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| enthusiastic government support for alternative energy vehicles is promising |
Boosted by enthusiastic
policy support from both national and local government, China’s alternative
energy vehicle market is booming. Production and sales have almost tripled year
on year in 2014, and big increases are also predicted for 2015. The market’s
fast growth is good news for China’s lithium-ion (Li-ion) battery industry,
which should see its fortunes revived in 2015. However, CCM
has warned that the gulf in R&D capabilities between domestic Chinese
manufacturers and their international competitors could still do great harm to
domestic companies’ long-term competitiveness.
Over the last few
months, the Chinese government has demonstrated its determination to accelerate
the development of the alternative energy market with a series of supportive
policy announcements. In mid-July, the General Office of the State Council of
the People's Republic of China (GOSC) implemented the Proposal on Purchasing Alternative Energy Automobiles for Governments
and Public Institution, and GOSC followed this up in late-July by
publishing the Guidance Concerning
Accelerating Expansion and Application of Alternative Energy Automobiles.
Among the proposals contained in the latter, the decisions not to restrict the
entry of foreign alternative energy automobiles entering into local markets and
to include charging stations in plans for local infrastructure were
particularly noteworthy.
Then, in early
August, China’s Ministry of Finance (MOF), the State Administration of
Taxation, and the Ministry of Industry and Information Technology (MIIT)
jointly issued the Announcement on Tax
Exemption for Purchasing Alternative Energy Automobiles, announcing that
vehicle purchase tax exemptions would come into force from September 1st
2014. At the end of August 2014, MIIT released the list of the first 113
vehicle models to be freed from vehicle purchase tax. This list comprised
models from 25 enterprises, including Beijing Automobile Works Co., Ltd.,
Guangzhou Automobile Group Co., Ltd., Anhui Jianghuai Automobile Co., Ltd. and BYD
Auto Co., Ltd.
Chinese consumers
are already showing a strong interest in alternative energy automobiles. According
to the China Association of Automobile Manufacturers, between January and
September 2014 China produced 38,522 and sold 38,163 alternative energy
automobiles, increases of 290% and 280% over the corresponding period in 2013
respectively. Moreover, in September 2014 domestic output of alternative energy
automobiles reached 10,113, 11 times higher than the output in September 2013
and the first time monthly output had ever exceeded 10,000.
However, while
the alternative energy vehicle market is sure to grow strongly in the years to
come, the fate of China’s domestic alternative energy vehicle manufacturers and
their upstream suppliers is far from certain. Both the government and the
domestic companies themselves appear to be ignoring the basic reality that
China’s R&D capabilities in this area lag far behind the industry leaders
in the US, Japan, and Europe. This presents a huge long-term risk to China’s
domestic alternative energy vehicle industry, and a corresponding opportunity
to the international competition.
Indeed, it could
be argued that current policy in China will directly benefit overseas
manufacturers with superior technology. The recently-announced policies tend to
favor market openness and subsidies for consumers, such as the subsidies from both
national and local governments on purchasing alternative energy automobiles,
the purchase tax exemption on alternative energy automobiles, and the growing list
of cities expanding and applying alternative energy automobiles.
According to CCM’s
research, the two most important factors that individual Chinese consumers (who
make up the majority of the market) consider when purchasing an alternative
energy automobile are cost-effectiveness and battery life, and currently
Chinese companies lack the technological know-how to compete on these two aspects.
For instance, one
of the core components in an alternative energy vehicle, the advanced brake
system, must not only comprise an anti-skid brake system (ABS), electronic
stability program (ESP) and other functions, but also achieve effective energy
recovery. An efficient electric energy recovery system can effectively increase
an automobile’s driving range by up to thirty per cent. Many Japanese, German
and American enterprises have full-fledged technologies and products in this
area and have achieved industrialization.
In China, on the
other hand, industry experts have informed CCM that although some manufacturers
have successfully coupled control between ABS and the motor brake, their system
control technology and related industrialization are still at primary levels
and the electric energy recovery of the on-sale alternative energy automobiles
does not achieve satisfying results. Moreover, the coupled control between ESP
and the motor system is still at the R&D and experiment stages.
Similarly, there
are concerns over the development of power Li-ion battery technology in China. CCM
has learned that although many alternative energy automobile companies have
purchased Chinese-manufactured power Li-ion batteries, these deals tend mainly
to be used merely as leverage to gain a better price when negotiating with
foreign suppliers. Once this aim is achieved, these companies will not make any
further purchases from the Chinese suppliers.
For this reason,
few domestic power Li-ion battery manufacturers are developing their strengths,
since they are failing to maintain long-term bulk orders. Besides, domestic
manufacturers are not investing enough in R&D. More worringly, many strong
overseas enterprises engaged in power Li-ion battery business have started to
set up plants in China, as they are supported by preferential policies from some
local governments. Thus, China’s power Li-ion battery industry will face
increasingly intensified threats from overseas competitors.
It is predicted
that during the Thirteenth Five-year Plan (2016-2020), China will continue
issuing favorable policies promoting the alternative energy vehicle market.
However, if the fact of domestic Chinese manufacturers’ technological inferiority
is not addressed, the prospects for the long-term development of China’s
alternative energy vehicle industry may not be so promising.
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This
article was provided by CCM, a leading
provider of data and business intelligence on China’s chemicals market. CCM has
launched China Li-ion Battery E-News, a new e-journal
dedicated to analyzing all the latest news and trends in China’s Li-ion battery
industry. For more information on CCM and China Li-ion Battery E-News, please
visit www.cnchemicals.com or contact econtact@cnchemicals.com
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