Sales of new-energy vehicles (NEVs) in China have grown by more than 200 percent over the first three quarters of this year. It's an impressive number. But so far, the speedy growth has primarily been driven by favorable government incentives for NEV buyers. Central authorities reemphasized the importance of developing China's NEV market when it issued a proposal for formulating the 13th Five-Year Plan (2016-20) on Tuesday. However, experts worry that government's top-down approach won't suit the industry's long-term development. Instead, the industry needs to create NEVs that appeal to the masses. To accomplish that goal, the industry still has several challenges to overcome.
The Central Committee of the Communist Party of China on Tuesday released a proposal for formulating the 13th Five-Year Plan (2016-20). The proposal, which covers many aspects of China's economy and society, emphasized that China will continue to promote new-energy vehicles (NEVs) over the next five years and will further improve the country's electric car industry.
A detailed five-year plan for the NEV sector is expected to be released in the next couple of years.
In the industry plan for the 2011-15 period published in July 2012, China set a target of selling 500,000 NEVs in the country in the five years leading up to 2015.
Although the 12th Five-Year Plan period (2011-15) is coming to an end, the sales target hasn't been reached. From 2011 to the end of September this year, around 250,000 NEVs were sold in China, according to data from the Ministry of Industry and Information Technology and the China Association of Automobile Manufacturers (CAAM).
"Still, it (the sales number) is impressive," Mei Songlin, managing director at industry consultancy J.D. Power's China operations, told the Global Times on Monday.
Furthermore, China's NEV sales have been accelerating.
A total of 136,733 NEVs were sold over the first nine months of this year, up 230 percent from the same period in 2014, CAAM data showed. And analysts predict the rapid growth will continue.
The booming NEV market encompasses not only domestic mainstays like electric carmaker BYD Co, who reportedly sold 26,156 Qin plug-in hybrids in the first nine months of 2015, but also foreign powerhouses like Tesla Motors Inc. Traditional industry leaders such as Volkswagen and BMW AG have also stepped up the pace of development of their NEV models in China.
Driven from the top
China's NEV market began to take off in 2012. Over the past few years, the government has been rolling out incentives, primarily for domestically produced NEVs, to nurture the market.
For instance, the government currently offers NEV buyers 31,500 yuan ($4,971) to 54,000 yuan in subsidies per vehicle, depending on the range of the car, according to a statement from the Ministry of Finance in April. The subsidies will last until 2020. The government has also been giving tax breaks on NEV purchases since September 2014.
In cities like Beijing and Shanghai, where people need to enter a lottery or auction to get a car plate, local governments have also rolled out incentives for NEV buyers. On October 25, Beijing transportation authorities announced that all NEV owners could bypass the lottery in this round of plate application. In the previous round, only 38 percent of applicants with an NEV could get a plate, though the rate was already much higher than the lottery for cars that run on gasoline or diesel.
Besides these incentives, the government also launched guidelines to ramp up installation of charging facilities. In a document released on October 9, the State Council, China's cabinet, said that a charging infrastructure sufficient for 5 million electric cars is expected to be built by 2020.
The document also said that newly constructed residential buildings should all be equipped with charging facilities or at least be able to accommodate the installation of charging stations in the future. The State Council also said there should be one public charging station for every 2,000 NEVs on the road.
"Despite the rapid growth, it is still a policy-driven market, and will remain so for the next two or three years," said Gao Jian, general manager of Shanghai Gaotai Information Technology Co, whose main businesses are installing charging facilities and promoting NEV rentals.
Down on the range
The government has set a target for NEV sales to account for 5 percent of China's overall auto sales by 2020, and 20 percent by 2025, according to a report by the Economic Information Daily on Monday, which cited an industry plan.
Total auto sales in China reached 23.49 million vehicles in 2014, and the market is expected to grow moderately over the next few years. The target means that annual sales of NEVs will exceed 1.1 million units by 2020 and 4.6 million units by 2025. Analysts said these will be tough targets to hit.
"Top-down policy support is not enough to hit a sales number of around 5 million. Bottom-up market demand is also crucial, which means that NEVs must appeal to consumers," Mei said.
Currently, two major obstacles stand in the way of the sector's development, Gao said.
The first is the limited range of the pure electric vehicles available on the market. The second is the lack of access to charging stations.
"It is hard to promote charging facilities because most car owners in cities do not have their own parking spaces," Gao told the Global Times on Monday.
Access to charging stations in cities is an especially vexing problem considering that cities are supposed to be the major market for NEVs.
Insufficient battery life is another issue. Currently, most domestically produced electric cars, which receive the most government subsidies, can travel between 200 and 300 kilometers on a single charge. BYD's e6 can make it about 400 kilometers on a charge, but it doesn't come anywhere close to the range of vehicles that run on traditional fuels.
"The time needed to finish one charge is also a big problem, because most consumers are unwilling to wait for hours for their cars to fully charge," Mei said, adding that it is crucial for the electric car industry to create highly efficient batteries for their vehicles.
Plug-in hybrids don't have the same range problem, which has made them more appealing to consumers. According to Gao, if hybrids get more popular, pure electric cars will also benefit.
"More hybrids sold could help boost the construction of charging facilities, which will eventually benefit the growth of pure electric cars," he said.
Although it is not very likely there will be any major breakthroughs in battery technology over the next few years, charging infrastructure is expected to improve by leaps and bounds, Gao noted.
