The Electrical Vehicle Market in China - The next wave ?

中国A Paper on the Growth of the Chinese Electric

Vehicles Market

September 2011

Electric Vehicles in China

–Are They Worth the Hype?

Solidiance ... ...01Electric Vehicles in China – Are They Worth the Hype?

contents

Appendix A: Comparison of Petrol and Electricity PricesElectric Vehicles in China –Are They Worth the Hype?

23Credits

24

The Future for Electric Vehicles in China Seems Bright:

01Advantage #1: China’s Growing and Largely Untapped Automotive Market

02Advantage #2: The Extent of Support from the Chinese Government

03&04The Role of the Government Is Crucial to Give the Industry Direction

05But Growth Will Not Be All Smooth-Sailing

06&07Government Support Will Alleviate Gaps Between ICEs and EVs

08The Need For a Flexible Charging Infrastructure

09

Government Support Will Alleviate Gaps Between ICEs and EVs2010

10Price Premium for EVs Remains Too High for Most Consumers

11&12When Would Fuel and Electricity Prices Make EVs Cheaper per Kilometer?

13&14Where Will the Chinese EV Industry Be in 2020?

15-18Could Some Auto Manufacturers Be Too Optimistic?

19&20In the Interim, Hybrids are the Bridge between ICEs and EVs

21Summary

22

Electric Vehicles in China – Are They Worth the Hype?


The Future for Electric Vehicles in China Seems Bright:Electric vehicles, it seems, are the way of the future. Contemporary electric vehicle (EV) technology has always seemed to the everyday consumer innovative and ahead of its time, yet lacking in accessibility and practicality. But has this finally changed? Along with the green movement that has been increasing in momentum across the globe over the past years, it seemed only natural that the market would seek out a more environmentally-friendly alternative to traditional internal combustion engines (ICE). Industry players have been experimenting with gasoline alternatives through concept cars powered by hydrogen fuel cells and bio fuel as two examples. Are electric vehicles the answer to the call for green technology that is also commercially viable?

China appears to believe so. The Chinese government looks set to develop the industry, pledging to finance infrastructure and research into EV technology; automotive manufacturers also seem certain, with many forming joint ventures with domestic automotive companies, like General Motors and Shanghai Automotive Industry Corporation (SAIC), to break into the market.

The plan is certainly ambitious for the Chinese government – to have 500,000 to 1 million green cars (including electric and hybrid cars and buses) by 2015, thereby decreasing average fuel consumption by 30% among new cars1. Yet, if we were to consider the sales of the Toyota Prius (a dismal 1,500 to 2,000 in 2009) as a benchmark in China for the market of environmentally friendly, electric vehicles, the future for electric vehicles in China does not seem especially optimistic.

So what might the factors be that account for such confidence in pure EVs? And is the Chinese EV market indeed worthy of its hype?

1: China Association of Automobile Manufacturers

Electric Vehicles in China – Are They Worth the Hype? / 01


China

Italy

France

GermanyUK US

Japan0%

10%

20%

30%

40%

50%

60%

70%

Source: Ernst & Young, Global Automotive Center survey

Respondents expressing interest in“definitely” or “most likely as soon as it

is available” purchasing a pure electric vehicle, 2010

Advantage #1:

In 2009, China had only approximately 57 car owners for every 1000 people in its population while already being the largest auto market in the world. The potential for growth in the Chinese market to reach car ownership levels similar to developed countries like the Germany and the US where there are at least 9 times more passenger cars per 1000 people should not be underestimated.

In fact, the Chinese automotive market

is expected to grow at a rate of 10%

every year in the next decade.

With growth of the market fueled largely by first-time car owners, many industry players are convinced that it will be easier for the growing Chinese market to leapfrog traditional ICEs, instead embracing “green”cars –both pure EVs and hybrids –more readily than matured auto markets. Indeed, it is encouraging that approximately 60% of Chinese consumers “wouldconsider”buying an electric car, far outpacing respondents in US (12%) and Japan (5%) (see graph).

Source: World Bank. Figures for China are dated 2009.

