A Volkswagen AG electric motorcade offering free travel for passengers at Tian'anmen Square in Beijing on April 6. [China Daily]
To buy a conventional gasoline-driven car in Beijing, customers have to wait for months to obtain a registration plate through a lottery system because of the Chinese government's tightened purchasing policies.
There is no such limitation on electric cars, however, as the government seeks to encourage sales of new-energy vehicles.
In addition to a zero-rate purchase tax, buyers of electric vehicles can enjoy the benefits of a total price reduction of 120,000 yuan ($18,600) for each car as a result of central and local government policies designed to stimulate purchases.
The Chinese capital is one of 25 pilot cities chosen for large-scale promotion of electric vehicles.
However, sales remain low. Few brands have started to sell their wares through dedicated dealers and only a very small number of charging stations have been established in the city. Those that have been set up are currently lying idle.
Apart from the lucrative stimulus packages, all the other requirements, including infrastructures, the markets and even the cars themselves, are not ready.
To combat energy shortages and offer an opportunity for Chinese automakers to catch up with the global giants, the government has invested heavily in promoting "green" cars.
But the big question is: will all this really help domestic brands transform themselves into leading players?
At the factory of Beijing Electric Vehicle Co - the electric-vehicle unit of Beijing Automotive Industry Holding Co Ltd (BAIC) - in a southern suburb of the city, the iconic Saab 9-3 sports sedan has now been revamped as an electric car.
The design gives no indication that the vehicle is electric until one opens the hood: there is no engine as such, instead there's a typical power system for an electric car and the batteries are installed far away from prying eyes.
Unless you're a motoring expert, the driving experience is similar to that of an ordinary gasoline car and the engine even mimics the "kick-down" feeling of an automatic transmission.
BAIC is the Chinese partner of Daimler AG and Hyundai Motor Co. It established Beijing Electric Vehicle in late 2009. Other major players in the domestic industry have also established similar enterprises, over the past two years, underlining the emphasis on new-energy vehicles.
It only took two years for the company to expand its staff numbers to approximately 400 and roll out three electric cars: one model is based on the platform the company purchased from Sweden's Saab Automobile AB in 2009, while the others are based on Beijing Electric Vehicles' newly developed models using their domestic brands.
BAIC said that the first batch of electric vehicles was delivered to "fleet" customers - that is, those who buy in bulk - such as security and rental companies at the end of last year. According to the company, the city of Beijing wants to see around 5,000 electric cars launched on its roads this year.
"The coming 18 months will be a heated period for those domestic automakers wishing to launch new models, because the incentive policies are slated to be invalid by the end of 2012," said Frank Liao, executive chief engineer of Beijing Electric Vehicle.
The year-on-year growth of the world's largest auto market declined from 32 percent in 2010 to about 3.3 percent in the first half.
That slowing market has also made automakers view electric cars as an unmissable opportunity to step up the design and testing of new products.
"The fever for electric cars has ebbed and flowed many times in recent decades, but this time it's for real," said Liao, previously an engineer for General Motors Co (GM), whose first mass-produced electric car, the EV1, hit the market in the 1990s.
The EV1 went on sale in 1995, but the program was stopped in early 2002, partly because the auto giant reckoned that electric cars belonged to an unprofitable "high input" niche market.
Liao said that, on average, the technical levels of Chinese brands still lag behind those of the EV1, especially in terms of engineering and the manufacturing process. Moreover, the EV1 was road-tested over a period of almost a decade.
"The technology for lithium-ion batteries has jumped forward to a new era compared with 20 years ago, but in other aspects, little progress has been made," he said.
Opportunity to lead
Fortunately, the gap between Chinese automakers and leading foreign manufacturers of electric cars is about 10 to 15 years, much lower than the 50-year gap in conventional gasoline cars, Liao said.
"Local automakers have to adopt unconventional tactics to overcome the technical barriers in electric-car development," he said.
The Chinese government's ambitious promotion plan - which has no comparable counterpart in any other country - is a big advantage for the domestic industry. "Incentives will not be a long-term solution, but they're crucial in enabling companies to survive in the initial period," Liao added.
China plans to invest 100 billion yuan over the next 10 years to stimulate the new-energy vehicle industry.
Other countries, such as the United States, Japan and Germany, have also geared up to put electric cars on the road soon. The electric car is far from dominant worldwide, but its development is becoming increasingly important as looming energy shortages, greenhouse gas emissions and traffic concerns become ever more worrisome.
