China’s Electric Car Industry Gets a Jolt

By staff reporters Li Hujun and Yu Dawei 

Enthusiasm for electric cars is revving up in China, where Dongfeng Electric Car Co. produced its first batch of 30 hybrid buses in September and BYD Auto Co. Ltd. launched the country’s first gas-electric hybrid, the F6DM, just a month later. 

More models are expected to roll out of Chinese auto factories in coming years, and the upcoming 2008 Olympics in Beijing is being touted as a showcase for green technology, including hybrid cars and other forms of low-emissions transportation. 

This flurry of activity did not appear overnight. Rather, the hybrid-car industry has taken years to develop in China and more than 28 billion yuan in government investments. Research continues for what’s been called the largest, publicly funded research effort in the history of the nation’s auto industry. 

How far will the industry go? Answers vary. Lagging research and the overwhelming strength of multinational competitors in the auto industry are nagging forecasters. 

But China has a growing team of cheerleaders, including Wang Chuanfu, chairman of Shenzhen-based BYD, whose gas-electric car features gas engine for long distances and a battery-powered motor for short hauls. After five years of development, production is expected to begin in the second half 2008. In addition, the company’s all-electric models are scheduled to go on the market in 2009. 

'As a transition from hybrid cars to purely electric automobiles, this (BYD model) is a car that has the power to change the world,' Wang told . 'And three to five years down the road, the age of electric cars will have arrived.' 

High stakes for research and development 

Toyota Motor Corp.'s hybrid hit, the Prius, was launched on the Japanese market a decade ago. It was the world’s first, mass-produced hybrid passenger car. At the time, even some Chinese auto industry research and development experts were not exactly sure what 'hybrid power' meant.   

'Some people thought it meant using a combination of gasoline  and natural gas,' recalls Dongfeng research and development director Xu Pingxing. But actually, this type of car is only one in a whole class of gas-electric hybrid cars that generate power using an internal combustion engine in conjunction with an electric motor with battery power. 

China was still in the slow lane in 1999 when, after three years of research on electric car technology at a Toyota research center in Japan, Chinese researcher Dr. Yang Yifu returned to his hometown in Hunan. He discovered a stagnant electric car industry in his homeland. Prospective companies had yet to enter the market for a simple reason: The hybrid car concept was neither generally accepted nor clearly understood in the industry. 

Yang went on to run his own hybrid car manufacturing company. But his initial observation about the state of the industry was also on the mind of China’s Vice Minister of Technology Xu Guanhua, who turned his attention to developing electric cars and energy-saving technology. Xu’s report to the National Party Congress in early 1999 recommended launching a 'blue skies plan' that would organize technological advances and popularize the use of natural gas, liquefied natural gas and other alternative fuels for automobiles. He also suggested a plan for introducing electric cars in several cities.   

Xu's report got a boost from Vice Premier Li Lanqing. In a memo on the recommendations, Li wrote, 'I support programs similar to the Tai Hu Cleanup (a lake improvement project) that would establish other clean air projects.” A cooperative effort involving more than 10 government departments led to a program called Clean-Air Project -- Clean Car Action, led by the Ministry of Science and Technology and State Environmental Protection Agency. 

Also in 1999, Wan Gang, who currently serves as head of the technology ministry, was working as technology manager for Audi and chairman of the German Alumni Association of Tongji University. He organized a trip to China by high-level, German auto engineers. Afterward, Wan wrote proposals to the National Party Congress in which he suggested that developing electric cars could help the Chinese auto industry leap forward.   

Wan met Xu and other senior officials two years later, after he returned to teach at Tongji University. He relentlessly promoted the electric car concept. And the officials listened. Later that year, the technology ministry decided to include electric car technology development in its 863 Hi-tech Program, which was part of the Tenth Five-Year Plan for 2001 to ’05. Wan was appointed chief of the experts group. 