Passenger Cars per 1000 People, 2007

600

500

400

300

200

100

0

Germany UK US South Korea

Singapore China

566

463 451

248

11357

China’s Growing and Largely Untapped Automotive Market



The Extent of Support from the Chinese Government

Advantage #2:

The Chinese government is highly supportive of the development of the domestic EV market – they are committed to the goal of placing 500,000 to 1 million electric and hybrid cars and buses on the roads by 2015, and have pledged substantial funds to finance their plans.

For a 3-year trial (from 2010 to 2012) in 5 cities in China: Changchun, Hangzhou, Hefei, Shanghai and Shenzhen, $147 million will be invested in research and development for EV technology, in addition to $737 million to subsidize EV purchases.

The Chinese government has also pledged long-term support for the industry, investing $192 million in the alliance of 16 state-owned enterprises involved in various segments of the EV industry, including power providers and R&D institutes. A further $14.7 million will be invested in the research and development of energy-efficient technology by 2012 .

Such continued government support will help build a strong ecosystem for the EV industry in China, and in doing so, create the foundations for the growth of the industry past its initial emergent stage in the coming years.



While it is unlikely that consumers would switch to EVs en masse in the next decade, strong government support will help lay the foundations to facilitate industry growth. The demand for EVs will be sustained by manufacturers and power grid companies which innovate and provide products and services aligned to the preferences of consumers. Thus, government support in facilitating such development is crucial, and the advantage of the Chinese market is the enthusiasm of the government in doing so.

As represented in the diagram of the EV industry ecosystem on the right, government intervention in the Chinese market targeted at power grid companies, OEMs, and R&D institutes will help encourage constant innovation in technology and enable the provision of a charging infrastructure, thereby creating a conducive environment for growth.

The Extent of Support from the Chinese Government

Advantage #2:

EV Industry Ecosystem

Government

Distributers

R&D Institutes

Original Equipment

Manufacturers (OEMs)

Power Grid Companies

Raw MaterialsSuppliers

Consumers


Source: Solidiance


ECOtality is a leader in EV technology, and aims to help

introduce EVs in countries across the globe. Besides R&D and

the manufacture of EV charging equipment, an aspect of their

business is assisting governments to build an integrated “EV Micro-

Climate Infrastructure” through bringing together and supporting different sectors of the industry,

including OEMs, energy providers, and charge operators.

ECOtality has entered the Chinese EV industry through establishing a joint venture with Shenzhen Goch

Investment Limited to manufacture and assemble EV charging

equipment. ECOtality China notably secured a $300 million credit line in

March 2010 to finance its expansion.

A Short Introduction The need for a well-defined road map- An interview with Mr. Peter Nimmo, CEO ECOtality Australia

For a sustainable EV industry, ECOtality believes that all facets of the EV ecosystem have to grow together: developments in vehicle technology, increased knowledge about consumer choice and preferences, the establishment of a comprehensive charging network that is also flexible in dealing with power needs, and necessary government legislation to guide the EV industry all have to come together.

Hence, the Chinese government needs a well-defined road map to guide the development of its EV industry, and which requires the collaboration of various government units and industry players.

And on that note, even though the Chinese government is enthusiastic in developing the industry, they are, in the words of Mr. Nimmo, “not as far progressed as they want to be”.

The Role of the Government Is Crucial to Give the Industry Direction



But Growth

Will Not Be All Smooth-

Sailing

This road map first has to be preceded by a study of consumer

driving patterns and preferences. To enable the sustainable development of the EV

industry, Chinese policymakers need such data to establish efficient infrastructure tuned to the needs of consumers (e.g. to locate adequate charging stations at convenient locations) and improve driver experience.

Such data, which could be obtained though working with tertiary and R&D institutes, will then give policymakers direction to address support issues. For example, how should we react to the increased load from charging EVs on the power grid?

While foreign companies have been collecting data in regions like North America and thus have the expertise of doing so, the current challenge is for foreign companies with that expertise to overcome cultural barriers to enter China.

