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Print Edition> Business
UPDATED: June 11, 2010 NO. 24 JUNE 17, 2010
Hot Green Wheels
China hands out subsidies for purchases of new energy vehicles to spur green car interest


INFRASTRUCTURE IMPROVEMENT: The first public charging station in Hangzhou, capital of east China's Zhejiang Province, was opened on June 3. The station is capable of recharging 80 electric cars at the same time (HAN CHUANHAO)

After months of waiting, the Ministry of Finance announced on June 1 a trial program to subsidize purchases of new energy vehicles in the world's largest and fastest-growing auto market.

Based on the capacity of the battery packages, a 3,000-yuan ($439) subsidy is offered for each kilowatt-hour for green cars, with a cap of 50,000 yuan ($7,322) for each plug-in hybrid car and 60,000 yuan ($8,784) for each pure electric car.

Instead of handing out subsidies to consumers directly, the government would allocate the money to carmakers, which would then lower the prices of relevant models accordingly, said the ministry, without indicating when the program would begin. The levels of subsidies will then be reduced once carmakers have sold 50,000 green cars.

The subsidies will initially go on a trial run in five cities—Shanghai, Changchun of Jilin Province, Shenzhen of Guangdong Province, Hangzhou of Zhejiang Province and Hefei of Anhui Province.

In addition to the new program, the government will also offer nationwide subsidies of 3,000 yuan ($439) on purchase of each car with 1.6-liter engines or smaller that consume 20 percent less fuel than current models.

The Chinese Government, in its auto industry revitalization plan released in 2009, has made no secret of its ambition it wants to have 500,000 electric vehicles rolling on the streets by 2011, accounting for 5 percent of all passenger cars.

The favorable policies are bound to spark customer interest in the green cars and prompt automakers to jump on the bandwagon, said Jia Xinguang, a Beijing-based independent auto analyst.

"But it's unrealistic to expect it to work like magic," he said. "The market still counts on product quality, mature infrastructure, as well as a better understanding among consumers."

Obviously, the hand-outs focus on electric vehicles and plug-in hybrids over regular hybrids, reflecting the government's intention to foster domestic brands in the relatively undeveloped field with no clear champions, said a report by China International Capital Corp. Ltd. Unlike Toyota's gasoline-electric Prius, which gathers energy from the operation of the vehicle to increase fuel efficiency, plug-in hybrids and electric cars can be recharged from power sockets and produce zero emissions.

Automakers were not over-excited about the news. "It could get more customers interested in the new energy vehicles, but price is not the only barrier to market acceptance," said Wang Jianjun, a spokesman for the Shenzhen-based BYD Automobile Co. Ltd.

Yuan Tao, Vice General Manager of Chery Automobile Co. Ltd., agreed. "It will take time for drivers to go green," he said. "We will not expand production just because of the subsidies." Both BYD and Chery are pioneers riding the wave of transport electrification.

Going electric

When it comes to making internal combustion engines, Chinese manufacturers are apparently falling far behind their Western counterparts. But the playing field for new energy vehicles is nearly level.

As automakers shift from gasoline to voltage, most need lithium batteries that are light and compact enough to fit into cars. This gives China, producer of nearly 20 percent of the world's lithium batteries, a foot in the green door.

Indeed, excitement about battery-powered cars is flowering across the nation, with a number of automakers taking the plunge. BYD, backed by U.S. investor Warren Buffet, is already selling its plug-in hybrid F3DM model, a saloon that promises to travel 100 km on a single charge with the capability to shift to gasoline if the battery runs low. Its pure electric E6 cars have also hit showrooms and are expected to cruise into the market in the near future. Meanwhile, the Shanghai Automotive Industry Corp. also plans to roll out its first hybrid car later this year.

The emerging industry, however, is still in its infancy, travelling on wobbly wheels. Very few types of China's pure electric vehicles have been ready for mass production and the sales of plug-in hybrids are also stalling due to high price tags. BYD, for example, sold a minimum 14 F3DM cars in April 2010 while sales of its most popular F3 conventional cars reached 21,080 sets that month.

"With government subsidies put in place, drivers may face a greater temptation to go electric," said Han Lei, Deputy Secretary General of the Society of Automotive Engineering of China. "In addition, the unit costs will come down when large-scale production kicks in."

After all, the country has a great deal of experience in manufacturing cheap electric vehicles, such as electric bicycles and tour vehicles, already in wide use throughout the country, Han said.

But price is not the only concern on the minds of consumers, said Chen Quanshi, an engineering professor with Tsinghua University. "The safety concern, a lack of recharging infrastructure and limited driving range are other critical issues for people to think about."

Overheating or severe damage to the lithium battery can lead to a short circuit, which can cause the unit to burst into flames. The odds of a battery pack combusting are two or three in 1 million, but when it does happen, the results can be devastating. Meanwhile, recharging is a challenge in a country where few live in houses with easy access to plugs to power their cars, and there is little infrastructure ready for public charging.

"Until easier recharge facilities are available on the road for much longer trips, you probably won't see massive use of new energy cars," said Zhou Rong, a senior researcher with the China Automotive Technology & Research Center.

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