Patience needed for the Chinese EV industry

China's future in the EV industry will be better served with lower and more realistic goals, as well as patience, to have a bright future going forward.
By Michael Liu, IMS Research August 5, 2011

The Chinese prime minister, Wen Jiabao, recently criticised the country’s slow development of its electric vehicle industry. The recent decision to incentivise only battery electric vehicles and plug-in hybrids appears to have been made in haste, China’s future direction may lie in fuel cell and hybrid vehicles as well. Wen also commented that the Chinese EV industry is still nascent – it is ‘following’  foreign companies and overly reliant on overseas international companies for components and materials. This obviously doesn’t match the Chinese government’s goal of making its EV industry one of the most advanced in the world.

Alongside this, several recent EV accidents in Hangzhou and Shanghai, involving the batteries on Chinese branded EVs causing fires have made it hard for me to imagine a very bright future for the Chinese EV industry in the short term. Are local Chinese suppliers really able to develop commercially and technologically successful EVs and, more importantly, do so quickly enough to make the Chinese EV industry one of the most advanced in the world?

In my opinion, there are three factors restricting EV development in China that will be difficult to overcome in the short term. First, most local EV suppliers such as Zotye and BYD, focus on the low-end of the vehicle market and consequently invest relatively little in R+D for traditional vehicles. Thus, it will be hard for them to quickly develop the more advanced technologies needed for electric vehicle design.

Second, the stereotypical image of Chinese VMs, even in China, is one of “Low-cost, low quality." Many consumers try to avoid these brands when they choose to purchase a traditional vehicle, let alone an electric vehicle. It will take time for Chinese VMs to change this perception and hence the early market opportunity for Chinese branded Evs will be quite limited.

Third, the Chinese EV industry is currently short of experienced, high quality technical experts, particularly in the area of the EV powertrain – the most complex part of the design. China (and Chinese companies) will need to invest in sending researchers to those countries which currently hold leading positions in EV technologies, such as Japan, France and Germany to learn best practice.

In summary, China would do better to lower its expectations for its EV industry. Setting some specific medium and longer term goals and working to gradually achieve these goals will bring results provided the effort and investment is carefully targeted. This new strategy will only work if specific long term attention is given to developing new technologies and improving quality. China needs patience to see a bright future for its EV industry.

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