Electric verhiclesChina

10 July 2016

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In the coming October, 20 drivers will race at up to 210 kilometres per hour through the

streets around Hong Kong’s Cen-tral Harbourfront in the first round of this season’s FIA Formula E Championship, the world’s first all-electric racing series, and the first to be held in the city.

About 25 minutes in, they’ll pull into the pit stop and scramble to a replacement all-electric vehicle for the second, nearly identical leg. The changeover to stop their cars from overheating highlights the gulf still separating the battery-powered Formula E’s vehicles and the internal combus-tion engines used by its older, wealthier and more glamourous rival, F1.

That gap, though, is narrowing fast. Five years from now, there will be no second car if gains in battery power and endurance meet expectations, says Hong Kong Automobile Association President Lawrence Yu Kam-kee.

“This is why you need a For-mula E race standard: to upgrade and improve, and try to prove the engines’ durability and efficiency,’’ says Yu, who is credited with bring-

ing ePrix to the city. “I remember when Formula 1 started they had very sophisticated engines, but now ordinary cars are using designs based on those from F1.’’

Formula E’s potential to push EV performance explains China’s growing presence since the race’s 2014 debut in Beijing. Two of the 10 teams taking part in the October race are Chinese and Ma Qing Hua, the nation’s first ePrix driver will race for one of them. A third, United States-based outfit has Chi-nese funding, while Beijing-based NextEV TCR used to run a team but is now one of nine construc-tors, alongside Audi’s partner ABT Schaeffler, Renault and Jaguar.

The payoffs from advances in EV engineering are potentially game-changing for China, which is a latecomer to the 150-year-old technology of internal combus-tion engines and faces formidable barriers to enter the market for hybrids pioneered by Toyota’s Prius, which depends on a petrol-driven engine as well as its battery. Electric-only and plug-in hybrids (PHEVs) – in which a small internal combustion engine serves as a generator to recharge the battery – offers China a level playing field to become the global leader, says Yu.

If anything, the field is tilted in China’s favour. The central government’s control over infra-structure and urban planning, strong leadership of industry, the rise of densely populated mega-cities and a vast base of digitally savvy consumers make China a testing ground not just for EVs but for the future of global mobil-ity – in which EVs, connectivity and autonomous transport are all integral ingredients, according to Marco Hecker, Automotive Consulting Managing Partner at Deloitte China.

CHINA CHARGED UP

“ A vast base of digitally savvy consumers make China a testing ground not just for EVs but for the future of global mobility.”

Driven by increasing consumer demand and aggressive government backing, sales of electric vehicles are ramping

up in China, which accounted for more than half of the global electric car market last year. Ben Richardson looks

at the long, rough road ahead for the country’s EVsIllustrations by Ester Zirilli

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Electric verhiclesChina

“The Chinese government has a better chance to bring an ecosys-tem together than anywhere else in the world,” says Hecker. “You can create an ecosystem all by yourself, without having to solve all the in-dividual desires of making money, profit and owning the customer in-terface. That’s something that other companies and countries should be wary of.”

The prime drivers for China’s EV ambition are its desire to create a world-beating industry that helps curtail oil imports, boosts exports and addresses domestic concerns over urban air quality, where ex-haust emissions are key.

Fuelling demandAggressive government backing – including tax breaks and other incentives, state purchases of locally produced vehicles and non-tariff barriers to imports – accom-panied by Chinese firms’ growing manufacturing and design capabil-ity fired a threefold surge in sales of PHEV/EVs last year, while U.S. sales fell 7 percent, according to an April report from HSBC. China last year accounted for 55 percent of the segment’s global market, up from 29 percent in 2014. The government aims to have 5 million EVs on the road by 2020, passing the 500,000 mark in March.

The surge in EV sales has been accompanied by investment in charging infrastructure, with the number of fast-charging outlets more than quadrupling last year. The government plans to have 12,000 charging stations and 4.5 million individual points at the end of the decade. In any case, average

journey lengths in China are short and easily covered by current battery ranges, reducing the much talked about “range anxiety” that analysts often cite as a brake on growth in other markets.

Helping to fuel demand, the Chinese government is encourag-ing hundreds of millions of its citizens to migrate from rural areas to cities, where Internet connectiv-ity combining with high-rise living foster new patterns of consumer be-haviour. The government has also invested heavily in high-speed rail and aviation as alternative ways to travel between cities.

“People can do everything they need to do online, or they can walk… the day-to-day infrastruc-ture is very different in China than anywhere else in the world,” says Hecker. “The real future of mobility is not happening in Silicon Valley, but it’s really happening in the Asia Pacific.”

Chinese consumers are more likely to buy a new car without taking a test drive, he adds – in part because they do more research on-line than consumers anywhere else in the world. Government efforts to

cut congestion by restricting new licences or the amount of time driv-ers can spend on the road typically don’t apply to EVs, so impatient drivers will trade the pitfalls of electric cars so they can get behind the wheel sooner, he says.

According to a report by De-loitte, a majority of “Generation Y” consumers (63 percent) in China think that they will be driving an alternative engine or fuel efficiency vehicle by 2019 and they are willing to pay more for it. Hybrid electric is the predominant choice for them.