Wan oversaw a huge expansion in government support for the new technology. During the five-year period, the central government injected 8.8 billion yuan into the electric car program. Local governments and individual enterprises invested more than 20 billion yuan. And more than 2,000 high-tech experts from more than 200 companies participated. 

'This is the biggest automobile research and development program in China's history,' said Ouyang Minggao, auto department dean at Tsinghua.  

From the start, the project was not without controversy. But Ouyang played down the debates, praising the national plan that closely linked hybrid autos to energy savings and environmental protection. “Moreover, this program is working on shared technology,” he said. “How auto manufacturers utilize this technology is their own business.'   

Thanks to the government’s strong support, some domestic automakers that originally shied away from electric cars jumped on the bandwagon. 

The pace of industrialization 

Wan Gang’s electric car program passed a review in February 2006. Three sample cars were introduced, testifying to the domestic technology’s achievements in areas of functionality, capacity and appearance.   

Yet the researchers and industry officials had to face an embarrassing fact: Chinese-made electric cars could be found on car exhibition floors, but not the nation’s roads. The four-year effort was incomplete without industrial applications for the technology. Yang, now general manager of Hunan Shenzhou Co., said few companies considered mass producing electric cars because of a national lack of research and development during the early 2000s. 

The tide turned when Dongfeng delivered its first batch of hybrid buses to the Wuhan public transit system September 8. At a city ceremony marking the occasion, Wan said the delivery had started China on the road to electric vehicle industrialization. Meanwhile, anticipation was building for a Chinese electric car. 

BYD’s response to the buildup was the F6DM, which Wang said is currently undergoing road tests. The groundwork has been laid for technological development, and Wang said as long as government officials give the nod, the car’s production schedule won’t change. 

In addition to BYD, leading Chinese automaker Chery Automobile Co. Ltd. is also on track to launched hybrid cars this year or in 2008. Other domestic automakers including Dongfeng and Shanghai Auto Industrial Corp.(SAIC) have made hybrid power a priority and plan to start hybrid production around 2008. 

'Hybrid power is the focal point for our research and development,' a Chery research engineer, who declined to be named, told . Chery plans to run tests by equipping taxis with its hybrid power system starting in October. 

However, Chery’s hybrid cars would differ from the Toyota Prius, which offers a “high” hybrid technology that combines top gas-saving performance with high production costs. Chery plans to produce “mid-range” and “low” hybrids, applying the latter technology in urban taxis for an added cost of 2,000 yuan to 3,000 yuan, and cutting gas consumption by up to 7 percent. 

Chery also plans to build a mid-range hybrid that reduces fuel consumption 25 percent for an added cost of up to 30,000 yuan. The automaker is in the preliminary stage of research and development for a high-level hybrid.  

Yet the Chery-Toyota technology gap does not rule out competition between the companies. Although Chery’s hybrid cars will not match the Prius in fuel efficiency, according to one engineer, the Chinese car’s production costs will be much lower. And 'as long as we are in the market, Prius will be affected,' the engineer said. 

Chery and other domestic carmakers originally planned to sell hybrids by the end of 2006. Their ambitions were cooled for different reasons, but they generally blamed the delay at least partly on the time-consuming, tedious process of research and development.  

Dongfeng fell victim to research pitfalls. The company had introduced hybrid public buses in Wuhan as early as November 2003, delivering another 20 units two years later. But the company’s Xu said that, due to a lack of experience early on, the actual fuel efficiency for the buses tested close to zero. Researchers struggled to improve the technology, finally developing an optimal control strategy designed specifically for buses in actual traffic situations. Fuel efficiency rose up to 30 percent. And the same technology was used for the fleet of buses delivered in September. 

These technological improvements have been awarded with a higher commitment from the government. The technology ministry has apparently approved an even greater investment for the next version of the electric car program, under the Eleventh Five-Year plan for energy saving and resource development. 

Ouyang, who has now taken over Wan's position as program chief, hopes that, by the end of plan period, China will have developed a hybrid car industry, and that industrial production of hybrid cars will peak during the Twelve Five-Year period, 2011-’15. 

