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Why the Electric Car is Stalling in China

It's one of the biggest car stories of the decade: In 2009, China's car sales grew 50 percent, to 13.6 million vehicles, easily overtaking the U.S. (10.4 million sold) as the world's largest market. In part because of this explosive market growth, there's been speculation that China could also surge ahead of the U.S. in the sale and use of electric and plug-in hybrid cars (EVs). But China's experience, if anything, illustrates just how difficult it will be for any kind of electric car to plug into the market in a significant way.

According to Ray Tsang, head of Bain & Company's Greater China automotive practice (pictured), China's nearly 100 automakers (including Chery, BYD and others) are beginning to introduce EVs, but the market isn't responding. A paltry 3,000 to 4,000 EVs and hybrids were sold in 2008, and about half of that was the Toyota Prius.

The BYD F3DM provides a striking case in point. The China-only plug-in hybrid was the first on any world market, and many commentators predicted great things for it because of its $22,000 price tag and 60 miles of all-electric range. But in fact the first year of sales to fleet customers yielded only about 100 takers. BYD opened F3DM sales to the general public in March. BYD has also said it will sell its E6 electric car in the U.S. by the end of the year, though those plans may have to be postponed.

"Nobody's selling them in very large volumes," Tsang said in an interview from Shanghai. "The technology is still not mature enough to convince customers, and some launches have been postponed."

One major hurdle, Tsang said, remains the difficulty of installing EV charging in a country where most people live in apartments and few have garages. "There is a lot of discussion in China now about where people will plug in--in parking lots perhaps--and how many recharging stations should be built," Tsang said.

The Chinese government had projected that EV passenger sales would be 5 percent of the market (or 680,000 vehicles) by 2011. That is not going to happen. So Beijing has postponed an expected announcement about potentially market-stimulating subsidies and incentives for EVs until July. Right now, buyers of small cars with engines of 1.6 liters or less pay only half of the 10 percent new car registration tax, Tsang said. An incentive for EVs might have to be even more generous.

At the Beijing Auto Show, currently underway, some automakers expressed anxiety about EVs. According to the Detroit News, Huang Xiangdong, vice president of major player Guangzhou Automobile Groups Corp., pointed out that China's grid is 83 percent coal-supplied, and that means fewer green gains from plugging in. "Battery electric vehicles and plug-in hybrids do not save more energy than conventional cars on a well-to-wheels basis," he said at the Global Automotive Symposium. "We think in China it's not the right time to promote pure electric vehicles."

But Henry Li of BYD sees it differently. He noted: "There are broader benefits of electric vehicles, such as reducing the dependence on foreign oil." Li also said that BYD is going ahead with U.S. plans, with cars possibly coming to the west coast later this year.

Photo: Flicker/Erwyn van der Meer

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