China learns techniques from the west but adapts them for the local culture. So it is with electric vehicles. Over the weekend, an industry vice-minister has said a European-style timeline to stop “sales of traditional fuel cars” will also be implemented in China. He predicted “turbulent times” as a result. He is right — there will be a scramble for scale.
The country’s pollution problems mean it has every incentive to push electric propulsion. It also sees electrification as an opportunity for its domestic auto industry to catch up with established western carmakers. It is already the largest EV market in the world with 1.2 per cent of car sales last year, according to UBS.
China’s problem with EV economics is the same as everyone else’s. Bernstein estimates that a mid-size combustion vehicle costs $15k to produce compared with $24k for a comparable EV. The differential is down to the battery, which accounts for half of an EV’s cost. A combustion engine is just 15 per cent of a traditional car.
State subsidies helped make EVs affordable for consumers while helping manufacturers with the higher build costs. But the subsidy system is being overhauled to focus more on quotas and credits, in effect pushing more of the cost on to the industry. Carmakers have increasingly had to choose between maintaining pricing at the expense of volumes, or sacrificing margins to preserve market share.
Meanwhile, western producers, for whom China has been a very lucrative market, have been reluctant to push battery and hybrid cars. They fear losing valuable intellectual property to their joint-venture partners. The threat of a full-on ban might yet force their hands. They do at least have the scale to finance the necessary investment.
China’s automakers are not yet big enough to make electric cars profitably. Note that Great Wall, the carmaker that recently pronounced its interest in buying Fiat Chrysler, had to row back quickly for lack of resources. In this context, Monday’s 6 per cent pop in the shares of battery maker BYD looks premature. However, there is logic in imagining that technological advantage will in time beget scale.
中国汽车制造商的规模还不够大，无法在盈利状态下制造电动汽车。值得指出的是，最近宣布有意收购菲亚特克莱斯勒(Fiat Chrysler)的汽车制造商长城(Great Wall)因缺乏资源而迅速收手。就此而言，电池制造商比亚迪(BYD)股价周一6%的上涨似乎过早。不过，随着时间推移，技术优势最终将带来规模——这种想象终究是有一些逻辑的。