China is entering a new phase of economic development, with a focus on achieving more sustainable growth. Faster adoption of electric vehicles (EVs)1 is widely seen as an effective way to reduce China’s growing dependence on imported oil, relieve pollution in congested urban areas, and help domestic OEMs and suppliers to gain a competitive edge over their stronger international rivals.
Yet, despite having invested more than RMB 37 billion in various forms of subsidies to OEMs, suppliers, consumers and researchers, China lags behind other leading markets in the development of its EV industry ecosystem. China has also missed its own targets for EV sales, infrastructure roll-out, and technology.
This paper looks at the current EV ecosystem in China, and highlights potential lessons that can be drawn from successful experience in other countries. It then seeks to frame a set of questions and options to inform discussions about the policy framework required to enable the development of electric vehicles in China. This paper does not make or imply recommendations for action by government or industry players.
What we have learned in analyzing public policies in China and other countries can be summarized as follows:
- Giving consumers greater choice in EVs, both imported and locally-produced battery electric vehicles (BEVs) and plug-in hybrid electric vehicles (PHEVs), can stimulate EV demand and foster competition.
- Policy support to new, non-traditional entrants could bring stronger competition on the supply side and spur incumbents to faster action.
- While one-off financial incentives to encourage EV purchases are important to stimulate early demand, recurring financial incentives such as free or discounted parking and highway tolls, and non-financial benefits such as sharing of dedicated bus lanes and dedicated parking, to name only a few, are just as important.
- Government has an important role to play in working with the automotive and utility industries and other infrastructure providers to define a consistent set of national standards for EV charging and infrastructure development, and to provide additional policy support for developers, landlords, tenants and consumers to jointly push for the faster rollout of charging facilities.
These learnings raise some potential questions and choices on how China might mosteffectively stimulate the development of electric vehicles:
- Could there be a benefit from creating a national, harmonized list of EVs that qualify for subsidies? Including both imported and locally-produced BEVs and PHEVs on a nationally harmonized list could help to mitigate local protectionism;
- What is the most effective balance between traditional and non-traditional OEMs and suppliers? Introducing stronger competition to the EV supply side, for instance by issuing EV-only production licenses to non-traditional automotive OEMs and suppliers, can help stimulate innovation;
- What is the role for balancing financial and non-financial incentives to consumers to encourage EV purchase and make EV usage more convenient?
- How might the government collaborate with OEMs, suppliers and utility companies to develop a national standard for charging and communication protocols in order to avoid wasted and duplicate investments in non-compatible charging infrastructure and technologies?
Other choices, such as import duty exemptions or reductions for qualified EV products and the lifting of foreign ownership restrictions and JV requirements for EV production, could have a greater near-term impact on EV adoption and the development of the EV ecosystem. They would also send a clear signal of the government’s determination to promote EV development in China. However, these measures would likely present challenges for local industry players.
Policy options such as restricting new vehicle registrations to EVs in heavily polluted and congested cities would likely have only a limited impact on reducing air pollution. Such options can also trigger unintended negative consequences for the automotive industry, such as the possibility of significant write-downs in the value of their R&D investments.
There are clear and significant benefits for China in developing EVs – for its environment, its local automotive industry, and its aspiring car buyers. We hope our perspectives will provide a fact base for constructive discussions among policy makers and industry players as they seek to position the EV industry on the right path going forward.