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New-energy vehicles given priority
June 20, 2011, Monday
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CHINA'S 12th Five-Year Plan (5YP) specifically identifies "new-energy vehicles" as one of seven priority areas for development. This is expected to increase investment and business opportunities in this sub-sector over the next five years, even as the auto sector as a whole sees slower growth rates and possible overcapacity.
A shift from conventional internal combustion to hybrid and electric vehicles is underway and it is expected that up to 5 percent of new vehicles sold by the end of 2011 will be based on clean energy technology.
The Ministry of Science and Technology is leading the planning of electric vehicle adoption during the 5YP. The 5YP aims to have 1 million electric vehicles on the road by 2015 and 10 million by 2020.
The 5YP also aims to incubate an energy-saving vehicle component industry, forming between three and five key enterprises able to develop the core technology of battery-power electric motors, control units and charging stations. Twenty-five pilot cities have been announced for adoption of electric vehicles, supported by subsidies and sales tax exemptions. The VAT for new-energy vehicles and key components will be reduced to 13 percent, while R&D expenses can be 100 percent deducted from company tax.
New business models could emerge from the combination of policy and technology shifts. For example, plug-in hybrid electric vehicles and pure electric vehicles will impose great demand for electricity and charging infrastructure, which is a compelling business opportunity. Uneven demand over the grid may lead to the development of more grid storage for electricity. Another business opportunity could be battery rental businesses for new-energy vehicles.
China wants to be the leader in EV and a lot of resources were put into the R&D especially in extending the range and weight of the vehicle. It will be likely to see more R&D centers set up overseas as domestic companies seek to gain access to overseas design and technology, and learn about overseas standards and testing procedures. This could spur further collaboration with, and investment from, international partners.
But these changes are unlikely to occur without some disruptions.
The higher cost of new-energy vehicles, compared to internal combustion vehicles, means demand may be dependent on government subsidies.
Wider implications
Coordination between city, provincial and central government will be important to ensure efficient development of this sub-sector.
At this moment, auto executives need to consider the implications of this technology transformation with respect to both financial and human capital. Changes in production techniques could have implications for fixed assets and working capital management while the potential for a shortfall of engineering talent and access to the technologies could be constraints impacting the achievability of business plans.
For domestic organizations, making outbound investments could become more of a pressing consideration. These executives need to consider what cultural issues they may encounter and whether they will face barriers to access of technology overseas. Outbound investments to acquire technology and intellectual property rights become crucial for China to gain a foothold in this area.
The auto sector is likely to remain highly competitive and each company will need to assess how their business model needs to adapt, take advantage of subsidies or tax advantages, and secure the technology it needs to stay ahead of rivals.
The main challenges to EV today apart from cost are weight and traveling distance. There are different concepts being tested such as using super capacitors and swapping of batteries at charging stations. Research facilities such as Jiao Tong University are working with OEMs to develop practical solutions for commercial applications. Hybrid vehicles remain a more practical solution until the above issues are resolved.
A shift from conventional internal combustion to hybrid and electric vehicles is underway and it is expected that up to 5 percent of new vehicles sold by the end of 2011 will be based on clean energy technology.
The Ministry of Science and Technology is leading the planning of electric vehicle adoption during the 5YP. The 5YP aims to have 1 million electric vehicles on the road by 2015 and 10 million by 2020.
The 5YP also aims to incubate an energy-saving vehicle component industry, forming between three and five key enterprises able to develop the core technology of battery-power electric motors, control units and charging stations. Twenty-five pilot cities have been announced for adoption of electric vehicles, supported by subsidies and sales tax exemptions. The VAT for new-energy vehicles and key components will be reduced to 13 percent, while R&D expenses can be 100 percent deducted from company tax.
New business models could emerge from the combination of policy and technology shifts. For example, plug-in hybrid electric vehicles and pure electric vehicles will impose great demand for electricity and charging infrastructure, which is a compelling business opportunity. Uneven demand over the grid may lead to the development of more grid storage for electricity. Another business opportunity could be battery rental businesses for new-energy vehicles.
China wants to be the leader in EV and a lot of resources were put into the R&D especially in extending the range and weight of the vehicle. It will be likely to see more R&D centers set up overseas as domestic companies seek to gain access to overseas design and technology, and learn about overseas standards and testing procedures. This could spur further collaboration with, and investment from, international partners.
But these changes are unlikely to occur without some disruptions.
The higher cost of new-energy vehicles, compared to internal combustion vehicles, means demand may be dependent on government subsidies.
Wider implications
Coordination between city, provincial and central government will be important to ensure efficient development of this sub-sector.
At this moment, auto executives need to consider the implications of this technology transformation with respect to both financial and human capital. Changes in production techniques could have implications for fixed assets and working capital management while the potential for a shortfall of engineering talent and access to the technologies could be constraints impacting the achievability of business plans.
For domestic organizations, making outbound investments could become more of a pressing consideration. These executives need to consider what cultural issues they may encounter and whether they will face barriers to access of technology overseas. Outbound investments to acquire technology and intellectual property rights become crucial for China to gain a foothold in this area.
The auto sector is likely to remain highly competitive and each company will need to assess how their business model needs to adapt, take advantage of subsidies or tax advantages, and secure the technology it needs to stay ahead of rivals.
The main challenges to EV today apart from cost are weight and traveling distance. There are different concepts being tested such as using super capacitors and swapping of batteries at charging stations. Research facilities such as Jiao Tong University are working with OEMs to develop practical solutions for commercial applications. Hybrid vehicles remain a more practical solution until the above issues are resolved.
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