All things considered, there are multiple facets of the EV ecosystem that have to be addressed and developed simultaneously to build a sustainable EV industry tuned to the needs of consumers. The efficacy of such an effort is contingent first on the successful collaboration of industry players and Chinese policymakers, and second on data collection on consumer preferences.

It will be challenging to attempt to change our reliance on ICEs over the past 100 years in just 10 years. There needs to be a cultural shift away from petrol use, and also changes in the entire auto industry, including infrastructure and legislation.

We are talking about a paradigm shift.



Adoption Barriers for EVs

EVs: 5%-10%

penetration rate in 2020

Affordability of EVs

- Price of battery packs

Issues of Convenience

- Limited range of EVs

restrictions on spontaneous

or long drives

Limitations of Infrastructure

- Lack of comprehensive

charging network

-Network has to be tuned to consumer choice and preferences

But Growth Will Not Be All Smooth-Sailing


Source: Solidiance


Government Support Will Alleviate Gaps Between ICEs and EVsIssue 1: Due to their familiarity with gasoline engines, consumers feel more at ease with the reliability of traditional ICEs

Among EV models scheduled for sale in China, the range of electric cars varies from around 120km to 300km. This range would theoretically be feasible for city travel, since the typical urban Chinese commuter travels for short distances averaging only 25 km and, during peak hours, at low average speeds due to gridlock.

However, the consumer’s concerns of convenience, especially given the price premium of EVs, are hard to change in the short-run.

In addition, this also means that the convenient use of EVs is limited only to driving within cities, preventing drivers from taking impromptu or long-distance drives. The reliance on special charging stations also implies that before drivers adopt EVs, a comprehensive network of such charging stations has to be in place to convince them of their ability to charge their vehicles at a place and time of their convenience.

Source: General Motors

1Is there land available

for charging stations? 2Will the power

grid be able to sustain the

additional load? 3Will the infrastructure suit consumer behavior and preferences?

… but is not without its limitations

The government’s response to the need for a comprehensive charging network is

encouraging for the market… State-run State Grid Corporation of China has invested 250 billion yuan ($37 billion) to build 75 charging stations and 6,209 charge points across 27 provinces by the end of 2010. if paired with the use of a new quick-charge technology which allows for the EV battery to be fully charged in approximately 15 minutes, drivers could

possibly extend the range of their EVs within a day. Source: State Grid Corporation of China


Source: Solidiance

Solidiance ... ...010Electric Vehicles in China – Are They Worth the Hype?Electric Vehicles in China – Are They Worth the Hype? / 09

ECOtality wants to give consumers flexibility and choice within the charging network…

- An interview with Mr. Peter Nimmo, CEO ECOtality Australia, continued

A successful and sustainable infrastructure network not only has to be accessible, but also flexible enough to cater for consumer behavior and preferences.

We have to consider the consumer’s choices with respect to how, where, and when they plug into the grid, and also the possibility of offering different payment options. Just as how an ICE driver may select different grades of petrol at a pump, an EV driver could have the option of paying for a quicker but more expensive charge, or a slower but more affordable one.

… as well as create an infrastructure capable of reacting to patterns of power consumption

Plugging in to charge EVs would increase the load on power grids, and flexibility in power allocation would be a more sustainable and efficient method of providing for that increase as opposed to increasing overall energy production.

The charging infrastructure needs to be able to react to changes in patterns of power consumption by controlling the amount of power directed towards charging EVs. For example, during periods of peak energy use, power stations could reduce power

directed towards charging EVs and restore it only after there is spare capacity.

