Analysis: The role of hybrids and the government in developing the Chinese new energy vehicle industry

Gasgoo.com (Shanghai) - Facing an increasingly unclear future for electric vehicles, the Chinese government announced new guidelines in April on how development for the new energy vehicles industry should proceed. The new development policies, which will last from 2012 to 2020, place an unprecedented amount of importance on hybrid vehicles. Soon after, a slew of changes to existing tax and subsidy policies were announced. Specified hybrid vehicles received partial or total exemption from the Vehicle and Vessel Tax Law.

Compared with pure electrics, hybrids offer longer drive times and are relatively safer. As a result, they made the jump from research and development to market sales sooner than their pure electric counterparts. At the same time, there are many who believe that popularization of hybrids provide the most ideal method for developing the new energy vehicle market in China.

In order to further understand differing opinions regarding the role of hybrids and the government in developing the new energy vehicle market, Gasgoo.com (Chinese), in association with China Business News, conducted a week-long survey, collecting opinions from 1,810 influential figures in the automotive industry.

In the first question of the survey, participants were asked whether or not they believe hybrids provide the most ideal path to developing the new energy vehicle industry in China. Yes and no votes were evenly split, with those in favor believing that hybrid technology was already mature enough, while those opposed maintain that hybrids offer no substantial benefits from other types of new energy vehicles.

In order to better understand this question, it is important to first analyze the primary goal of the new guidelines. The guidelines are focused at developing the market and stimulating demand, in order to ease pressure on hybrid manufacturers. Whether or not domestic own brand manufacturers have the technological ability to take advantage of the policies is a question policy makers cannot afford to ignore.

Despite the fact that China now possesses world's largest automobile market, the technological and economic levels of homegrown automobile and auto part manufacturers lag far behind those of their foreign competitors. Low added value and subpar technological expertise have forced domestic own brand manufacturers to operate at the lowest segments of the market. Without increases to technology or boosted added values, these manufacturers will have a hard time operating in a market where consumers' incomes are constantly on the rise.

Being able to balance new energy vehicle development, while trying not to marginalize domestic enterprises, is a difficult, yet mandatory, task for the government. One important point to remember is that own brand manufacturers don't possess any advantages in the field of relatively immature pure electric vehicles. Developing hybrid technology, by comparison, is a much more suitable choice. As such, the guidelines can be viewed as another method to help promote local manufacturers.

Whether or not the Chinese government should actively support manufacturers in developing battery and other electric vehicle technology is another issue of concern. Just over two-thirds of respondents answered that it is extremely necessary for the country to develop these industries, lest Chinese companies miss a golden opportunity. Only one-third opposed the notion, saying that battery and other technology is still too immature.

Those opposed to government intervention in these industries cite 2009's 'ten cities thousand vehicles' project and 2010's new energy vehicle subsidy policy, both of which not only failed to succeed, but led to other problems among local authorities and regional enterprises. They maintain that such policies are unwise given the relative immaturity of the technology in question. They also note recent incidents, such as a Zotye EV taxi spontaneously catching fire in Hangzhou earlier this year, as proof that the current technology's safety and reliability are in question. Finally, they allege that present-day hybrids are not as fuel efficient as they claim, and overall inconvenient to use.

On the other hand, advocates of increased support argue that is unrealistic to wait for the technology to fully mature before supporting it. Only by actively offering constant support can the government ensure that the country does not miss any new opportunities. Furthermore, offering economic aid can allow manufacturers to research and develop new technologies without having to endure high costs.

Despite sharp differences in opinions on the first two questions, when asked about the necessity of domestic manufacturers developing hybrid technology, most participants were in agreement. The vast majority, 76 percent, said that, despite the substantial advancements already made by Toyota and other multinationals, it is absolutely essential for the country's enterprises to develop in the new field. Only 24 percent answered that, due to the current gap between them and their foreign rivals, own brands should not be pressed to expand in the field.

The market for hybrids in China is currently dominated by Japanese manufacturers, with Toyota being chief among them. These manufacturers possess both considerable technological expertise and market experience that their Chinese counterparts lack. Beginning this year, they have started paying more attention to the country's hybrid market. Toyota has already begun selling the new Prius, Camry HEV, Lexus CT200h and Lexus GS450h in China. Honda is preparing to bring over the Civic Hybrid. Both Toyota and Honda have expressed their desire to manufacture key auto parts for their hybrids in China. Not to be outdone, VW, GM, Ford and other Western manufacturers also have plans to bring over new hybrid models to the country.

Despite the large discrepancies in technology and sales experience, domestic manufacturers still continue to work hard to develop hybrids of their own. Indeed, it is impossible for them to ignore the emerging market for new energy vehicles in the country. Considering the number of uncertainties that still plague pure EVs, hybrids remain the most logical segment for them to develop in.

In the final question, participants were asked whether or not the government should issue further subsidies for hybrid vehicles. 70 percent of participants agreed, believing that subsidies would help raise demand, increasing the popularization of hybrids while reducing market pressure for own brand manufacturers. Only 30 percent opposed the idea, saying that the primary beneficiary of such subsidies would be foreign manufacturers.

Supporters of increased subsides point out studies that show that the exemptions to the Vehicle and Vessel Tax offered to buyers of targeted pure electric and plug-in hybrid electric vehicles have the potential to reduce prices for said vehicles by around ten percent. Those price reductions go up 15 percent for non plug-in hybrids. Considering that previous subsidies only offered savings of 3,000 yuan ($475.37), the effects from the new policies are already very clear.

Despite the consensus behind the principle of subsidies, there is still disagreement on how they should be implemented. A significant number of participants believe that, as the market plays a key role in developing the industry, subsidies should be given directly to consumers when purchasing a new automobile to stimulate demand. Others believe that building infrastructure for owners of new energy vehicles, such as designated road lanes and parking spaces, is the best way to encourage purchases of said vehicles. There are also those who believe subsidies would be better used if they would be given to manufacturers in order to conduct new research and development work.