Transportation Sector Snapshot". China Greentech Initiative (2012): pg. 28.
Electrification of municipal fleets Accelerated deployment of charging infrastructure Partnership models in pilot cities Opportunities exist to further deploy electric vehicles for municipal use such as city buses, which have predictable routes allowing for scheduled charging at predetermined charging stations. Issues with range can be planned for and, over longer periods of operation, higher vehicle costs may be offset by fuel savings. Increased installation of charging poles and stations is a prerequisite to the widespread adoption of electric vehicles. Technology providers have an opportunity to participate in expanding the scale of charging infrastructure in pilot cities, as local governments are investing in order to meet stated goals. Customer-oriented business models are required in order to make electric vehicles commercially viable. Sector stakeholders should consider both upstream and downstream partnerships that improve the economics and experience for public and private electric vehicle adoption. The Chinese government has made a strong commitment to the successful development of the electric vehicle sector. Instead of relying solely on purchase subsidies, officials have taken a comprehensive view of the electric vehicle industry and introduced multi-faceted policies that address the sector as a whole, including product research and development, related component supply chains and operational infrastructure. These policies should encourage industry collaboration to drive development that, when paired with sufficient consumer demand, will help China transform into an electric vehicle leader and realize the environmental benefits of new energy vehicles. Contacts Alan Chu China Business Network Leader (213) 356-6520 alan.chu@us.pwc.com Justin Chan Manager (213) 217-3163 justin.chan@us.pwc.com 2013 PricewaterhouseCoopers LLP, a Delaware limited liability partnership. All rights reserved. PwC refers to the US member firm, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details. This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.