Electric Cars: the Orient and the Occident The Editorial Energy, October 2010

But money is not the end of the story. The National Development and Reform Commission (NDRC) plans to pool Chinese automakers, battery producers, equipment suppliers, utilities and infrastructure companies into a single project - building a new industrial pillar of China’s future. This industry will be Chinese across the whole production chain, and therefore cover not only the car manufacturing business per se but also the attractive battery manufacturing and infrastructure markets. Every component of the car will be Chinese, and china already secured access to the raw materials needed for battery production. Already controlling 15% of lithium production, china is expanding its grip. In mid-September, BYD, a Chinese battery manufacturer now producing electric cars, bought a 20% stake in Tibet Shigatse Zhabuye Lithium High-Tech Co, a Tibetan lithium mining company. Money now spent on oil imports, can be spend developing green technologies. Even Chinese oil companies are involved in the transition to electric. China national offshore company is already part of an electric vehicle joint venture, Coda Automotive Battery Facility, with China’s Lishen Battery Company and some US investors. This Chinese focused approach will allow standardization, vital to economies of scale and a rapid penetration of EVs on the market.

One last piece has to be considered in the Chinese strategic puzzle. In order to operate in the middle kingdom, foreign car companies have to enter joint ventures with local counterparts, and the cap on foreign ownership is said to be kept at 49% by the government. At the same time, foreign car companies are requested to share EV technology with their Chinese partners in order to participate in the above-mentioned $15 billion initiative. This has raised concerns in the US, and John Dingell, a democratic congressman from Michigan (a state hosting among others General Motors and Ford) sent a letter to China’s ambassador on the 23rd of September on this issue. General Motors has already urged China to extend the NDRC subsidies ($1.77billion) to imported models and Toyota also delayed the Chinese roll out of its new hybrid, the Prius III, until clarification by the Chinese government. Yet the cost of non-compliance with Chinese rulings seems high for foreign manufacturers, as the Chinese car market is rapidly growing. To cite a few joint ventures, Daimler signed an agreement with BYD, Ford with Chang’an Motors, Nissan with Dongfeng. This could well compensate for the lack of independent Chinese research and development capacity. Gaining a competitive advantage from its domestic governmentally driven market, China clearly plans to strike globally. It is just a question of how fast the government will reach its objective of advancing 3 to 5 car companies and 2 to 3 suppliers onto the global stage.

Europe, on the other hand, is also moving forward. Electric cars are clearly integrated into the debate on climate change, and are also seen as a way to drag the automotive sector out of its economic doldrums. In the EU, several laws support the development of cleaner transport in the EU, like for instance the directive on the quality of fuel or the regulation on CO2 emissions from cars. National schemes to support EV development are flourishing and funds are raised. The EU 5 billion Euro “green car initiative” was partly dedicated to electric cars. This fund was allocated to a variety of research and demonstration projects. In particular, it led to the development of different EV charging models. On the private sector side, fragmentation rule. OEMs (Original Equipment Manufacturers) have entered joint ventures in a bid to win a first mover advantage in the run to set European standards. In this context of internal competition, the European Commission is planning to set standards by mid-2011. This wait-and-build approach could insure quality standards and the best choice of technologies. Yet, too much diversity sometimes also induces market inefficiencies. Confronting a Chinese block strategy, Europe has no choice but to get the timing right.

There is a lot at stake for Europe. The automobile industry has long been a pillar of the European economy, as is manifest in the concerns of national governments faced by the crisis in the sector. Indeed, not less than 6.5% of EU employment is concerned. Europe is also producing one car out of three world-wide, a leading position it could loose on electric cars. European manufacturers talk about the share of the Chinese market they hope to capture. Surely the Chinese see things the other way round.