The Need For a Flexible Charging

Infrastructure

Image: Paul Martin Eldridge / FreeDigitalPhotos.net


Image: Salvatore Vuono / FreeDigitalPhotos.net

Source: McKinsey, Electric Shock Electric Cars

Government Support Will Alleviate Gaps Between ICEs and EVs2010

Issue 2: Developing battery technology and small scale production mean that prices of EVs are not yet competitive with ICEs

Batteries may make up “up to 75%” (McKinsey) of the price premium between traditional ICEs and electric drive vehicles (i.e. hybrid and pure EVs), and it will take time before new technology and manufacturing methods are developed for production costs to reach a more affordable level ( the Chinese government has announced $149 million in subsidies for the research and development of EV technology to help speed up the process). Currently in 2010, the industry average cost for a battery is about $650 per kWh – the battery pack of the electric Chevrolet Volt, for example, costs approximately $600/kWh. For a typical 20 kWh battery, that would mean a cost of $13,000. Even after trial subsidies at 5 cities, Changchun, Hangzhou, Hefei, Shanghai and Shenzhen for purchases of EVs, at current levels of technology, EVs are still considerably more expensive than ICEs.

2010 – 2012 Trial Subsidy Program • 5 billion RMB set aside for direct subsidies to manufacturers • Pure EVs with battery capacity > 15kWh: • Subsidy of 3,000 RMB per kWh • Capped at 60,000 RMB per EV • Plug-in Hybrids > 10kWh: • Subsidy of 3,000 RMB per kWh • Capped at 50,000 RMB per vehicle • Hybrids <1.6L • Subsidy of 3,000RMB

Source: China Ministry of Finance



Consider BYD’s E6, BYD’s first EV, with pre-sale price set at 300,000 yuan ($44,248). After a government subsidy and a Shenzhen city government subsidy of 60,000 yuan ($8,850) each, the E6 would cost about 180,000 yuan ($26,548). To consider what this implies to majority of potential car buyers in China, BYD’s F3, ranked first by sales volume in China in the first five months of 2010, with 138,000 units sold, costs only 60,000RMB ($8,800).

As China is still a developing country, the price of a car forms a large proportion of an average consumer’s annual income. Hence, majority of potential car-buyers in China are price sensitive, and the mass adoptability of an EV given today’s prices is unlikely. Based on 2009 figures, the average annual income in cities was about 18,858 yuan ($2,781) in 2009, making an E6 about 2 times the average annual salary of urban dwellers in China.

In addition, potential car owners are able to purchase an ICE with better specifications for the price of an EV. Indeed, for approximately the same price as the BYD E6, consumers may instead choose the Buick Excelle GT, which features 1.8-liter fuel efficient engine, and is sold for 189,700 yuan ($28,000) in China.

A Selected Look at Car

Prices in China, 2010

Sources: General Motors, NY Times, and various news articles

504540353025201510 5 0

US

D, i

n th

ous

and

s

BYD E6: Full Price

Subsidies BYD E6:Subsidised

Price

Buick Excelle GT

1.8L

Honda Fit 1.3L

Chevrolet Sail 1.2L Sedan

BYD F3 1.5L

Price Premium for EVs Remains Too High

for Most Consumers

Some of the hybrids and electric cars look pretty cool, but they are too expensive. I’d

rather spend less money on a reliable

gasoline car-Huang Jihai, 51, who bought his daughter a General Motors

Co. Chevrolet Cruze as a wedding gift.

Source: Bloomberg



Price Premium for EVs Remains Too High for Most Consumers

The problem for manufacturers is that prices may only fall when there is sufficient demand for EVs among Chinese consumers. This demand would increase scale of production, allow for economies of scale and create incentive for research institutes to innovate. Yet, the current problem is that demand is impeded by high EV prices, and will only grow when prices fall.

Current levels of subsidies are inadequate to make EVs affordable for the masses. For that to be achieved, battery technology first has to approach an affordable level, and manufacturers also have to be able to reduce production costs through increasing their scale of production.



When Would Fuel and Electricity Prices Make EVs Cheaper Per Kilometer?To convince consumers to switch to EVs, the cost of driving an EV per kilometer has to be less than that of a traditional ICE. While the price premium of an EV is substantial, including the price of the battery in the upfront cost of the EV is similar to including the price of tanks of petrol in the cost of a traditional ICE – hence, a better comparison of cost would be to look at the cost of driving each kilometer.

