China's hybrid car future

To understand the future direction of automotive technology, you must look at the world's biggest auto market, the U.S.—but not for long. In the next decade, China will probably surpass the U.S. to become the largest car market in the world.

Bradley Berman, editor of HybridCars, spoke with Dr. David Chen, general manager of General Motors' (GM) Beijing operations, to discuss how China might leapfrog the world in rolling out a new generation of automotive technologies. Dr. Chen is responsible for corporate affairs and advanced technology management, and has been working with GM in China since 1994.

Given the astounding rate of growth in the Chinese auto market, how do you understand what Chinese car customers want?

When General Motors came to China, we thought this market would be different, that it would be focused on low cost. But the consumer base is so broad that it covers all the varieties. There are certainly people who are cost-conscious, and there's a low-cost market predominantly played by Chinese automakers. But there is the high-end segment as well. I would not stereotypically rank China only as a low-cost market. With a country of 1.3 billion people, anything could happen.

With that kind of diversity in the marketplace, how do you develop a technology strategy, especially toward advanced technologies?

We're taking a multi-prong approach on technology to address fuel economy, the environment, emissions, and safety. We are investing in technology on ICEs, internal combustion engines. There are many of these technologies that can be used on ICEs to make room for another 10% to 15% improvement in fuel economy. We also apply bridge technologies, such as hybrid and alternative fuels. The reason I say it's a bridge is because many of those technologies still consume fossil fuels, but they consume less. The challenge with those bridging technologies, particularly with hybrids, is the cost.

Shanghai General Motors, our joint venture in China, just announced that this year they are going to roll out the first hybrid in volume production of Buick Lacrosse in China; it's a Buick Lacrosse hybrid. The attractiveness of this is that the technology is very affordable. However, it achieves over 15% improvement in fuel economy, taking the vehicle approximately from 24 mpg to 28 mpg. I personally believe, given the driving stop-and-go conditions in bigger cities in China, some of the hybrid concepts could work very well.

So it's a lower-cost mild form of hybrid, but wouldn't even that extra cost be prohibitive in terms of reaching any significant level of production in China?

This entry-level introduction will make it easier to reach mass-level market. With 15% fuel economy improvement and with an affordable cost, we are looking at a positive market response. Just beware: To date, there's no volume production of hybrids in China. Several hundred, not more than 1,000 hybrids sold through import channels in China.

What kind of incentives are being offered for hybrids in China?

There are no incentives yet, but the government is seriously considering them to both the manufacturer and the consumer through the consumption tax and the purchase tax. Today, the Chinese consumer pays 10% purchase tax, and they may get a break on the purchase tax if they buy a hybrid vehicle. And there will be a certain level of rebate on the consumption tax levied on the manufacturer.

We work closely with government entities in Beijing, including the Ministry of Finance, and they are seriously considering incentives to promote energy-efficient and environmentally friendly vehicles. It's coming.

With no incentives yet in place, and no volume production in place, couldn't it be quite a few years before the more advanced high-tech options start to roll out in China?

In other countries, yes. But in China, with its transition from a planned economy to a market economy, the government still plays a very significant role. We know that the National Development & Reform Commission, which is the government ministry that controls the plans for the industry, is setting more strict fuel economy standards—probably comparable to relatively high levels in Japan and Europe.

China is not only setting up standards, they are working to establish technology pathways to get there. They are evaluating a wide collection of technologies, including hybrid, biofuels, and fuel cells. If it's adopted by industry, it will drive industry to meeting those targets.

What changes will we see in the typical Chinese car in a five-year time frame?

China has a lot of markets to consider as models, including Europe, with lots of diesel applications. China is looking at diesel, although the challenge will be the quality of the diesel fuel, which is not there today. Alternative fuels, ethanol, methanol, biofuels, coal-to-liquid. The Chinese strategy is to look at all the possibilities in the mid- and long-term. I personally feel that hybrids will get a lot of attention in the near-term. Limited application of biofuel, depending on the availability in certain regions that have more resources for ethanol production. Even methanol. There are also many coal-rich regions in China. They are trying very hard to put coal in cars. You have to find an acceptable means to do so.

So in the next five years, we'll see more and more hybrids. And we'll see some level of fuel cells.

Is there more of a hydrogen infrastructure than in other parts of the world?

We believe that China will not be behind other parts of the world on adoption of hydrogen. It does have an advantage because it has less of a tradition of petrol infrastructure But that doesn't mean that it's easy. There's the cost of the hydrogen and the availability of hydrogen.

What impact could the growth of the Chinese market have on other international markets?

China is looking at leapfrogging the world in terms of technology to make the entire auto industry more sustainable. There are 1.3 billion people. If the market expands to world average level of car ownership, 10% or 11%, that's 100 million people driving cars. China cannot do business as usual. The world doesn't have the energy to support that. At the same time, we don't believe that the solution is to not have Chinese people drive cars. That's not the right solution either. We are optimistic.

Ultimately, if we can drive a car with electricity, supplied with energy from hydro, nuclear, and renewable sources—and if battery technology can improve enough—that brings a different outlook to the auto market. The batteries can be charged by various sources, such as an engine used as a generator, or a fuel-cell stack, or charged off a wall plug. It's going to take a lot of collective effort. Maybe not in the next five years, but we'll find a solution.