Local hybrid car makers may face a long wait before incentives arrive

CAR makers which have been struggling to promote clean-energy models in China are unlikely to benefit from government price incentives before the market becomes more mature, analysts have said.

Hybrid models have been entering the Chinese market for two years, but their high prices have held back customers.

Car makers, who have been pouring millions of dollars into the research and development of eco-friendly vehicles, are banking on the government to do more to increase the price competitiveness of green cars rather than having to sacrifice their own profits.

Media reports said recently that the central government is mulling plans to abolish the purchase tax on diesel and hybrid models as early as the second half of this year.

The purchase tax currently accounts for 10 percent of a car's price excluding the 17-percent value-added tax.

China's incentive could be the equivalent of the up-to-13-percent tax break on hybrid cars offered in the United States.

A favorable tax policy is expected to be first of several incentives as China tries to boost the use of clean-energy vehicles. However, analysts said it is still too early for China to launch such supportive policies.

"Firstly, it is almost impossible for China to encourage the usage of diesel models right now amid the shortage of the fuel," said Rao Da, secretary general of the China Passenger Car Association.

The central government ruled out diesel-powered vehicles as a top priority in developing the nation's auto industry in an industrial blueprint issued in 2007. However, the guidelines encouraged hybrid models and electric cars.

"Secondly, introducing the policy right means only benefiting overseas car makers when most Chinese car makers are not ready," added Rao.

Most of the mass-produced hybrid models currently on sale carry the badges of foreign manufacturers with mature technologies and high hopes of huge market potential in the long run.

Toyota started making and marketing its Prius Hybrid in China in 2006. Since the Prius was released, only 2,400 units have been sold, in contrast to FAW Toyota's 280,000 conventional vehicles sold last year alone in China.

In spite of that, Toyota's luxury brand Lexus began domestic sales of the Lexus RX400h and Lexus LS600h last year. Meanwhile, Honda Motor Corp is importing a Civic Hybrid to China.

Some locally developed hybrid models are also beginning to emerge.

Seven new-energy vehicle models have won approval for mass production in the next month or two, according to a latest statement from the National Development and Reform Commission.

The seven models are Shanghai Volkswagen's fuel cell Passat, Shanghai General Motors' LaCrosse hybrid, FAW's CA7130, and four hybrid buses produced by China's Dongfeng Motor Corp, Beiqi Foton Motor, and Chang'an Auto.

The fuel cell Passat from Volkswagen will be the official car for the Beijing Olympics opening ceremony, while other models are designed to serve World Expo in Shanghai in 2010.

"The policy will only be near at hand when homegrown car makers become strong enough to compete with overseas rivals," Rao estimated.

Although the development of hybrid models is still at a very early stage in China, auto buyers are paying more and more attention to the market segment ?? laying a solid foundation for boosting sales in the future.

A survey from Sina.com and Sinotrust, a specialized automotive consulting firm, showed hybrid models receive more public attention than vehicles powered by fuel cells, hydrogen and natural gas.

About 42 percent of participating Netizens said they would buy a hybrid model to save fuel costs and to protect the environment.

But nearly 65 percent of the survey respondents admitted the high purchase cost was the biggest hurdle. Other concerns were high maintenance fees and the limited models available on the market.

If hybrid models were made exempt from purchase tax, 77 percent of respondents said they would buy a hybrid model even if it cost them 20,000 yuan more than a gasoline model.

"The survey showed clean-energy models are receiving better acceptance among auto buyers than we expected," said Lang Xuehong, director of Sinotrust's automotive division.

"If there could be policies to enhance the price competitiveness of hybrids models, there will be huge market demand."

Purchase Preference Of New Energy Vehicles

Hybrid 41.8%

Fuel Cell 23.9%

Solar Energy 13.4%

Hydrogen 8.2%

Compact Natural Gas 4.5%

Electric 3.7%

No purchase plan 4.5%

Outlook Of New Energy Vehicles

Breakthrough within 5 years 48.5%

Will become mainstream models 10 years later 23.9%

Fast development in 5-10 years 23.1%

No big development due to technology obstacles 3.7%

Others 7.5%

Reasons For Not Choosing New Energy Vehicles

Too expensive 64.9%

Immature technology 47%

Limited options 23.1%

High maintenance cost 11.2%

Inconvenient to repair 11.2%

Not familiar with the technology 4.5%

Others 4.5%

Source: Sinotrust Consulting