What will the new energy vehicles be like in China in two years?

Shanghai, April 6 (Gasgoo.com) The "Automotive industry restructuring and revitalization Plan" announced in March 2009 has made it clear that a production capacity goal of 500,000 electric cars must be formed by the year 2011, which seems no longer a big deal in view of the current development of the automobile industry in China.

Due to the Chinese government’s great support for the new energy vehicles, dozens of central enterprises, local state-owned and privately-run automotive businesses including the FAW, Chang’an Automobile, Beijing Automotive Group, Shanghai Automobile, Chery Automobile, ZOTYE Auto and LIFAN Motors have all launched the pure electric vehicle projects and claim to have bore fruits in a short period. But actually, only few of them have genuine technology, and currently only a few enterprises like Chery and BYD, which have relatively full hybrid systems, electric cars, alternative energy and other new energy technology and systems, could form a key R&D capability of the key components and have fully mastered the core technology, calibration technique and testing and verification ability for the electric vehicle development. More car makers still hope to fight for more benefits for themselves with the help of the “new energy” flag.

So my first question is: how many people will be willing to pay extra tens of thousands yuan to buy electric cars in the next two years?

If the urban Chinese consumers, who have benefited from the investment and financing, are asked to spend extra tens of thousands of yuan on new cars, they will surely consider the actual income. If a new energy car costs about 10,000 yuan more than a regular car, then consumers could easily get the money back by driving for twenty or thirty thousands of kilometers, and after they find these savings are at least equivalent to the extra tens of thousands of yuan they have extraly paid earlier, many of them who are good at math will be willing to buy the environmentally friendly car. Therefore, we can see how difficult it is to sell one more electric car if without the government subsidies.

My second question is: will the new energy vehicles become the important transportation tools in two years?

According to the "Automotive industry restructuring and revitalization Plan", by 2011, “new energy vehicle sales will account for about 5 percent of the total sales of passenger vehicles. “ In 2009, China’s passenger car sales broke 13 million units. If it increases with an annual growth of 15 percent, the 2011 passenger vehicle sales will reach 16 million units and the new energy vehicle sales will exceed 800,000 units. If the government gives the car makers one third of the subsidies, that is 270,000 units in total, 30,000 ($4392) to 40,000 yuan per vehicle, the total amount of the subsidies will be 8 to 10 billion yuan, which is so not easy for the government’s financial sector.

However, if there is not enough subsidies support, the promotion of the new energy vehicles will be facing a “dead cycle”. The high cost of the R&D and production will result in the high price of the new energy vehicles and consumers are unlikely to accept it, therefore, the new energy vehicle sales will be extremely low, and thus it is hard for auto makers to expand the production and to lower the cost. If based on this cycle, the new energy vehicle promotion will be very difficult.

So although the government’s subsidies could stimulate the development of the new energy vehicles in a short period and accelerate its launch process, the industrial development of it will still become the market-oriented at last and depend on the development of the enterprises themselves. The biggest problems currently faced with the new energy vehicle enterprises are how to increase the enterprises’ own R&D capability to breakthrough various bottlenecks in the development of the new energy vehicles and how to enhance the R&D and production capacity to lower the cost of the new energy models. Therefore, it is expected that the car makers could strengthen themselves with the catalysis from the government’s policy, and it is ok for us to wait for another two years.