Automakers Frustrated With Unclear China Plug-in Car Policy

Major automakers tend to agree that China is the most important global market for plug-in electrified vehicles (PEVs), but their concern has been rising over market demand and future government policies.

Future government subsidies and regulations are in question. China’s “new energy vehicle” campaign has been a major driver in the country becoming the world’s largest PEV market – and it may be going away.

Daimler, Ford, General Motors, Tesla, and Volkswagen, see China as integral for meeting their global production and sales schedules for PEVs. Events such as Auto Shanghai 2017 in April have become launch pads for electrified vehicles being rolled out.

Committing to these high-volume targets is becoming more difficult in understanding clearly which vehicles will be in strong demand.

Sales have been strong for battery electric vehicles, which make for the lion’s share of the market. The Chinese Association of Automobile Manufacturers reported that BEV sales rose 9.7 percent during the first four months of this year to 72,895 units. Plug-in hybrid electric sales fell 27.4 percent to 17,507 vehicles during that time.

These sales have been driven by generous government subsidies. Chinese car buyers haven’t shown any interest in PEVs unless accompanied by cash, reports Ward’sAuto.

But understanding what they’re really looking for remains unclear.

Ford plans to offer electrified versions of every model produced at Changan Ford, its joint venture with Chongqing Changan Automobile. Seventy percent of these models will be electrified by 2025, said Trevor Worthington, vice president-product development at Ford Asia Pacific.

“In order to compete in the world’s largest market, you have to be there with the right product at the right time,” Worthington said.

BEV sales have been strong in China, but what are consumers really expecting from these vehicles?

“I don’t know that anyone understands the Chinese customer (battery-) range demands,” Worthington said.

In January, the national government announced that subsidies will be reduced this year and phased out by 2021 – while also expecting to see PEVs make up 20 percent of car production and sales by 2025.

California Governor is visiting Chinese officials this week to encourage support for zero emission vehicles. They’ll also be discussing California’s carbon credit program where automakers and companies such as utilities and oil refineries can purchase or trade credits to comply with California’s climate change policies.

China told German officials and auto executives that its stringent mandate being considered – that 8 percent of all new vehicles be PEVs next year – will be scaled back and extended out over a longer period.

German Chancellor Angela Merkel met on Thursday in Berlin with Chinese Premier Li Keqiang to discuss the issue. The Chinese premier said a “solution” for implementing the quotas had been found, according to Daimler chief Dieter Zetsche.

But hitting PEV sales targets will part of it.

The driver of change is shifting over from vehicle purchases to automakers having to manufacture and sell a certain volume of PEVs, said Jason Forcier, CEO of battery maker A123 Systems. That may be done at a loss, he said.

“It is going to shift the burden (for creating demand) to the manufacturers,” he said.

A123 Systems was bailed out of bankruptcy by Chinese auto parts giant Wanxiang Group.

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Those losses will be offset, at least in theory behind the policy, by carbon credits achieved through the zero emission vehicle program, said Robin Zhu, senior analyst at investment research firm Sanford C. Bernstein in Hong Kong.

“But you essentially go from a system where there are government subsidies to a system where OEMs cross-subsidize each other via the credits system,” he said.

Forcier said that is common to see the Chinese government hold off on policy decisions until the end of the year, when changes are made and released rapidly.

That mandate has been seeing differing versions. Two Chinese government offices, the National Development and Reform Commission and the Ministry of Industry and Information Technology, each have published their own version of potential policies.

A November 2016 report issued by the Bernstein research firm quoted Winston Churchill’s description of the Soviet Union in a comparison with current Chinese government policymaking, calling it “a riddle, wrapped in a mystery, inside an enigma.”

Automakers think that issuing PEV credits will be delayed and will take the shape of either a significant phase-in period or lower quotas for 2018-2019, Zhu said.

For automakers, he says, “It is a source of frustration,” Zhu said.


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