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September 19, 2016

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Home » Business » Autotalk Special

Plugging into a new era: green cars labor uphill

CHINA’S ambition to become the undisputed world leader in electric car manufacturing and use is looking a bit overcharged with hypes and hopes.

In recent months, carmakers have unveiled new strategies, the nation’s high-profile subsidy fraud has abated and regulatory authorities have aggressively pursued policies that make electrification of cars a must, not a choice.

Unfortunately, the whirlwind of activity in the past left most consumers confused about what cars are worth buying. Hopefully, they will have at least some clues from now on.

When General Motors announced its hybrid-centered electrification roadmap for China last month, it looked like the US company was gate-crashing a party hosted by Toyota.

For years, the Japanese carmaker has aligned itself in a practical middle-of-the-road solution for greener cars — ­­­­­pairing the electric motor with a gas combustion back-up system. Now this strategy is being further developed and enhanced by the Americans.

Though having not talked much about hybrids in the past, General Motors has been long working hard on them and biding its time. Its recently unveiled new energy product offensive in China includes two hybrids: the Buick LaCrosse Hybrid and Chevrolet Malibu XL Hybrid. Both have circumvented the pitfall of certain patents held by Toyota.

At the Pan Asia Technical Automotive Center in Shanghai, Larry Nitz, executive director for electrification at General Motors, discussed what he called EVness. Energy efficiency aside, it strengthens responsiveness and also smoothness. An electric car is as much about one’s environmental conscience as about his fun and comfort on the road.

“Our electrification approach is about delivering an industry-leading driving experience,” said Nitz.

The company’s self-developed powertrain is hailed as more sophisticated than Toyota’s, with the ability to coordinate more nuanced output delivery at different speeds.

The whole point is to reduce the unnecessary engagement of the engine as much as possible and rely more on the electric motor, which has a more responsive and straightforward nature.

But when it comes to commercialization, General Motors’ system has to take a roundabout with its cost control. Because of the system’s complicated nature and newborn status, it started localization with a top-down approach, hybridizing mid-to-upper car models instead of the likes of Toyota’s easy-to-afford Corolla and Levin.

Nitz declined to comment on the localization rate of the system’s parts, but pointed to modular design as the solution.

Even the Cadillac plug-in hybrid shares many critical parts in the electric drive unit with the two hybrids, and that is just a start. A battery assembly plant will be built in Shanghai to support a 26.5 billion yuan (US$4 billion) new energy offensive of deploying no less than 10 hybrid cars in China over the next five years, including one localized each year.

Of course, SAIC-General Motors’ product portfolio will cover a full spectrum of electrification — from hybrids, plug-in hybrids, extended range electric cars and all-battery cars, said Wang Yongqing, president of SAIC-General Motors.

Looking at the long term and not knowing how far vehicle electrification can go in the sense of being commercially viable and not just technologically feasible, it is better to place bets on all possible outcomes. Now it is time to double down on some.

According to a consumer survey done by the China Passenger Car Association, exemptions from vehicle-purchase and traffic-access restrictions in certain areas of cities are the biggest drivers behind the booming sales of all-battery cars. They are the most officially favored ones in China’s green-car policies.

Wherever the exemptions are absent, hybrids effortlessly steal the thunder, making up an average 62 percent of the new energy car sales. It is hard to find a balance between answering the government’s idealist call and holding on to a down-to-earth business.

Volkswagen, however, is also trying to position itself somewhere in the middle.

It recently announced a plan for a 50-50 venture with Chinese domestic carmaker Jianghuai Automobile, setting its focus squarely on all-battery electric cars. At the same time, Volkswagen will hybridize other models.

This new deal will be VW’s third joint venture in China, after FAW-Volkswagen and SAIC-Volkswagen. In the past, foreign automakers were barred from having more than two Chinese partners, but authorities who want green car manufacture accelerated are expected to give a green-light to wider access. Premier Li Keqiang is known to be supporting this deal between Volkswagen and Jianghuai personally.

An Jin, chairman of Jianghuai Automobile, said the new partnership with VW will provide Chinese consumers with highly cost-effective all-battery electric vehicles.

For Volkswagen, the new thrust may be aimed at redemption after the worldwide scandal involving cheating on emissions tests. A year ago, VW’s green strategy was heavily reliant on plug-in hybrids. Now it is talking about 30 battery electric cars to be introduced worldwide by 2025.

While the hybrids may not enjoy official favor, they are certainly not disappearing.

