China’s Pending Fossil Fuel Ban Stands To Stimulate EV Development into Overdrive

As various countries and automakers set deadlines to ban fossil fuel powered vehicles, the latest to potentially add its name to the list is the world’s largest car market, China.

Assuming it does set a date-certain deadline for the phase-out of vehicles powered by conventional internal combustion engines (ICE), the fast-growing market stands to shift automakers’ decisions to develop electrified vehicles into a higher gear.

Unlike France and the UK, which have set fossil fuel ban dates by 2040, or other countries eyeing a sooner termination, China has not yet established a deadline, but it is believed it will be by 2040, if not sooner.

That China is mulling its options was revealed in a Bloomberg report of China’s Vice Minister of Industry and Information Technology, Xin Guobin. The official said Saturday at an auto forum that regulators are working on a phase-out timeline for the sale and production of ICE-powered vehicles.

China has been pushing for EVs since last decade, and companies like BYD and Geely have also proven against earlier reports domestic makers can turn out competent plug-in hybrids, with the BYD Qin outselling all plug-in vehicles last year, including Tesla’s Model S.

China otherwise prefers pure EVs which are technologically less encumbered than hybrids with only one propulsion system – a plus for budding domestic companies, and potentially cleaner for the country concerned about air quality that can be abysmal in some regions.

After initial stumbling steps early this decade to jump start its EV industry, China’s formula of heavily incentivizing consumers and domestically based manufacturers hit stride, and last year it sold more plug-in vehicles than Europe or the U.S.

Its cumulative total of plug-in electrified vehicles – it calls them “new energy vehicles” – is also ahead of number two Europe, and number three USA. As of last year, the three markets combined had sold more than 2 million plug-in hybrid and battery electric vehicles cumulatively since their inception.

That’s just a drop in the bucket compared to 84-88 million vehicles estimated sold worldwide in 2016 alone, and the 290 million total vehicles on China’s roads alone, but synergies are happening to accelerate the shift.

Other markets on board with putting the ICE on ice include Norway and the Netherlands shooting for as soon as 2025, and Germany and India are proposing a deadline as soon as 2030.

Meanwhile automakers are setting internal deadlines for themselves as they see regulatory handwriting on the global market wall intended to address climate change concerns.

For example, Volkswagen Group, Daimler, and BMW last year announced that by 2025, 15-25 percent of their vehicle models would plug in. Honda has also said by 2030 two-thirds of its models would be electrified including hybrid, plug-in hybrid, and all-electric.

Others are setting hard-and fast deadlines, including Geely owned Volvo saying by 2019 all subsequent models would be hybrid. plug-in hybrid, or all-electric. Another is Aston Martin which like other luxury performance and supercar makers knows it must do something drastic to stay in business, and by 2025 all its vehicles will be hybridized.

The latest entries – and don’t be surprised to see more – came last week, when Lincoln said by 2022 it would offer electrified variants of all its models, and Jaguar-Land Rover said by 2020 all future vehicles would be electrified.

Gung Ho Here, Dragging Feet There

General Motors is positioned well in China and in electrification technology. It also treats its North American Volt as a “niche” product with much less robust marketing than is provided for trucks, SUVs and crossovers.

All this is happening on a global scale even while the U.S. is a barometer of how many automakers really feel.

While automakers are otherwise smiling upon the electric future, the majority of global automakers doing business in the U.S. have asked the Trump administration to put on the brakes for 2022-2025 federal emission and mpg regulations.

Said regs do not even mandate plug-ins like California’s ZEV rules do, and the EPA has said 0-2 percent plug-ins would be needed, or a minimal amount.

The carmakers are showing their hand however in where there is a weak point perceived in an otherwise unified regulatory wall pushing global boundaries back toward electrification, they are throwing on the wall what they think can stick with the U.S. EPA.

In broad terms automakers have complained about the Obama administration’s early settling of 2022-2025 Corporate Average Fuel Economy rules, implying electrification would still be needed. Plug ins, they’ve said through lobbying arms are: 1) too expensive to profitably make, 2) consumers do not favor them, and 3) they resent being mandated by bureaucrats what kind of technologies they must implement to meet emission and mpg goals.

