Home » Business » Autotalk Special
State Grid: pitching Co-investment amid a market catch-22
Print Edition
OPENNESS” is the new watchword sending a buzz through the listless China electric car industry.
The State Grid has officially opened the door to private investors to join in building charging infrastructure in China, and American electric carmaker Tesla made the surprising announcement that it is willing to open its patents to competitors.
The twin news developments bring to mind the proverb that “many hands make light work,” and that would certainly be a positive in an industry that just hasn’t seemed to work yet.
At the same time, it’s interesting to explore the motivations behind both decisions.
One of the stumbling blocks to popular use of electric cars is the scarcity of charging stations. Motorists are simply afraid that they will run out of juice and have nowhere to recharge. Development of the required infrastructure has been hampered by questions of who would take charge of the mammoth undertaking.
State Grid, currently the biggest developer of China’s charging infrastructure, has had a virtual monopoly over the development. Its decision to seek private investment didn’t raise many eyebrows.
It is all about letting the market take the driver’s seat in resource allocation and new energy development, said Wang Yanfang, the company’s spokeswoman.
By the end of last year, State Grid had installed only 400 charging stations, and 19,000 charging poles. Given the central government’s goal of 2,000 charging stations and 400,000 charging poles by 2015, the system seems to have had little choice but to seek help from outside.
The decision may completely change market dynamics.
According to the company’s own estimate, the value of charging systems will grow by 13 billion yuan (US$2.1 billion) a year to reach 200 billion yuan by 2020. That is expected to increase gross domestic product by 780 billion yuan.
Auto analyst Zhang Zhiyong said the market cannot be fully developed without private investors. Getting them involved is a way to spread the costs and risks, which are more than one or two market players can bear.
Indeed, almost all the 400 charging stations run by the State Grid are reportedly operating in the red. Seven developed by its smaller rival China Southern Power Grid in Shenzhen are reckoned to have lost 13 million yuan a year since they were installed.
Any private investor thinking of teaming up with State Grid will have to weigh up the obvious catch-22: electric cars won’t become popular until charging stations are plentiful and convenient, but charging facilities can’t be profitable until there are volumes of the cars on the road.
China’s electric car market, despite numerous government incentives, remains stagnant. Only 17,600 of the cars were sold last year, accounting for less than 0.1 percent of total car sales.
The small number of electric cars in use tends to discourage the development of charging infrastructure that values economy of scale.
Some analysts say the current thinking is all wrong. There is no chicken-or-egg dilemma staring the industry in the face.
Hou Yankun, head of China equity research and head of Asia autos at UBS Securities, said the whole business model of charging infrastructure is inherently flawed.
It is ill-advised to build electric cars as mass-market products in the first place because the current battery technologies are too expensive, he said.
“And I don’t think 80 percent of electric cars would actually need public charging infrastructure,” he added.
According to the firm’s study, the chance that a car needs to travel 200 kilometers a day is as slim as 1 percent each year, which means the current maximum mileage of electric cars is sufficient for car owners to hold on until getting recharged back at home. Today, it’s easy to install a private charging pole if a motorist has a permanent parking spot.
If the current concern over lack of charging facilities is really just an expression of mileage anxiety, then the utilization rate of public charging facilities may be as low as 20 percent of today’s gas stations. The whole charging business just doesn’t make much sense in the light of economy, Hou said.
Gesture of goodwill
Still, it doesn’t hurt to send a gesture of goodwill to private investors. State Grid’s decision to open up a market that may attract little interest probably was made, in part, to respond to the central government’s call to develop a “diversified ownership” economy.
Sitting at the top of the reform agenda this year, this directive aims to channel non-state capital into sectors such as banking, oil, electricity, railways, telecommunications, resources development and public utilities — industries all dominated by state-owned companies.
“At first, State Grid was very bullish about the prospect of charging stations, but the slow development of China’s electric car market increased its risk exposure,” said auto analyst Zhong Shi.
Against this backdrop, the push for a diversified ownership economy might provide a perfect opportunity for State Grid to pass on a dead-end job.
- About Us
- |
- Terms of Use
- |
-
RSS - |
- Privacy Policy
- |
- Contact Us
- |
- Shanghai Call Center: 962288
- |
- Tip-off hotline: 52920043
- 沪ICP证：沪ICP备05050403号-1
- |
- 互联网新闻信息服务许可证：31120180004
- |
- 网络视听许可证：0909346
- |
- 广播电视节目制作许可证：沪字第354号
- |
- 增值电信业务经营许可证：沪B2-20120012
Copyright © 1999- Shanghai Daily. All rights reserved.Preferably viewed with Internet Explorer 8 or newer browsers.