The Audi A6L e-tron plug-in hybrid, due to appear later this year, will be VW China’s first locally made new energy car in China. The list is long for powertrain conversion of the group’s existing car models, based on its MEB electric toolkit, another example of the cost-controlling modular approach.

Jochem Heizmann, president and CEO of Volkswagen Group China, said the joint venture with Jianghuai will explore all options on how to concentrate resources, including existing and future model platforms.

For a company that wants to achieve real business impact rather than just leave a good impression on regulators, it has its work cut out for it.

The higher cost of all-electric cars, due to more batteries to sustain assured mileage, makes them much more commercially vulnerable than hybrids now that the government subsidies are being scaled back.

Cui Dongshu, secretary-general of the China Passenger Car Association, is very outspoken about the new energy market’s burst of exuberance.

“It accounts for about 1 percent of China’s total car sales now, but that is no turning point,” he said. “It’s under the thumb of subsidies, while all the real-life concerns about their use haven’t been dispelled.”

General safety issues aside, mileage is the biggest consumer anxiety. It escalated to such a point in Beijing last winter that electric car users couldn’t afford to turn on the heater in their cars on freezing cold days. Heating the car would more quickly drain energy stored in batteries, and it would take twice as long to recharge because battery performance is sensitive to cold weather.

Though all-battery cars are not ready for mass deployment at this stage, they are the easier to build than hybrids. They are a clean slate to start with, requiring no expertises in internal combustion engines and matching transmission, the kind of knowledge China is yet to fully acquire.

For once, China feels it is at the same starting line of research as countries more experienced in carmaking. But when trying to overtake on such a corner, any reckless move could spell trouble.

A recently released report on an eight-month official investigation into subsidy frauds shed some stark light on the reality of China’s booming electric car sales. Five companies are singled out for cheating governments out of 1 billion yuan of new energy car subsidies by inflating sales figures. And another widely circulated list contains another 67 suspected companies. Together, the 72 companies alledgedly siphoned off 9.2 billion yuan in subsidies illegitimately or unfairly. Jianghuai is also reportedly involved.

But it is electric buses that have borne the brunt of the scandal, for their up to 1 million yuan in individual subsides is much more tempting than the scant 100,000 yuan for a passenger car. Last year, about half of electric vehicles sold in China were either buses or utility cars, an eightfold increase from 2014.

The China Passenger Car Association’s Cui estimates that 80 percent of the total green subsidies have created an illusionary boom. He said the future of electric buses is pretty doomed in the wake of the scandal while each segment of the passenger car market will develop its own approach toward cleaner vehicles.

Economy cars will become purely battery powered. Mid-range cars will be dominated by hybrids. Bigger sports utility vehicles and more expensive cars will turn into plug-in hybrids. It is all about striking a delicate balance, juggling price, battery performance and mileage and power expectations.

Plug-in hybrids are the new name of the game for luxury cars and some sports cars. That’s probably the only way a car can combine the best of both worlds without too many budget concerns. The only exception is Tesla, which produces all-electric cars that pack a highly powerful and expensive battery pack and deliver high performance. Its market position, together with the brand’s origin in California’s Silicon Valley, makes the brand a lifestyle symbol for the progressively minded rich.

“Those who want to buy electric cars today have no affordability problems,” said Benjamin Lo, head of China autos research at Nomura. “What they care about is whether they can find something excitingly new about the car, whether they can show others they drive differently.”

He said he thinks the biggest success of new energy cars will come from scratch, from completely new car model platforms, like Tesla.

But for traditional carmakers, who want to appear refreshingly green and also control costs, starting from scratch is a bit too risky. The clock is ticking as Tesla is set to bring down its price threshold with Model 3, which will produce a direct challenge to the high volume products of established luxury brands.

On the eve of this month’s Chengdu Auto Show in southwestern China, BMW held a special night for its three new electric cars, including two restyled and upgraded cars under the brand name of BMW i.

The five-year-old sub-brand is never a big sales boost, admitted Liu Zhi, president of BMW China Automotive Trading. But it has been acting as an innovation incubator for BMW to experiment with electrification and other new technologies, like carbon fiber and laser headlamps, which eventually find their ways to other BMW cars.

BMW’s German peers are believed to be playing some serious catch-up with their own electrification branding.

Mercedes-Benz recently was reported to have filed numerous trademark “EQ” — a likely sub-brand name for its electric cars. E-tron, a well-known technology name for Audi’s electric cars, is expected to develop into a separate line that has its own sales channel. Following the launch of Audi A6 e-tron later this month, Audi Q7 e-tron will be imported into China next year to expand its line of plug-in hybrids.


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