China is the biggest wildcard in any global EV-growth projection. The government, driven by the desire to leapfrog traditional OEMs in this new technology, reduce dependence on foreign oil, and cut pollution, has ambitious plans to drive adoption of EVs. China’s goal is to have 500,000 EVs—passenger cars, trucks, and buses—on the road by 2015 and 5 million by 2020. It is supporting that goal by setting up an EV alliance of companies across the full value chain, funding it with a war chest of 100 billion yuan, and providing incentives to consumers and automotive-industry players. In parallel, the government has directed State Grid Corporation of China to develop the supporting infrastructure for EVs. SGCC is making large investments and plans to build 2,300 charging stations and 220,000 charging poles from 2011 through 2015.
But local OEMs that introduced EVs early have so far met a cold reception from Chinese consumers. Only around 2,000 electric passenger cars were sold in 2010 (primarily to public-sector fleets) despite central-government incentives as high as 60,000 yuan (approximately $9,000). Simultaneously, global OEMs are stepping up their efforts to penetrate the Chinese market.
We see three key market opportunities for EVs in China: fleets, wealthy environment-oriented consumers, and mass-market urban vehicles. EVs’ penetration of fleets could increase rapidly, depending on the direction given by the national and local governments. The high-end market is already showing a trend toward HEVs, which are considered to be in vogue; EVs could have similar success. But neither segment is large enough to create a breakthrough. To achieve a breakthrough, OEMs must do three things: they must offer attractive mass-market vehicles, address the vehicles’ potential downsides (including their relatively high price and limited driving range), and promote a better understanding of the advantages of EVs among consumers.
At the moment, each comes with a different set of challenges. First, mass-market consumers, especially first-time car buyers, are still motivated primarily by vehicle size, brand, and price. Even a small price premium for an EV prompts most would-be buyers to choose an alternative. Second, in the near term, there may not be a sufficient choice of vehicles offered to satisfy consumers. Currently, most planned EV launches are niche models. (So far, only 4 of the country’s 20 best-selling passenger cars are expected to have an EV derivative by 2012.) In addition, government support to date has focused on state-owned enterprises, which have a limited presence in the vehicle segments that best fit EVs. Third, initial global trials have shown that consumers prefer to charge their vehicles overnight. This will be a challenge for the large number of urban vehicle owners in China who do not have dedicated parking.
The government’s stated commitment to EVs, coupled with its willingness to take a long-term perspective (20 to 30 years), should not be discounted: China has successfully nurtured other nascent industries and technologies. To secure a higher adoption of EVs, the government may resort to measures beyond the current incentives (for example, driving restrictions). This makes the Chinese market a wildcard. EV stakeholders should therefore prepare for multiple volume and penetration scenarios. At the same time, stakeholders should identify new business opportunities that could emerge if the aforementioned barriers can be overcome.