Going green at the games 

From the perspective of industry insiders, the upcoming Beijing Olympics may prove to be a turning point for the Chinese electric car. 'Green Olympics' decrees say all vehicles shuttling athletes to and from competitions must be electric, and electric buses will be used for public transportation around the Olympic stadiums area. 

Shanghai Volkswagen, the event’s official auto sponsor and a leader in fuel cell car manufacturing, will likely provide 500 Touran hybrid cars for use during the games. Research and development for this group of cars reportedly will be conducted simultaneously in Germany and Shanghai. 

Other domestic carmakers also may jump on the bandwagon for a high-tech Olympics. At the Chinese auto brand development and strategy initiative in August, Wan said China's fuel cell research and development initiative for hybrid and electric public transportation and passenger cars 'will appear at the Olympic venues.' Yang told said Hunan Shenzhou will test hybrid car production capability, technology and market response at the Olympics. 

The next platform for China’s hybrid car industry will be the 2010 World's Fair in Shanghai, where only zero-emissions vehicles will be allowed within a 3.2-square-kilometer area. In addition, Shanghai plans to launch 10 hydrogen fuel stations, 100 fuel cell buses, and 1,000 fuel cell cars before 2010 with a 1.3 billion yuan investment for hydrogen fuel cells.    

'This is an important task in our research and development for the upcoming World's Fair,” said Xiong Weiming, general manager of Fule Cell Unit, SAIC. “We have already selected a team who will work on this until the end of the event.' 

The Ministry of Technology plans to spend half its budget on developing emission-free fuel cells by 2010. But Hu Liqing, general manager of Shanghai Shen-li High Tech Co., a private company that develops and manufactures fuel cells, said hybrid cars offer more practical potential than fuel cell vehicles. The reason is cost; the price of a fuel cell power system is 10 times that of traditional power system.   

Despite the huge potential for the industry tied to the Olympics and World’s Fair, and the ongoing research and development efforts, a new fuel tax has been cited as an additional incentive. The long-anticipated tax, along with rising oil prices, would encourage consumers to switch to fuel-stingy cars. 

Yet hybrid vehicles cost more. BYD's upcoming model will include a power system that costs 50,000 yuan more than a traditional engine. Even with large-scale production, the car’s final price will likely be about 30,000 yuan above similar gas models. 

In the United States and Japan, hybrid buyers only need to foot half the extra cost due to favorable policies, such as financial subsidies from the governments. Similar policies are not in place in China. Chery executives expressed hope that the Beijing government will eventually bear some of the cost.   

Naturally, government policies only play a small part in the industry’s future. Another key factor for the Chinese market is the attitude toward hybrid shown by companies that build traditional, gas-powered autos. 

Tongji University’s Yu said electric cars present a double-edged sword for traditional manufacturers. Their production is already up and running on a broad scale, but the electric car industry is advancing slowly. “If big changes happen too quickly, then many efforts will be wasted,” he said. “You can only go one step at a time.' The industry’s progress may be good for newcomers such as Chery and BYD, however, perhaps because they are more ambitious and have more incentives to enter the new market. 

Yet lagging technology and research and development will continue to pose a disadvantage for the long-term development of China's electric car industry. BYD’s Wang said that although their ferrous cell batteries are a relatively mature technology, and are close to entering the mainstream market, China's auto industry overall is clearly behind the rest of the pack. 

Yang agrees. 'Compared with foreign companies, we still lag behind more than 10 years,” he said. “We are advancing, but so are they.' 

For big automakers like Toyota, research and development is part of the company structure, making it easy to organize cooperation between manufacturing divisions. But in China, companies often lack proper in-house research and development. Staffing and funds for many Chinese automakers are below those in just a single department at Toyota.  

One researcher told that problems stemming from cooperation among Chinese auto companies are almost unavoidable. These troubles may be tied to secrecy, an unwillingness to share technology, or disorganized research. 'All these things will act to slow down the research and development process,' the researcher said. 

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