Foreign carmakers eyeing China's electric car market amid government incentives

Customers take a look at an E6 electric car at a BYD dealership in Hangzhou, Zhejiang province, China, December 18, 2014. Photo: China Daily/Reuters

The Renault-Nissan Alliance has joined a list of global carmakers to join hands with local partners to build battery-powered vehicles in China, in demonstration of a strong interest in investment in the country's electric car market, the world's largest one.

Last week, the French-Japanese automaker announced its plan to cooperate with Chinese vehicle producer Dongfeng Motor to establish a 50-50 joint venture named eGT New Energy Automotive to develop and sell electric cars in China, following the announcements of several leading Western carmakers, who have charted blueprints to tap into the country's booming electric car market.

eGT New Energy Automotive will design a new electric car that is jointly developed by the three companies on an existing sport utility vehicle platform of the Renault-Nissan Alliance, with each member of the joint venture being able to use this platform and then build their own cars under their own brands, according to a statement.

Magnetic appeal

The Renault-Nissan Alliance announcement came just a week after American carmaker Ford Motor and Chinese car company Zotye Automobile signed a memorandum of understanding to set up a joint venture to build electric cars under a new brand in China. Ford has outlined its plans aimed at offering by 2025 hybrid or fully electric versions of 70 percent of its models built in China with its local joint venture partner Changan Automobile.

With the Chinese government grappling with the chronic air pollution and rolling out policies to promote the sales of plug-in hybrids and purely electric cars in China, a number of prestigious foreign carmakers have shifted their focus to the country's electric vehicle segment from previous concentration on the production of gasoline-powered vehicles.

This year, several big foreign car producers had made similar arrangement as Renault-Nissan Alliance and Ford did in China, as the country's policymakers want fully electric cars and plug-in hybrids to account for at least one-fifth of its automobile sales by 2025.

In July, General Motors announced its plans to put into production a purely electric car in China in the next two years, with General Motors China President Matt Tsien saying that the company expects annual sales of 150,000 new energy cars in the country by 2020 and possibly in excess of 500,000 by 2025.

Two months before General Motors unveiled its China-focused electric car development plan, Volkswagen received an official approval in May to establish a new joint venture to produce electric cars in partnership with Chinese carmaker Anhui Jianghuai Automobile Group.

In April, Daimler announced to work with Beijing-based vehicle producer BAIC Group to set up a car battery plant in China, which will double as the factory for the production of Mercedes Benz-branded battery-powered cars in what it described as the "hotly contested Chinese mass market".

Among these foreign car brands, Tesla draws the closest attention with ceaseless rumors about its plans to make electric cars locally. In June, Tesla announced in a statement that it was in talks with the Shanghai municipal government to explore the possibility of creating a manufacturing facility in the region to serve the Chinese market, even though Shanghai Lingang Holdings and Shanghai Electric Group refuted the rumor that they would be involved in the American electric-car maker's push. Since entering the Chinese market in 2014, rumors about Tesla's selection of a location and local partners for a manufacturing facility in China have been rife.

The growing desire of international carmakers to produce electric cars in China is largely due to the country's stringent quota proposal put forward last year which requires that 8 percent of automakers' sales should be contributed by battery-powered cars or plug-in hybrid vehicles in 2018, with the quota jumping to 10 percent in 2019 and 12 percent in 2020.

Beijing will present its final plan for the electric car quota in the near future, media reports said, adding that penalties for non-compliance were likely to be softened after complaints by the global automakers.

Sales of electric cars in China jumped 65 percent year-on-year to 490,000 units, with sales of fully electric passenger cars totaling 257,000 units, representing an increase of 75 percent from a year earlier. In 2016, 98,000 plug-in hybrids were sold, up 17 percent from last year, according to statistics from the China Association of Automobile Manufacturers.

Ford has predicted that the Chinese demand for the new energy vehicles would hit six million by 2025, two thirds of which would be fully battery-powered cars.

Subsidies and incentives

Under the shadow of heavy smog in major Chinese cities, the government is stepping up efforts to promote the production and use of vehicles powered by clean energy.

The government has offered massive subsidies to the electric car producers, which account for 50 percent of the retail prices of electric cars sold in the country, where the buyers of electric cars are exempt from sales tax and the license plate quotas for such cars are carried out in big cities. The authorities are also improving the charging network nationwide for the electric cars.

These favorable policies aim to help reduce exhaust emissions in the Chinese cities, as some of them have been labeled as the most polluted cities in the world.

However, some analysts argued that these massive subsidies might lead to overcapacity in the electric car sector and might discourage the domestic carmakers from making technological innovations.

Anders Hove, a renewable energy expert and a senior consultant at the Paulson Institute, suggested that the Chinese government should make a balance in offering subsidies in order to encourage carmakers to consistently update technologies and to keep their car-building projects more flexible and sustainable.

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