|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.
- 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 firstname.lastname@example.org
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