A newly released survey by Nielsen AC found that more than half of respondents who said they would consider buying new energy vehicles said they’re looking forward to cars produced by global Internet companies, while almost 60 percent would consider models made by Chinese Internet companies. Indeed, domestic companies already control more than 90 percent of the Chinese market, with Tesla the only foreign brand among the top 20.

The sheer scale of the domes-tic market may prove the catalyst for a sustainable boom in new-energy vehicles. Surging sales are helping fuel a virtuous circle in which higher demand is driving down battery and other costs and spurring carmakers to roll out a wider range of models, according to HSBC. By 2020, it predicts falling costs of Nickel-ion batteries that can account for 30-40 percent of total costs will mean EVs become cheaper than equivalent internal combustion engine models, clear-ing one of the biggest hurdles to sales and removing the need for expensive government subsidies.

Domestic companies already control more than 90 percent of the Chinese market, with Tesla the only foreign brand among the top 20.

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Electric verhiclesChina

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Road to scepticismSuch rosy outlooks for the PHEV/EV segment draw scorn from sceptics such as Chairman of Market and Investment Strategy at JPMorgan Asset Management Michael Cembalest, who says he’s heard it all before. Cembalest points to a 1966 Wall Street Journal report on a “major breakthrough” by Ford Motor Co. that would give longer driving ranges to electric cars and predicting the new models would hit the market in 10 years. Forecasts of the U.S. market for new energy vehicles this decade have repeat-edly proved wildly optimistic. President Barack Obama said the U.S. would have 1 million EVs by 2015; by January of that year there were 280,000. The Nissan Leaf is the best-selling EV since 2009, with 186,000 sold; Toyota shipped 1.3 million of its Corolla sedans last year.

Battery prices that stayed too high and provided too little range, and the failure to roll out adequate charging infrastructure posed ma-jor deterrents for buyers. So too has the competing and contradictory claims of EVs’ environmental ben-efits, further confused by complex trade-offs all along the so-called well-to-wheel supply chain.

One example of that is how the fuel mix supplying a power grid will have a significant impact on an EV’s output of carbon dioxide: a car charged entirely by natural gas has about half the greenhouse gas footprint of one tapping a grid powered by coal. That means an EV in China emits more CO2 than a gasoline car because of China’s reliance on coal power, says Rich-ard Muller, Professor of Physics at the University of California, Berkeley.

The focus on EVs by govern-ments also carries a potential envi-ronmental cost by failing to apply

policies that would yield the best returns. “A big issue with them is that they’re still a glamour market item rather than something for the average person,” says Merrin Pearse, a Hong Kong-based sus-tainability strategist. “If through incentives you end up putting cars on city centre roads without col-lecting road-user charges you end up creating more congestion.

“If you can get one of those truck drivers to switch over, you’re probably saving the emissions of 10 modern cars.” The biggest environmental gains from EVs are likely to come from heavy and light goods trucks, industrial vehicles and public transport – and China is the world leader in this segment.

Beyond TeslaPerhaps the single biggest drag on demand for EVs globally has been their failure to inspire a positive narrative.

“Mention electric cars and a world of Scalextric and remote-control plastic vehicles covered in stickers springs to mind,” said Rob Eadon, a Hong Kong-based motor-ing enthusiast whose cars include a Maserati and Alfa Romeo Spider.

Which is why even environ-mentalists are making tactical en-dorsements of the hype surround-ing high-end, design-centred autos like the Tesla range. “If you are an enthusiastic motorist, you’d say:

‘I want a bit of style’,” says Edwin Lau Che-feng, Executive Director of the Green Earth, a Hong Kong-registered environmental charity. “Tesla stirred up the attraction of EVs. Tesla is a catalyst for the EV market.”

Tesla Founder Elon Musk’s upstart challenger hoisted a feel-good balloon over battery power just when traditional high-end automakers are beginning to take the market seriously. Porsche’s fully electric Mission E will be on the road before the end of the de-cade. Audi will begin production of its all-electric SUV by 2018, which is also the target date for Mercedes-Benz to launch at least one long-range fully electric car. All the new models are expected to have a range of about 500 km per charge.

And while Tesla may be strug-gling to transform itself into a profitable mass-market manufac-turer, it and other non-traditional automakers are disrupting the industry through more than just the way cars are powered, says Hecker at Deloitte.

They are also revolutionizing sales and distribution channels, forcing traditional carmakers to lift their game – and possibly herald-ing an era of greater collaboration, such as that between Aston Martin and LeEco, the Chinese technology company that is backing Faraday Futures’ ePrix racing team. The James Bond’s favourite luxury sports marque and LeEco, known as “China’s Netflix,” are working on the 1,000 horsepower RapidE – also due for release in 2018.

“I see more collaboration oppor-tunities’’ between the newcomers and traditional original equipment manufacturers, says Hecker. “They are so different in product focus and they could learn from each other.”

The Nissan Leaf is the best-selling EV since 2009, with 186,000 sold; Toyota shipped 1.3 million of its Corolla sedans last year.

Tesla currently has 80 percent share

of the electric car market in

Hong Kong, with the rest taken up by players

such as Japan’s Nissan Motor and France’s Renault

Group, Steve Man, Director of Research

Asia for Autos and Industrials at Bloomberg

Intelligence, said in a media briefing

this month. But German brands

such as Audi, Porsche, BMW and

Mercedes-Benz will likely pose a

threat to Tesla as they are expected

to all have their electric vehicles in the market by 2018, he added.

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