Hence, depending on the respective prices of electricity and petrol in each Chinese province, we will be able to predict whether it will be cheaper to drive a traditional ICE or an EV per km using the above model, as well as identify the relevant price levels at which an EV will be cheaper to drive for 1 km.

where x = price of electricity, and y = price of petrol

y12.41 + 0.065= x

5

Using assumptions for battery technology as outlined in Appendix A, we get the following :

Cost per km, ICE = Cost per km, EV Fuel cost per km = Cost of charging per km + battery depreciation per km

Price of Electricity ($ per kWh)

Pric

e of

Pet

rol (

$ pe

r lite

r)

0.81

EVs more affordable

per km

Traditional ICEs more affordable

per km

y12.41 + 0.065= x

5


Source: Solidiance


When Would Fuel and Electricity Prices Make EVs Cheaper Per Kilometer?Using prices in Shanghai as an example, where the cost of: 93 octane petrol = $1.01/liter (6.87 RMB/liter), and electricity = $0.09/kWh (0.61 RMB/kWh),

We find that the cost per km, ICE <cost per km, EV, which makes it cheaper for a driver in Shanghai to drive a kilometer in a traditional ICE than an EV.

With electricity prices in China at between $0.07 and $$0.20 per kWh, petrol prices will have to be greater than the range of $0.99 and $1.36 per liter for EVs to be more affordable than ICEs.

At existing levels of technology (i.e. cost and range of batteries), petrol prices are currently too low to encourage Chinese drivers to switch to EVs.


Pric

e of

Pet

rol

($ p

er li

ter)

0.81

y12.41 + 0.065= x

5

Traditional ICEs more affordable per km

1.031.01

0.09


Source: Solidiance

Image: Idea go / FreeDigitalPhotos.net


Where Will the Chinese EV Industry Be in 2020?

Consumer demand for EVs are highly dependent on factors which affect the convenience and affordability of EVs in relation to traditional ICEs.

Growth Drivers:

Hence, in the future, the successful establishment of a comprehensive, convenient, and flexible network of charging stations, as well as the availability of adequate subsidies, will directly boost demand.

In addition, since convenience and affordability are consequences of the level of EV technology, there is a need for competition within the market and constant innovation to encourage the manufacture of more efficient and affordable vehicles.

Consumer preferences will also influence buyers to accept certain levels of price premium over ICEs, further encouraging demand.

The extent of growth of the EV industry in China in 2020 will therefore depend on the development and interaction of the above mentioned factors.

Government Subsidies

to Increase Affordability

Consumer Preferences for

Environmentally-friendly

Technology

Convenient, Flexible, Charging

Infrastructure

Constant Innovation and

R&D

Competitive EV

MarketE V

DemandElectric Vehicles in China – Are They Worth the Hype? / 15

Source: Solidiance


Based on predictions by industry players and Chinese policymakers, new vehicle sales will grow at an average rate of 10% in the next decade, and a total of 38.8 million new vehicles are predicted to be sold in China in 2020. Following that, estimated growth will then slow down to an average of 8% between 2020 and 2030.

Optimistic auto companies foresee a 10% penetration rate of EVs among all new vehicles sold in 2020, while other industry players predict a 5% penetration rate as a more realistic possibility. Predicted EV sales in China are shown in the table to the right.


EV Sales:

Predicted EV Sales:

Realistic

Optimistic

2020

Total vehicle sales (Predicted): 38.8 Total vehicle sales (Predicted): 100.6

2030

Numbers are given in millions

1.94 (5%)

3.88 (10%)

8.38 (10%)

25.13 (30%)


90

80

70

60

50

40

30

20

10

0

2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030

New Vehicles SalesForecast Beyond 2020 an estimate

In M

illion

s

Total # of vehicles sold

# EVs sold(optimistic)

# EVs sold(realistic)

Source: Solidiance


Therefore, we predict EV sales in China to be between 1.94 million and 3.88 million in

2020, possibly rising up to between 8.38 million and 25.13 million in 2030.


