Is the Future of Electric Cars in China?

Is the Future of Electric Cars in China?

Like drowning men grasping the only piece of buoyant driftwood in sight, top executives from the world’s beleaguered auto industry arrived in Shanghai this week for the city’s 2009 auto show, unveiling their newest brands in the only car market in the world that continues to grow. Some of the show’s stars are predictable, drawing crowds of reporters and photographers on Monday, media day: a stunning new Lexus convertible, the reborn Chevy Camaro from General Motors and the worldwide debut of Porsche’s new luxury sedan, the Panamera.

But not all the buzz is being generated by muscle cars or luxury of the “if you have to ask, you can’t afford it” variety. Crowds also gathered around cars made by a company largely unknown outside of China, the Shenzhen-based firm BYD . Started as a rechargeable-battery maker, BYD is making a headlong push to become a world leader in what some analysts believe could be the industry’s post–internal combustion engine future: electric cars.

In fact, from Toyota on down, nearly every major automaker and a host of minor ones are exhibiting this week not just hybrids, but also pure battery-powered vehicles. No fewer than eight electric cars in various stages of development were put on display by Chinese companies. The reason is straightforward enough: China is the world’s fastest-growing auto market. So far this year, it is also the world’s biggest auto market, with sales through the first quarter running at an annualized rate of 11 million units, compared with 10 million in the U.S. That kind of scale is why some executives believe that China could be the country in which electric vehicles move from the concept stage to mass production. “It may become the country that leads the switch to electric vehicles,” says Nick Reilly, who heads Asia Pacific for General Motors.

Why is BYD, a company with little history in the auto industry, viewed as potential leader of that shift One answer is that last September, Berkshire Hathaway chairman Warren Buffett, the Oracle of Omaha, paid $230 million to buy a 9.8% stake in BYD. At a press conference at the time, David Sokol, chairman of MidAmerican Energy Holdings, the Berkshire Hathaway–owned company that made the investment, said he believed that BYD’s technology was a “potential game changer if we’re serious about reducing carbon-dioxide emissions.” BYD has nearly 11,000 engineers and technicians working on battery technology at the company’s headquarters in southeastern China.

China’s government is backing the industry’s push toward electric cars. Large fleet owners — in China, that’s mainly regional governments and taxi companies — now get subsidies worth up to $8,800 per vehicle if they buy electric. Beijing has also announced that it will spend $1.5 billion in grants to help its auto industry innovate. Because most Chinese car owners don’t travel long distances, but rather commute in smoggy, traffic-clogged cities, a switch to plug-in electric vehicles is more plausible in China than in other countries.

That said, there are many auto-industry executives who maintain that the hype has gotten well ahead of reality. There is no infrastructure, in the form of battery-charging stations, to support pure electric models. Electric cars now coming to market are also expensive, costing more than $20,000 even with the subsidy, a stiff price in a country where the annual average income is less than $10,000. That’s part of the reason that BYD, since introducing a hybrid electric in December, has sold just 80 of them. CEO Wang Chuanfu expects that BYD will lower the price to about $16,000 as the company scales up production. BYD also makes small gasoline-powered cars and is having no trouble selling them. In March alone, 20,000 units of the most popular model, the F5, were sold.

Even with government backing, skeptics say Chinese electric cars are not ready for prime time. “From what we’ve seen so far, the technology is not that advanced in terms of battery life, range and in terms of recharging,” says GM’s Reilly. “If you look at the details, they don’t necessarily perform as well [as GM’s electric-car entry, the Volt] in those measures.” GM plans to introduce the Volt in China late next year or early in 2011.

A senior executive for one of Japan’s biggest automakers says he believes it will be 2012 or 2013 before electric cars gain a foothold on the mainland. Much depends on gasoline prices, which are partially controlled by the government. Will China’s leaders increase gas taxes to make expensive alternatives like plug-in electric cars more acceptable to consumers “That is going to be the tough decision,” the executive says. “It will make the higher cost of electric models more justifiable in the eyes of the buyers, and it will help the auto industry be more sustainable in China.”

While governments elsewhere tend to shrink from legislating higher fuel costs, Beijing may not be as reluctant. “I actually think it’s more likely to happen here than in the United States,” says the Japanese executive. China’s car companies are at a technological disadvantage when it comes to making internal-combustion engines, but the playing field for all-electric vehicles is very nearly level. With a concerted push, the Chinese could leap ahead of the rest of the world. Reilly agrees that Beijing means what it says about boosting the technology. For that reason, he says, “we ought to be very serious about our competitors here in China.”
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