China auto industry blazes the trail for EV, PHEV tech

China's government and automotive industry blaze the trail for electric and hybrid vehicle technology

Bypassing further refinement of the combustion engine, China's automotive industry is aiming to blaze the trail for electric and hybrid vehicle technology. Market prospects are excellent: By 2020, electric (EV) and hybrid (PHEV) cars will reach a global market share of about 10%, and in countries such as China, it could even exceed 50%. The global market for high performance batteries, motors and components for electric and hybrid cars is expected to be at EUR 20 to 50 billion annually starting in 2020.

To stimulate the development and marketing of "new energy vehicles", the Chinese government is offering massive tax incentives and subsidies. The 11th Five Year Plan has a strong focus on new energy vehicles, and all stakeholders in the field are being committed to this goal. In a new study entitled "Powertrain 2020 – China's ambition to become market leader in e-vehicles", a team of Roland Berger automotive experts  describes the actions being taken by the Chinese government and outlines scenarios for the future e-mobility markets.

"When it comes to electric and hybrid cars, China is challenging the automotive industries in the Western industrial countries," says Wolfgang Bernhart, Partner in the Automotive Competence Center. "The technological head start that Western manufacturers have with conventional powertrains is tough to overcome – and the Chinese realize this. The race for electric mobility is just getting underway."

Chinese manufacturers have major advantages: A majority of the raw materials needed, such as lithium, is processed in China and is therefore available at low cost. In addition, cheaper labor provides Chinese manufacturers of lithium-ion batteries with cost benefits of about 30%. Chinese manufacturers are also well positioned for motors. They have developed successful, high quality permanent magnet synchronous motors and have the raw material (neodymium) needed to produce them. Wolfgang Bernhard judges China's goal of becoming the technology leader in e-mobility to be absolutely realistic: "This is a wake-up call for the traditional automotive powers. They have to act fast."

International manufacturers are just becoming aware of the competition. Roland Berger Greater China, the German Chamber of Commerce and the German Association for the Automotive Industry recently launched a series of automotive workshops for managers in the industry to facilitate an exchange of ideas and experiences. The first workshop took place in Shanghai on April 20. It focused expressly on the future of China's EV technology and its impact on car manufacturers and suppliers.  

What can Western car manufacturers do to prosper in the face of China's energetic approach to EVs and PHEVs? The Roland Berger study strongly suggests that car makers and suppliers need new business models, that they have to reduce costs and form strategic partnerships to achieve a competitive size.

And although Wolfgang Bernhart is not usually prone to promoting state intervention, he urges Western governments to act: They "are being called upon to actively support new technologies and production methods" even more than they are doing at present.