China’s
electric vehicle industry is entering a new phase of accelerating development,
President Xi Jinping wrote in a congratulatory message to participants of a new energy
vehicle conference in early July. In 2018, China sold almost as many electric vehicles as
the rest of the world combined. At the same event, the chairman of Chinese
electric vehicle giant BYD upped the ante, challenging China to electrify all passenger vehicles
by 2030.
New energy vehicle sales are booming, but they still only amounted to 2.5% of car sales in China in 2018. Could all sales
feasibly be electric within the next decade?
A recent report from the Innovation Centre for
Energy and Transportation (iCET) made the first public proposal of a timeline
for the phaseout of petrol and diesel vehicles across China. According to the
Beijing-based thinktank, 2030 is premature, but an entire phaseout could be
possible by 2040. However, the report also highlights significant uncertainties
ahead, including whether consumer appetite for electric vehicles will wane when
government subsidies are cut.
Why phase out traditional vehicles?
Starting in 2016, regions and countries around the world began proposing an end
to driving as we know it. China’s vice minister of industry and information
technology made waves when he announced in 2017 that China, the world’s largest car
market for the past decade, was researching a phaseout of petrol and diesel
vehicles.
The news followed a steady drumbeat of policies supporting the growth of
China’s new energy vehicle industry in recent years. From generous government subsidies to driving restriction exceptions
in China’s congested cities, the government has been coaxing the industry
along.
China has
much to gain from phasing out all petrol and diesel vehicles. For one, the
country relies on imports to meet 70% of its crude oil demand, 42% of which is consumed by vehicles. Petrol and
diesel cars also have a major impact on public health. They are among the main perpetrators of air pollution in many of China’s
cities. As car ownership has climbed, increasing oil use has also contributed to China’s rising greenhouse gas
emissions.
With solar panels and wind turbines, China used subsidies to build companies
that now dominate the industries worldwide. The burgeoning electric vehicle
market presents a similar opportunity.
Is a phaseout possible?
Hainan, the island province in China’s south, has emerged as a green pioneer in
recent years. In a plan released in March this year, it became the first region in China to set an official date for the
phaseout of petrol and diesel vehicles.
Hainan has its sights set on 2030, but the rest of the country is unlikely to
meet that deadline according to iCET’s report. The group built a model based on China’s
automobile industry trends, national policies and oil consumption under a
scenario of limiting global warming to under 2C, and proposed a phaseout
timetable accordingly. The timetable states that smaller petrol and diesel
passenger vehicles will be phased out between 2020 and 2040. Larger “commercial
vehicles”, such as buses and trucks, will follow, so that all petrol and diesel
vehicles are phased out by 2050.
The study proposes an incremental phaseout based on the type of vehicle and
region. The largest cities that already have strong electric vehicle markets
are prioritised along with cities suffering the most from pollution, while
relatively underdeveloped regions are given more time to make the transition.
Taking the lead will be government-owned vehicle fleets, followed by private
vehicles, which will allow some time for costs to come down further for
alternative vehicle technologies. The majority of passenger vehicles will be
replaced by new energy vehicles and non plug-in hybrids (like the Toyota Prius)
according to the study.
Taiyuan, an industrial city in west China, has already demonstrated this model
by electrifying its taxi fleet. Shenzhen followed suit this year. However, Li Wanli,
formerly of the Ministry of Industry and Information Technology, commented at
the report launch: “I personally think the proposed timetable is too early and
tight for privately owned vehicles.”
He also cautioned that the study’s suggested approach may pose problems. Citing
fuel efficiency standards being rolled out regionally right now, he said
the piecemeal approach has caused headaches for manufacturers and is a
case to learn from.
Potential speedbumps
Although the study’s timetable aligns with current policies and projections,
the authors elaborate that several uncertainties could influence China’s path.
The electric vehicle industry is in the midst of a major transition. Subsidies
have long been boosting sales, accounting for 20-35% of the take-home sale price for manufacturers in 2016.
Now, the government has decided to wean the industry off the handouts, likely entirely by 2020.
This shift could dampen consumer appetite. Projections show that electric
vehicles could reach price parity with petrol and diesel vehicles by 2030, but
for now they will likely remain out of reach for many Chinese buyers without
government support. The Tesla Model 3, for instance, is being advertised as a
vehicle for the mass market. But its price tag is still about US$15,000 above the average car in China.
Whether enough alternative cars can be produced is also moot. Production of new
energy vehicles is slightly above sales in China, but even at over one million
sales in 2018, it is dwarfed by the market for conventional vehicle. To
encourage production, this year China is introducing a national production
policy for large manufacturers. The system is slightly more complex than a pure quota, but it
essentially requires automakers to meet production targets for 2019 and 2020 or
buy credits from overperforming companies. The policy is expected to
double new energy vehicles’ share of sales, according to Bloomberg New Energy
Finance, but no
quota has been set for after 2020.
Whether infrastructure can keep up with the phaseout is also a looming question.
Building out enough charging stations to supply a rapidly expanding electric
vehicle fleet is a government priority, and an unprecedented challenge. The power grid may also struggle
to keep up with charging if demand is not timed intelligently. A Natural
Resources Defense Council (NRDC) study found that peak load on the grid could
increase 58% by 2030.
Environmental pros and cons
The iCET study finds that greenhouse gases and air pollution would be reduced
significantly if their timetable is followed. A study by the China Automobile Technology Research
Centre found that phasing out petrol and diesel vehicles would lead to a 41%
drop in nitrogen oxide and a 35% drop in particulate matter emissions in 2050,
compared to a 2017 baseline. Based on the iCET study, end-user greenhouse gas
emissions would fall 51% in 2040 and 77% in 2050 while lifecycle emissions
(including from electricity generation) would fall 55% in 2050.
However, electric vehicles are not without their own environmental hazards.
Battery supply in particular has raised red flags. Currently, battery recycling
remains very low due to there being diverse battery
types and an unwillingness from recyclers to take responsibility for safety
risks. The iCET study warns that if a better recycling system is not
established, lithium, cobalt and manganese in the batteries could cause significant damage to public health
and the environment.
Dealing with this blockage in the electric vehicle lifecycle could slow down
the rollout, the authors argue.
Setting a date
The government has set a number of long-term targets for new energy vehicle production.
The most ambitious is for them to account for 40% of car sales by 2030. Will
China ratchet up the pace by setting a phaseout target on top of that?
Hainan has already fired the starting gun. However, its vehicle market is
relatively small (the province has about one sixth as many cars as Beijing) so it will not be as significant an
undertaking there. A Caixin article suggests that Beijing might be a good candidate to follow
Hainan’s example as it has led in the establishment of other new energy vehicle
policies in the past.
At the report release, Wang Baixia, one of the drafters of Hainan’s phaseout
plan, said having a target would send a strong signal: “A timetable is still
needed, for the government and companies, everyone needs such a timetable (…)
this long-term expectation is very important.”
The government is working on a 15-year new energy vehicle
development plan, which may provide further clarity on its phaseout plans.
From our partner chinadialogue.net
