Auto manufacturers inside and outside of China are introducing new electric-vehicle models to the world's biggest automotive market where consumers have shown little interest in buying them, Qidong Zhang reports from San Francisco
It's the world's largest automotive market and vehicle makers from the United States, Europe, Japan, and Germany- and even in China - are racing to grab their share.
It's "green time" - the push to sell electric vehicles (EVs) in China spurred by the central government's determination to drastically reduce pollution and unclog the streets of major cities.
New EVs on the Chinese market will include the Model S sedan by US electric-car startup Tesla, and Denza, manufactured by the joint venture of BYD, China's largest electric vehicle maker, and Daimler (Mercedes-Benz), which will be shown at April's auto show in Beijing.
In a country where auto sales last year surged 13.9 percent to 21.98 million units, according to the China Association of Automotive Manufacturers, EV makers will face a consumer who has not demonstrated much enthusiasm for their plug-in products. And that's despite the government recently renewing its subsidies of up to 60,000 yuan ($9,836) per car for EVs for the next two years to cut emissions.
Tesla's Model S electric luxury sedan doesn't currently qualify for subsidies, but Tesla hopes that will change. The car is priced in China at 734,000 yuan ($121,000) compared with its US base price of around $80,000 due to taxes and shipping costs.
The price of Tesla's Model S, a version equipped with a premium 85 kilowatt hour battery pack, puts it in the same bracket there as Volkswagen AG, Audi S5 sedan and BMW AG's 5-series GT sedan, according to Autohome, a car-pricing website.
CEO and co-founder Elon Musk of Tesla, named for inventor Nikola Tesla, is optimistic about the prospects for electric cars in China.
Musk told Bloomberg News in February that sales of electric Model S cars in China should match US levels as early as next year, with demand from the world's largest auto market eventually requiring a local plant. For Tesla, "it could be as big as the US market, maybe bigger. I don't want to get overexcited about it," he said.
That optimism about potential EV sales in China was echoed by John Gartner, research director of smart transportation at Boulder, Colorado-based Navigant Research, a market research and consulting firm that provides analysis of global clean technology markets.
"We expect that the government of China will soon stabilize in a consistent policy of incentives and requirements in order to grow the demand for domestic and imported EVs," Gartner said. "Most EVs will be sold into the cities where air quality concerns are the highest, and the market for plug-in electric vehicles will grow to 300,000 vehicles annually by 2022."
Wish lists
All the electric-car vendors in China have their wish lists when it comes to gaining support from the Chinese government, especially for help in building charging stations.
Binyam Reja, the World Bank's country sector co-ordinator, said supply-side incentives provided by the Chinese government can help assure high-quality electric vehicles.
"Electric vehicles are designed and the manufacturers are committed to marketing these vehicles to the public in increasing numbers. On the demand side, cash incentives can reduce the higher price of EVs until a sustainable market is developed. Other incentives such as preferential parking or operation can improve the economics and increase the desirability of owning an electric vehicle as well," said Reja.
Tesla's upcoming launch, according to Diarmuid O'Connell, vice-president of business development, is strategically planned to "serve every customer in China, no matter where he or she is".
"Elon has forbidden anybody within our company calling 'tier 1 or tier 2' cities in China when it comes to describing coastal or inner cities. He believes we should treat all customers equally, whether it's a customer from Shanghai or from Chengdu in Sichuan province, and that's the philosophy Elon wants to carry on."
With a market capitalization of nearly $25 billion, slightly less than half of General Motor Co's $57.7 billion, Tesla's online pre-book order in Beijing and Hong Kong opened last November, and O'Connell said August has been "very promising". He declined to release any numbers, but said the company is "very pleased with the progress, especially after the price was released.
"In the past customers in China have made a deposit for a reservation without even knowing how much the car is going to cost, it's been a leap of faith for them. Now they can go to the website to order directly, configure the details of their order from color to seat cover material," said O'Connell. "We would like to go as quickly as possible in the China market and are working hard to facilitate services needed to serve our customers. We may not have a service center in the city a customer lives in, but will support every customer who buys a vehicle to make sure it's serviced."
BYD's focus
Stella Li, senior vice-president of BYD, said she anticipates huge market growth for electric cars in China in the next few years. BYD's main focus is public transportation and plug-in hybrid electric vehicles.
Founded in 1995 and headquartered in Shenzhen and known for American billionaire Warren Buffett's 10 percent ownership, BYD has 177,624 employees, 15,000 engineers, 2,099 valid patents, with global revenue of $7.25 billion in 2012.
"Many people don't know that we are a world leader when it comes to electric public transportation," Li said.
"The priority of the Chinese government is to electrify some 400,000 diesel buses and 1.2 million taxis in China, which will decrease 25 percent fuel usage, and so far our testing result has been great," Li said.
BYD's second focus is a plug-in hybrid car, Qin, which runs 43 miles on its electric engine and 500 miles on gasoline. The economic version of the Qin is priced at $30,919 and its luxury version at $34,177, before government incentives are applied. The other model, e6, sells at $50,468 and $60,242 for its luxury version.
In December 2013 and January 2014, 815 of BYD's plug-in electric vehicles were sold, according to Raby Yan, BYD's marketing manager.
