Tag Archives: electric vehicles

When Does An American Car Become A Chinese Export?

A locally made Tesla Model 3 electric car seen in a Tesla showroom in Shanghai on November 22, 2019. Photo credit: Xinhua/Ding Ting.

TRADE WARS, US President Donald Trump famously said, are easy to win. But how do you keep score? A new blueprint for China’s car manufacturing sector raises precisely that question.

Jointly produced by the Ministry of Commerce and China Automotive Technology and Research Centre, it signals a switch of policy emphasis from attracting foreign carmakers who will partner with local manufacturers selling to the domestic market to attracting foreign carmakers who will use China as the production base for their global exports (report via the South China Morning Post).

A consequence of Trump’s tariff war with China is a somewhat-accelerated opening up of many sectors of industry to full foreign ownership. The car industry is expected to be included in that. The pencilled-in 2022 target date may be advanced under the Phase One trade agreement with the Trump administration.

The timing is not all trade-deal driven by any means. Chinese vehicle makers have probably got as much technology transfer as they can from their foreign partners and the domestic market for new car sales is soft. Thus the time is ripe to rally foreign carmakers to the cause of boosting China’s exports.

These account for a small share of the cars made in China. For example, 3.2% of the 2.6 million vehicles manufactured in November were exported, according to the China Association of Automobile Manufacturers (CAMM). (The figures exclude knock-down kits assembled in third countries.) At less than $9 billion, the value of the exports was one-sixth that of those of US carmakers.

China’s largest automobile exporter, Cherry, is aiming to export 500,000 vehicles by 2025, four times as many as now, indicating the scale of exports growth for the sector that the government is anticipating. As long as the vehicles are made in China, the government will not worry too much about the nationality of the badge on the car.

Electric vehicles will be a big part of the auto industry’s export drive. China’s manufacturers are already making headway in sales of electric-powered buses and trucks. Still, passenger cars are the potential mass market, especially the emerging middle-class consumers in the rest of Asia and Africa.

Tesla, the US electric carmaker, is the latest foreign car company anticipating the change; indeed it has got a head start as authorities have already allowed it to operate as a wholly-owned enterprise with no local partner. The first of its Model 3 sedans have just rolled off the assembly line at its new $2-billion Shanghai plant, its first outside the United States. Tesla is getting more breaks than most foreign carmakers because the new energy sector is one of the ten industries tabbed for Chinese global leadership under the ‘Made in China 2025’ programme.

But the question will be, does, say, an Indonesian buying a Tesla made in Shanghai think he or she is buying a Chinese or a US car? In other words, whose export is it? And will the opening up of China’s car market and manufacturing prove to do much for carmaking jobs in North America? Perhaps by then the few remaining unionised car workers at Detroit’s ‘Big Three’ should be pushing for their contracts to provide for profit-sharing on worldwide revenue and not just that from North America to reflect the new scorecard Trump’s trade wars will create.

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A Beijing Boost For China’s Electric Vehicle Makers

CHINA SEES ELECTRIC vehicles as the way to leapfrog its way to leadership of the global car industry. Promoting green technologies will also help the country tackle its widespread and worsening pollution, even though the impact of electric vehicles will mostly be in mitigating the problem from getting worse.

Despite government backing since 2009, production is currently modest, to say the least. The goal is to be building half a million electric vehicles a year by the start of 2016 and twice that number by 2020.

To that end, the government has announced an industrial-policy boost. Central government departments and municipal administrations will have to allocate a third of their annual vehicle procurement to “new energy” vehicles. That covers hybrids as well as vehicles powered by hydrogen cells, but in practice means electric vehicles. Local authorities are also instructed to install charging stations — one for each electric vehicle on the road.

Some financial incentive for officials to follow these new directives seem inevitable, given the increasing pressure on local-authority budgets now land sales are a less readily available honeypot. Any subsidies will have to be carefully structured to ring fence them from any potential international trade disputes.

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Making Electric Vehicles Viable

Since 2009 China has been supporting a large-scale pilot market to promote the development of electric-vehicle manufacturing. Initially in ten cities, this is now extended to 25. Electric vehicles are estimated to become a $250 billion market worldwide within 10 years, accounting for one in ten of new vehicle sales by 2020. China is determined to be a leading supplier to this nascent market, committing $15 billion of government funding to develop its industry. The World Bank has just published an initial assessment of the pilot project, outlining some of the challenges that need to be overcome to make electric vehicles a viable commercial market. The main recommendations:

  • Policy momentum: Purchase price subsidies need to be replaced by support for institutional and technology innovation, vehicle-charging infrastructure and manufacturing capacity.
  • Integrated charging: The recharging infrastructure for buses, trucks and taxis needs to be expanded to accommodate private cars. 
  • Common standards: Common, ideally global standards for charging, safety, and battery disposal are needed for both manufacturers and consumers. State Grid, the largest Chinese utility, has established charging standards, but these differ from U.S. and European standards, inhibiting access to global markets.
  • New business models:  Commercially viability must include the cost of charging infrastructure as the industry cannot rely forever on government funding.
  • Customer acceptance: Consumers will only buy electric vehicles if they think them worth the additional cost. Even when lifetime ownership costs become favorable, the initial price of electric vehicles will still be higher than that of conventional vehicles and have a longer payback period.
  • Greenhouse gas (GHG) benefits: Electric vehicles will have significant low GHG emission potential. Longer term, a large electric vehicle fleet also stands to play a role in grid storage which, combined with renewable energy production, can further reduce GHG emissions.

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China To Hold Growing Sway Over World Energy Industry

The International Energy Agency’s latest World Energy Outlook (to 2035) says China’s demand for energy will rise by 75% between 2008 and 2035, accounting for 22% of the world’s energy consumption, up from 17% today. Put another way, China will account for 36% of the growth in the world’s energy demand (see snapshot of IEA graph below). The IEA’s projections are based on the assumption that governments will do no more than meet any commitments already given on energy conservation, greenhouse gas emission reductions and the phasing out of fossil-fuel subsidies. (That so-called New Policies Scenario is the most conservative of the three sets of assumptions about governments’ intentions the IEA makes.)

It is hard to overstate the growing importance of China in global energy markets. [The IEA’s] preliminary data suggest that China overtook the United States in 2009 to become the world’s largest energy user, Strikingly, Chinese energy use was only half that of the United States in 2000….Prospects for further growth remain strong, given that China’s per-capital consumption level remains low, at only one-third of the OECD average.

The IEA also says that China’s growing need to import fossil fuels will have an increasingly large impact on international markets. It will account for half the net growth in global crude oil demand over the period, largely because it will need more fuel for cars and lorries. It will also have a voracious appetite for natural gas, the more so if coal use is restrained on environmental grounds. Its needs are likely to make the oil and gas producing nations of Central Asia such as Kazakhstan, Uzbekistan, Turkmenistan and Azerbaijan which draw from the Caspian basin a significant new energy region. Similarly, Beijing’s push to develop new low-carbon energy technologies could help drive down the costs of those through economies of scale.

In China, energy demand triples between 2008 and 2035. Over the next 15 years, China is projected to add generating capacity equivalent to the current total installed capacity of the United States.

Electricity generation is likely to be at the forefront of the transition to low-carbon technologies. The greatest scope for increasing the use of renewable energy sources in absolute terms, the IEA says, lies in power generation. China is already a leader in wind power and solar photovoltaic (PV) production as well as having become a leading supplier of the equipment thanks to strong government investment support. The IEA says China will add 335 gigawatts of wind generation capacity, 105 gigawatts of nuclear and 85 gigawatts of solar PV by 2035 (and put 8.5 million electric vehicles on its roads).  That said, coal-fired generation will remain substantial in China, with 600 gigawatts of new capacity exceeding the growth of the renewables and exceeding the current capacity of the U.S., E.U. and Japan.

The IEA takes aim at subsidies for fossil fuels, which it calls the “single most effective measure to cut energy demand”. It wants them phased out to end the market distortions that make it more difficult for low-carbon technologies to get development investment. It says that such subsidies amounted to $312 billion worldwide in 2009, though that was down from $558 billion the previous year. China was the fifth largest subsidizer in 2009, behind Iran, Saudi Arabia, Russia and India, at just shy of $20 billion. About half of that went to electricity generated from fossil fuels and most of the rest equally to coal and oil. Beijing has been moving towards more market based pricing for energy, but as the figures show, there is still a ways to go.

The subsidies analysis was done at the behest to the G-20, whose leaders are meeting in Seoul shortly and where climate change and the successor to the expiring Kyoto protocol on climate change will be on the agenda. The IEA lays out how heavily the burden lies on China and the U.S. to cut back emissions if the ideal target of limiting the increase in global temperatures to 2°C is to be hit by 2035: 32% China, 18% the U.S. 50% rest of the world. Low-carbon technologies would need to account, the IEA reckons, for over three-quarters of global power generation by then and plug-in hybrids & electric vehicles for 39% of new sales. That day may not come, or at least not fully, but the era of cheap fossil fuels is over. China is already investing heavily in those areas and giving itself a first mover advantage that the rest of the world may find difficult to claw back.

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