The German government has agreed to bolster its electric-auto sector with billions of euros in subsidies and aims to have 1 million new-energy vehicles on the road by 2020. In the United States, the Obama administration also plans to see 1 million electric vehicles in operation by 2015.
International automakers are looking to launch electric cars in China, the most important market for many of them. The models include GM's Chevy Volt and Nissan Motor Co's Leaf. Moreover, the German automaker Volkswagen AG has said it expects to start production of electric cars in China by early 2014.
"Of course, German automakers have put China on their top-priority list, given the huge market and its vast perspective," said Gabriele Kautz, Transport, Building and Urban Development Counselor at the German Embassy in China.
Both Germany and China have started to develop a new car, she said, emphasizing that the move does not involve the development of an existing structure, but is an entirely new concept.
Germany's motoring history serves as an excellent starting point for the successful development of quality electric cars, but China has also put a strong strategic emphasis on electric automobiles, she said.
"The government has put a lot of pressure on this industry at an early stage and it has been appointed an emerging and key industry. I think China has a very good chance of building it up quickly," Kautz said.
"European and Chinese automakers can build a good partnership for cooperation, but it should be a win-win situation on an equal footing for both sides," she added.
A 50/50 joint venture between BYD Co Ltd and Daimler AG's Mercedes-Benz unit is a cooperation pioneer and the venture has already finalized the design of the first BYD-Daimler electric vehicle.
Both sides are cooperating closely on the joint venture, Shenzhen BYD New Technology Co Ltd, according to Ulrich Mellinghoff, head of safety development at Mercedes-Benz, in a recent interview with China Daily.
The German automaker is in charge of the traditional technologies relating to bodywork, suspension and the safety aspects of the new car, while BYD is providing the battery technology.
Joint efforts
"It's a good joint venture and each side can learn from the other," he said.
Such cooperation will increase in the electric-car sector. In May, Volkswagen announced that it is teaming up with its Chinese partner, FAW Group Corp, to make electric cars in China. Industry websites have reported that the new vehicle, called the "Kaili", will be on sale by late 2013 or early 2014.
China is currently the world's largest and fastest-growing auto market. However, its short motoring history means that international players still occupy a dominant role in the conventional car market, despite innovations by domestic automakers in recent years.
If this market pattern does not become a pivotal point in the race for new-energy vehicles, Chinese automakers will be unable to transform themselves into leading producers of green cars, according to experts.
"The comprehensive cooperation between international and domestic companies in past decades has helped the Chinese auto industry become larger instead of stronger," said Zhen Zijian, deputy director of the office for electric vehicles at the Ministry of Science and Technology.
The electric-car market will be open to all automakers, but international players should take part in China's new-energy vehicle race in a more "fair and reasonable" way by, for example, moving more research and development (R&D) work into the country, he said.
Foreign automakers used to be reluctant to undertake core R&D in China, partly because of possible infringements of intellectual property rights.
Zhen admitted that more problems have emerged, such as the lack of a high degree of expertise and talent, as mass production of electric vehicles draws closer.
"It is not easy to balance performance and costs," he said.
For electric cars to be accepted by the general public their price and convenience of use must equal that of conventional vehicles, while energy consumption and emissions should be lower.
Compared with their international rivals, most Chinese automakers have failed to establish a streamlined system of component development and supply, which will hinder the development of new-energy vehicles, Zhen said.
"But the more-than-10 years' experience of original engineering in electric cars, plus the lessons learned from pioneering projects, have given us a certain confidence," he said.
The current incentive policies are scheduled to be withdrawn by the end of 2012 and future policy remains unclear. The country's developmental road map for new-energy vehicles over the next decade is expected to be formally released during the coming months.
Foreign automakers are concerned they have been unable to secure the same subsidies as domestic players, but if they were, "it would be a devastating blow to unfledged domestic brands, as well as the whole supply chain for electricity and driving motors", said BAIC's Liao.
"It is worth asking whether it is a good choice to compensate the end products in a sector where the technologies have yet to mature fully," said Hai Yang, deputy-president of CDH Venture Partners, a venture-capital company, that has specialized in investment in the electric car sector for several years.
"A large amount of money has been pumped into the industry, but the market's growth rate is much slower than expected," Hai said.
Jin Yibo, a spokesman for Chery Automotive Co Ltd, said the industry has always been highly cut-throat, so competition in the new-energy sector is inevitable.
"The most urgent bottleneck facing the companies is the incomplete infrastructure. Automakers cannot build the charging stations or battery-swapping sites," he said.
