China, the next frontier of EV popularity?  Eh ... 

A China Full of Teslas? Not Anytime Soon

Edward Niedermeyer, an auto-industry analyst, is the co-founder of Daily Kanban and the former editor of the blog The Truth About Cars.
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Chinese leadership appears eager to boost the market for what it calls new-energy vehicles (plug-in hybrids, as well as electric cars and fuel-cell vehicles), a notable effort given the country's well-known air-pollution problem, not to mention its desire to lessen energy dependence and build a strong domestic auto industry. From new tax benefits to Bloomberg News's report that "China is considering providing as much as 100 billion yuan ($16 billion) in government funding to build electric-vehicle charging facilities and spur demand for clean cars," it seems multiple options are on the table. Meanwhile, Foxconn Technology Group is immersing itself in the EV business in China. Will China be the new frontier of EV popularity, as BMW and some analysts seem to believe?

Everybody slow down. The Chinese government has already expended effort in this area -- the "new-energy automobile industry" was highlighted as a strategic industry in China's 12th Five Year Plan (2011-2015) -- so far to little success. Conflicts between the Chinese government's various goals and the regulations that result from them seem destined to doom its efforts. And new pushes appear unlikely to change the underlying problem: EVs are too expensive and limiting, especially for Chinese consumers who are enjoying their first taste of auto-mobility.

Recent news of Tesla's charging infrastructure deal with China United Network Communications Corp. is hardly evidence to the contrary. China's new rich represent a hot market for any luxury brand; at the moment, Chinese demand for Tesla is more indicative of demand for luxury goods than for EVs. But it's middle-class consumers who give the Chinese market its vast scale.

Although the Chinese government could certainly make a huge investment in charging infrastructure, more fundamental obstacles remain. Its national charging standards are unclear -- and unfinalized. As David Reeck, a former manager of electrification strategy for General Motors China told China EV blogger Alysha Webb: "By the end of the year China will realize it has really messed up" its charging standards.

Without clear and consistent charging standards, talk of a Chinese investment in a national charging infrastructure seems premature. But even if such charging infrastructure were a fait accompli, there's little evidence that consumers would be any more anxious to adopt plug-ins. In the U.S., where there are now more than 20,000 public charging points at more than 8,500 charging stations, plug-ins still made up less than 1 percent of new car sales in 2013. China's inability to persuade consumers to buy cars from its domestic industry champions is a preview of the kind of frustrations it faces in trying to push EV adoption.

China is looking to the government to lead by example. In July, as Bloomberg News explained, China mandated "that electric cars make up at least 30 percent of government vehicle purchases by 2016."

Still, as with charging standards, a lack of clarity adds to the already-formidable task of navigating Chinese regulation. Government subsidies have given rise to rumored system-gaming by local governments. China has shown a (possibly changing) reluctance to promote regular hybrid vehicles, a move that would probably benefit the Japanese automakers that champion such technology. But given that the country's electrical grid remains dependent on dirty coal power, not plugging in might not be such a big deal in terms of pollution. By pushing new energy vehicles in order to give its auto industry an advantage in the years ahead, China may be giving up real improvements in urban pollution.

Wang Chuanfu, chairman of BYD Co., the battery supplier turned plug-in-car maker, recently suggested that the government is considering "a new tax on gasoline to fund efforts to make electric cars more palatable to Chinese consumers," as the Wall Street Journal put it. "While the government can't force consumers to buy electric vehicles, it can mandate the construction of charging stations," Wang told the Journal. "If government subsidies can account for 50% of an electric vehicle's value, it will make it as cheap as an ordinary car. If so, I think consumers would like to buy it."

In the short-term China's renewed push for new-energy vehicles may not solve its urban pollution problems so much as create opportunities for companies such as BYD to profit off quirks in various policies. But gaming regulatory systems still won't help China's automakers address their other big EV-related problem: lagging technological development. Until Chinese automakers reach competitive parity with the EV industry's leaders such as Nissan Motor Co., the country's ambitious goals are likely to stay out of reach.

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

To contact the author on this story:
Edward Niedermeyer at edward.niedermeyer@gmail.com

To contact the editors on this story:
Zara Kessler at zkessler@bloomberg.net
Zara Kessler at zkessler@bloomberg.net