“The CA zero emission vehicle program is particularly disliked by automakers because it requires specific technologies, but look at the plethora of vehicles (even at small volume) in the market or planned in the near term,” said Michigan-based analyst Alan Baum.

Baum noted that like it or not, California-style rules have pushed automakers doing business here to develop vehicles they would not have otherwise.

From around the globe, China has studied the success of California rules, and sought to implement aspects of its program. So, while critics pejoratively call California “leftist” in its leanings, China need not be shy about it – it is communist, and is mandating what its central planners see fit.

Automakers in that market therefore are, as capitalists will, attempting to make the best of what some see as a golden ground floor opportunity. In order to qualify for fat government incentives however, they must pair up with domestic joint-venture partners – another controversial fact some have resisted in an attempt to keep intellectual property secret.

But IP secrets are already out, and meanwhile the global market is pushing in more or less harmony with what China is trying to accomplish and the message that plug-ins are on the rise is clear.

Embracing Greenness

An early Nissan Leaf ad. The company soon ditched that approach, and sought to prove the value proposition. Its new 2018 version shoots for a mainstream audience, but the idea of embracing all things sustainable and clean remains in the industry accelerating as fast as it feels comfortable doing so.

Given this, carmakers are opening divisions for themselves to champion electrification; they are making forward-looking statements of their commitment to the environment and sustainability. Some of them mean it, and others are ambivalent behind a crafted public face and doing it because they have to as the tide is pulling them in a direction they cannot easily resist.

It’s an awkward position carmakers are in. Consumers have begun to embrace plug-ins. Most people do believe climate change is a dire threat, and this is a huge lever to impose technology specific rules on carmakers who are already responsible for obeying tens of thousands of pages of regulations on other issues.

As wise corporate citizens, carmakers must also now be seen as embracing the future, as they hope to sell vehicles they’re being forced on the other hand to make – including now by Tesla which is both helped by regs and helping regs as a “disruptive” element.

Just a couple years ago diesel was also seen as a way to satisfy regulations, but while it’s still being proffered, there’s been an emigration from this out-of-favor technology.

For its part, diesel cheating scandal originator VW Group – and its 13 brands which sold around 10 million vehicles last year – needs to put dirty diesel in its rear view mirror, and has given a polar-bear-sized hug to plug-ins.

China’s Latest Stimulus

BYD Qin.

And now China, the biggest growth market, is setting a deadline that was already implicit in the first place. Reports including this one are going out that this latest move will profoundly impact carmakers, but they were already moving that way in the tractor beam of the collective unconsciousness.

Having a deadline for a phase-out does however raise the intensity level, said Baum.

“The Chinese government can set bans/incentives easier than democracies, but they can also roll them back quickly,” said Baum noting China has already done so with a previous program suggesting a certain percent of EV sales.

And so the pressure increases on coming up with ways to make it profitable. Today Daimler predicted after slashing almost $5 billion in costs its electrified EQ sub-brand and electrified Smart cars would make half the profit it was accustomed to.

It will be tight but as the saying goes “where there is a will [or no other choice], there is a way,” and costs have otherwise been declining faster than predicted.

Last year an indicator was shown of this when GM reported its price for batteries has dropped dramatically.

The Bolt EV gets LG Chem cells for $145/ kWh, hundreds of dollars cheaper than five years ago.

And while GM and most other carmakers petitioning the U.S. saying EVs are a tough sell, the incentive to refine marketing and sales is also ratcheting up.

Automakers will need buyers for their products, and their third-party franchised dealers will need to learn how to better sell them.

To date, this has been a problem EV advocates have beaten the band about to “tone deaf” carmakers – other than Tesla, that is.

But now China has hammered a new gong whose sound may go around the world, or so it is hoped.

Either way, things are falling into place faster than many thought just a few years ago.

Bloomberg


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