Predicted # of EVs sold30

25

20

15

10

5

0

in m

illio

ns

2020 2030

1.943.88

8.38

25.13

Realistic

Optimistic

High targets are possible with infrastructure at the right places and

with proper support -Mr. Peter Nimmo, CEO ECOtality Australia


Source: Solidiance


As previously mentioned, the industry average in 2010 for the cost of manufacturing a battery pack is $650/kWh. From developments in battery technology as well as increases in economies of scale among battery manufacturers in the coming years, industry players expect an approximate 5% decrease in cost every year, or a 40% decrease by 2020.

In other words, battery costs would be approximately $389/kWh in 2020. Assuming an average battery capacity of between 16 kWh (e.g. SAIC E1, 140 km range) and 60 kWh (e.g. BYD E6, 330 km range), and using forecast figures for EV sales in 2020,

Battery Manufacturers:

We predict that the battery market for pure EVs alone in China will be worth between $28.7 billion and $57.4 billion in 20201.

1. Using average battery capacity = 0.5(16+60)=38, lower estimate = 389*38*1.94 million, higher estimate = 389*38*3.88 million




Could Some Auto Manufacturers Be Too Optimistic?

Electric cars will continue to offer the end-user less perceived versatility and convenience when compared to their liquid-fueled competition -Tom De Vleesschauwer, Global Insight Analyst

Source: Business Week

The EV industry could be said to have high barriers to entry due to the high initial investment capital required. Costs like expenditure for research and development, and the constant innovation required for the first few years of the industry might convince other auto companies to jump on the bandwagon later to leapfrog available technology. While EV technology has been approaching commercial feasibility, much development still has to be made to achieve a certain level of convenience and affordability with which consumers are comfortable with before EVs may become appealing to the masses and start to be profitable.

Hence, could some auto manufacturers be too optimistic in their views of the Chinese EV market?

While the Chinese government is making a large effort to speed up the process of research and development through research subsidies and grants, it remains that new technology has to be discovered and developed before EVs may be widely affordable. In addition, the reliability of the network of charging stations has to be established and the concerns of consumers regarding range also addressed, before consumer preferences shift towards EVs – both of which will only occur in the long-run.



Case Study:

Geely Holding Group

Could Some Auto Manufacturers Be Too Optimistic?

Geely: A Short Introduction

Geely established its auto manufacturing business in 1997, and

has grown to become the one of the top ten largest auto manufacturers in China. Notably, Geely also purchased Volvo in

early August 2010.

Geely is looking at breaking into both domestic and foreign EV markets.

The electric version of its affordable, compact model, Panda, will be available in China end 2010, and will also be sold

in European markets as Nanoq.

Geely’s strategy is to focus on traditional ICEs, while developing a diversified range of new energy vehicles

-An Interview with Mr. Victor Yang, Director of Public Relations

Mr. Yang has indicated that in the coming 2 decades, Geely is focused on developing the technology of ICE vehicles and improving the efficiency of engines through the use of turbo engines and lightweight car components. Hence, Geely’s focus remains on ICEs, which Geely believes will continue to constitute most of the auto market in China. But the manufacturer remains interested in getting a head start in the EV industry, and has released 6 new hybrid and pure EV models in the 2010 Beijing Auto Show.

For EVs to make up 5% of new vehicle sales in 2020 is, in his opinion, “achievable”, but widespread adoption is not highly probable until issues about the practicality and affordability of EVs are addressed. In particular, the availability of excess capacity of Chinese power plants and land for the construction of large-scale charging infrastructure are of concern. As these issues, as well as the mass affordability of EVs are not likely to be solved soon, Mr. Yang believes that the growth of the EV market will be limited in the next decade.



Auto manufacturers seem also to acknowledge this – most EV manufacturers currently in the Chinese market are also releasing new plug-in hybrid models. These plug-in hybrids are more affordable and come with fuel tank range extenders, which will allow for flexibility in driving before a comprehensive network of charging infrastructure is put in place. In addition, charging plug-in hybrids will be less demanding on power grids than pure EVs.

Hence, incumbent OEMs may use plug-in hybrids to bridge the different stages of development in a company’s product line while remaining innovative and developing EV technology for the long-run.