"This will serve most of the people who are city travelers who drive short distance to work and come home," Yan said. "Most of us don't drive that far if we calculate our daily routine and plug-in hybrid serves the perfect purpose for daily use on electric part for the first 30 miles and on gasoline if they travel further."
Li, a graduate of statistics from Fudan University in Shanghai who joined BYD in 1996, said the 2010 joint venture between BYD and Daimler or Mercedes-Benz - known as BYD Daimler New Technology or BDNT - has better positioned both companies for the EV market.
"Our partnership with Daimler has helped us learn from each other in terms of management, development of the core technology, quality control, planned development, and the stability assurance of the technology," Li said.
The joint venture also aims at launching high-end electric vehicles in China. Its first model, Denza, will be sold through dealers and distribution centers being established in Beijing, Shanghai and Shenzhen.
BDNT COO Arno Rohringer said China, as the biggest automotive market in the world, will play a key role in the public's acceptance of electric cars.
"Local developments regarding the environment and mobility will have a crucial role in the market as well as the local development of the electric vehicle itself," Rohringer said.
While BYD is partnering with the State GRID corporation of China and China Southern Power Grid to work on charging stations for its residential and commercial customers, Tesla is also working on building home charging stations and super charging stations in China, a project which needs support from local Chinese government, utility companies and landlords.
Home charging as the primary charging solution is something Tesla is spending a lot of time on because of two issues, said O'Connell of Tesla.
"The first is to make sure Tesla cars work well in a Chinese environment by having the right adaptors, chargers, the right protections and protocol in place," he said. "The other issue, which is not unique to the Chinese market but is perhaps the most profound to the Chinese market, is China has a lot of high density dwellings in large cities such as Beijing and Shanghai where people live in high-rise properties and do not control their charging.
"If you have a villa there is no problem, in a high-rise you have to work with the landlord, we are working out solutions so that every Tesla owner can bring a car home and charge it easily."
Tesla is also looking at super charging stations for long-distance drivers between major cities such as Shanghai and Beijing.
"We are not the only folks who are working on these issues; there are Chinese manufactures, foreign e-vehicle vendors such as BMW and General Motors as well," O'Connell said.
Infrastructural requirements
Rohringer said the challenge in China, as in other markets, is to address the infrastructural requirements, and to unite customer's expectations in terms of particular range and willingness to pay with the cost structures for the new technologies.
BYD's Li said working with the government sectors is perhaps the most important issue any electric car maker needs to focus on.
"It's important that the National Development and Reform Commission (NDRC) ensures a good policy for electric vehicle vendors so that once a customer buys an electric vehicle, he or she has no trouble to charging it at home. If a customer worries about charging and maintenance of any kind, they are unlikely to be motivated to buy."
The cost of an EV's battery is also a stumbling block to electric car adoption. The higher price of the vehicle is largely due to the battery price, and this has been a challenge to spurring consumer adoption in China.
Li said BYD's lithium-iron-phosphate battery, incorporated in e6 enables a 186-mile range, and a 155-mile range for its 40-foot electric bus. The battery's energy capacity retains 70 percent of its original strength after 10,000 miles.
Tesla's O'Connell said the company has put resources into battery research, development and testing and will continue to do so to drive the price down in five to seven years for its upcoming models.
"One of the great revolutions that Tesla has gone through is the advancement of battery technologies. Some of the smartest people are working from different angles toward the same direction, and we are constantly looking at the innovation, and trying to figure out the most promising technology," he said.
Tesla's market
With Tesla's Model S targeting the high-end consumer market in China, BYD targeting public transportation with buses and taxis, its Qin for plug-in hybrid's consumer market, and Denza targeting the mid-end electric vehicle market, the manufacturers are going after different segments of the market and not competing against one another.
"The electric car market needs a lot of companies to play as a force together to move forward as a green industry, nobody can really dominate the market, it's a joint effort together," Li said.
O'Connell, an MBA graduate of Northwestern University who worked for the US State Department for three years before joining Tesla in 2006, said Tesla is not competing with other electric vehicles.
"Our Model S and model Road X are designed and developed with a certain profile and price point to directly compete with gasoline vehicles of the same class, such as the Mercedes-EX class, Audi and BMW, Bentley, Rolls Royce and other luxury cars, and we have been very successful in the US market," he said. "We are trying to take share away from those vehicles, not the electric vehicles."
O'Connell said Tesla is not just coming to China to sell cars, but to accelerate the market for electric vehicles. If it succeeds, "other companies like BYD and foreign companies will also be successful in selling the e-vehicles," he said.
"What we are trying to do is to put the best possible technology there in the most compelling package possible and get the general public excited about electric vehicles."
Navigant Research's Gartner said it is too early to tell who is eventually going to have the biggest slice of the electric-vehicle market in China, "but the German auto companies are well positioned to appeal to Chinese consumers' tastes", he said.
"Companies need to ensure that their brand recognition is favorable with Chinese consumers, source materials locally when possible, and appeal to consumers' expectations for passenger and cargo space," Gartner said.
"Electric vehicles will be successful once they are priced to meet consumer expectations and vehicles are produced in the size (SUV, large sedan) that higher-end consumers want."
Source:ChinaDaily