China Pushes Auto JVs and Suppliers to Invest in EVs as Infrastructure Buildout Lags

Suppliers and automakers are being forced by the Chinese government to take a leap of faith where electric vehicles are concerned. That is what I came away from Auto China thinking.

The companies are investing millions of dollars to supply and produce EVs in a country where the market for such vehicles is currently tiny. They don’t have much choice – Beijing is leaning on them very heavily to do so.

Many of those companies are keeping their fingers crossed that Beijing will pull some policy rabbit out of its hat to incentivize regular hybrid as well as electric vehicle sales, thus adding to the market for their products.

They also are also hoping Beijing will compel local governments to build out of charging station networks, without which there is little chance of a consumer market for EVs taking off.

An example of such investment: Siemens AG announced at the show that it had formed a joint venture with Chinese automaker Beijing Automotive Industry Holding Co. (BAIC) to produce components for electric vehicles.

Siemens holds 60 percent of the JV, which will start with small volume production this year at an existing Siemens plant in China while building a greenfield plant near Beijing, due to start production in 2015. No amount for the investment was announced, but it must be the equivalent of at least US $100 million.

“We believe in a new energy future, not just for pure electric vehicles but hybrid as well,” Jorg Grotendorst, CEO of Inside e-car, part of the Drive Technologies Division at Siemens AG told reporters gathered in a tent outside one of the giant exhibition halls at the Beijing International Exhibition Center.

He was part of a group of Siemens executives that had come to China to announce the formation of Beijing Siemens Automotive E-Drive Systems Co. Ltd., as the JV will be known. It will produce “highly efficient” inverters and motors for hybrid and battery electric vehicles, says Siemens.

The new plant, which Siemens says will begin volume production in 2015, will have an annual capacity more than 100,000 units per year. But exactly what kind of vehicles those components will go into isn’t clear, even to Siemens itself apparently

I asked the execs how they saw the market panning out in terms of BEVs versus PHEVs versus hybrids. Siemens didn’t know, said Grotendorst, but it believed PHEVs would be the interim technology.

They said Siemens is interested in BEVs and PHEVs (and hybrids as well judging by Grotendorst’s remark) and would supply BAIC, its initial customer, with power-electronics and electronic motors for its S, C, and L series cars.

However, the JV would start by supplying commercial vehicles, said an executive. Indeed, the plant’s components represent a hedging move on Siemen’s part – the performance scale of the models BAIC will use the components in ranges from 45 to 200kW says Siemens.

Size does matter and in this case it is small
Despite hyperbolic plans by the Chinese central government regarding electric vehicle production and sales, and incentives for BEVs and PHEVs, sales have thus far been miniscule.

In 2013 sales of battery-electric vehicles in China were 14,604 units according to the China Association of Automobile Manufacturers. Plug-in hybrid sales were 3,038 units. The total vehicle market was nearly 22 million.

Most of those BEV and PHEV sales were likely to government fleets, which would include local bus and taxi fleets as those companies are generally owned by the local government.

Siemens is right to place its near-term hopes in an expansion of PHEV sales, however. The charging station network in Chinese cities – even in Beijing, where you would think the government would try to set an example – is abysmally small. As my friend and former colleague Yang Jian pointed out in his column in Automotive News China,  at the end of 2013 Beijing had only 69 charging stations.

Yang, too, figures that PHEVs will be the most-utilized type of EV in the near term despite the fact that central government subsidies for BEVS are as high as 57,000 RMB (not counting local subsidies) and PHEVS only 33,500 RMB.

China recognizes that until battery costs come down and/or range comes up (which are linked since you can get a lot of range if you are willing to pay for it…) – and when that will occur is uncertain — a PHEV, which offers some pure electric range combined with an engine that runs on some liquid fuel, will be the most useful form of EV.

Suppliers recognize that some form of electrification is in China’s future. China has strict fuel economy deadlines looming in the future – the most intimidating the 2020 deadline for 5 liters per 100 kilometers. “This is a huge challenge for everyone right now,” David Xu, EVP at Bosch China,  told me at the show.

Indeed, it is not impossible to achieve that without some form of at least mild electrification.  Bosch sees gasoline technology that boosts fuel efficiency — such as gasoline direct injection and turbocharging — as its biggest business opportunity in China in the near term. But it is also pushing its 48V mild hybrid system, which includes start-stop and a booster for starting and can boost fuel economy by 15 percent, says Xu.

Of course, Beijing hasn’t incentivized mild hybrid technology though that would help it achieve its goal of cutting back dependence on imported oil (though the western press seems fixated on the pollution in China and convinced that Beijing’s push for

EVs is tied to reducing pollution, much of China’s electricity is produced by burning coal so more EVs won’t necessarily have much impact on air quality. Cars are a convenient and visible scapegoat, however.) Nor is it currently incentivizing regular (i.e. non plug-in) hybrid cars. The Japanese hold too many patents in that area and Beijing doesn’t want incentive money to go to the Japanese automakers.

Meanwhile, Xu says new energy vehicles, which includes BEVs, PHEVs, and fuel-cell vehicles, won’t account for more than six percent of the market in 2020. Beijing’s inaction on building out a charging network – or even enforcing a national plug standard – is part of the problem, says Xu. “Talking about mass production to make a profit, it is really a struggle for everybody,” he says.

Still, automakers will continue to talk about investing, and actually invest, in EVs, he says. “This is kind of a political task for them,” he says. “They have to do it.”

An executive at another European supplier tells me that the joint venture automakers are telling him that Beijing is coming to them and saying, “You show us a plan to build an EV, homologate it here, and we will approve your expansion.”

Of course the individual consumer isn’t the only customer for EVs. Indeed, as I have written in this blog many time, fleet vehicles are the best market for both BEVs and PHEVs.

Siemens recognizes that fact. It will start by supplying commercial vehicles, says Siegfried Russwurm, CEO of Siemens Industry Sector. As for the charging station issue, and the lack of standards where that is concerned, “The future is wireless,” he says.

Article by Alysha Webb, a freelance automotive journalist and founder of ChinaEV Blog.

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