In the Interim, Hybrids are the Bridge between ICEs and EVs

The two current limitations of EVs, convenience and affordability, suggest that plug-in hybrids are a more commercially feasible approach to EVs.

There is an electric vehicle “fever” in

China… but hybrids are more workable.

-Mr. Victor Yang, Director of Public Relations,

Geely Holding Group

Light hybridization is the answer for

most cars. -Dr. Karl-Thomas Neumann,

Chief Officer for Electric Traction, Volkswagen Group



The sustained development of the EV industry in China depends on the existence of a supportive ecosystem to address growth drivers of the industry and generate demand for EVs among consumers. That is, the acceptance of EVs depends on the ability of charging service providers, OEMs, and the government to provide a convenient, comprehensive, and flexible charging infrastructure and affordable EVs to influence consumer preferences.

While there is strong government support to develop the EV industry, these factors – the existence of a convenient charging infrastructure and the affordability of EVs – are adoption barriers holding back the widespread adoption of EVs in the next decade.

For the above mentioned reasons, we predict for the Chinese EV market a 5% to 10% penetration rate in 2020, or a demand for between 1.94 million and 3.88 million EVs, and a battery market worth between $28.7 billion and $57.4 billion in 2020.

Since we have admitted that these adoption barriers will only be addressed in the long-run, auto manufacturers could look at plug-in hybrids in the meantime to bridge the shift from traditional ICEs to mass adoption of pure EVs in the Chinese market.

While companies like Renault have jumped onto the EV bandwagon and are attempting to establish market share through entering the Chinese EV market early, others like Geely have opted instead to diversify their range of vehicles, pursuing energy efficiency through developing not only EVs, but also hybrids (the Geely Stop and Go system saves fuel at traffic lights and during congestions), as well as light-weight, efficient traditional engines.

It is too strong an assertion to make that the Chinese EV market, with a modest 5% penetration rate 2020, is not worth its hype. In the long-run, once these adoption barriers are better addressed, the EV industry will grow at a much higher rate. Hence, industry players should not neglect the development of EVs in the Chinese auto industry. The sheer size of the Chinese auto market would mean a potentially large EV market and growth opportunities for firms in every segment of the EV manufacturing and distribution chain.


Summary


Assume a 60kWh battery, with 2,000 charge cycles, and 300km range (BYD E6 battery), with $650/kWh production cost.

Assume also that average fuel efficiency of cars in China = 12.41 km/l

Let x = retail price of electricity, and y = retail price of petrol

Assume that we are comparing two otherwise identical vehicles, hence the difference in depreciation of car and powertrain between the ICE and the EV are negligible. Cost per km, ICE = Cost per km, EV

Fuel cost per km = Cost of charging per km + battery depreciation per km

y12.41 + 0.065= x

5


Pric

e of

Pet

rol (

$ pe

r lite

r)

0.81

EVs more affordable

per km

Traditional ICEs more affordable

per km

Comparison of Petrol and Electricity Prices

y12.41 = + 0.065x

5

y12.41 = +x ⁕ 60

300650 ⁕ 60

2000 ⁕ 300

Appendix A:


Source: Solidiance


CHINA INDIA INDONESIA SINGAPORE THAILAND VIETNAMDamien DuhamelManaging Partner

Julienne ChanBrand ArchitectDID: +65 6408 8206

Research: Siya Yang

Design: Shya S

Solidiance is a dedicated Asia B2B marketing and growth strategy consulting firm with offices across the region. Our company is fast growing and currently has seven offices in Asia including China, India, Indonesia, Malaysia, Singapore, Thailand, and Vietnam. Solidiance’s DNA is to help multinational clients to understand the emerging Asia market landscape, profile industries and competition, size markets, segment customers, analyse distribution channels, boost sales, prepare investment feasibility studies, identify suppliers, review potential joint ventures/acquisitions and deliver market entry and growth strategy in Asia. Solidiance’s industry focus is on industrial applications, technology and healthcare. For more details please check: www.solidiance.com

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Electric Vehicles in China – Are They Worth the Hype?