China puts its weight behind electric vehicles

July 11, 2011

With the introduction of electric vehicles from established car manufacturers like Ford, Nissan and Chevrolet, the idea of moving beyond gasoline no longer seems so much like a dream. However, the industry remains in its infancy, with the alternative-fuel vehicles numbering only in the thousands in the U.S.

While the U.S. has been hesitant to embrace the switch away from fossil fuels, however, China has decided to jump into the market.

Reducing exposure

Xinhua reports that the Chinese government announced plans this week to promote the development of domestic electric vehicle production capacity, along with a goal for the rapid adoption of this new technology.

China has seen its fuel consumption rise dramatically in recent years as more families begin to rise steadily into the middle class and more people require automobiles simply to move around the rapidly growing urban areas. China is the second-largest consumer of oil in the world, behind only the U.S.

However, the country lacks the level of domestic crude oil production seen in the U.S., the third-largest producer of the hydrocarbon in the world. While the U.S.' voracious appetite for fuel still forces the country to import nearly half of all its crude oil, China also imports more than two-fifths of its oil, according to the U.S. Energy Information Administration.

Turning electric

To help reduce the potential impact of global oil markets on the country's economy, while also serving to reduce emissions, the Chinese State Council announced its goal of adding as many as 500,000 hybrid and electric vehicles by 2015. That number is expected to increase to 5 million by the end of the decade.

President Barack Obama, by comparison, had set a goal of reaching 1 million electric vehicles in the U.S. by 2015. The Department of Energy suggests that this goal should be achievable, but notes that unfamiliarity with the technology and high costs could limit adoption. The biggest advantage for the president's ambitious program, however, is that businesses already have plans for a combined production capacity of more than 1 million vehicles per year by 2015.

The Chinese government's plan hopes to both counter one of the primary impediments for the new technology, while also helping cover the ground between China and the U.S. A program introduced in May will offer 26.5 billion yuan, or $4.16 billion, for the adoption of energy efficient technologies, including hybrid and electric vehicles. Along with the outline of the government's goals, however, the country's leaders also introduced a policy that would provide $2 billion, or $314 million, each year to add to the country's electric vehicle production capacity and encourage further engineering research. Officials hopes this program will help the country reach an annual production capacity of 2 million by 2020.

"The government's focus on pure-electric and plug-in hybrid vehicles is strategic and quite reasonable to make the nation's auto industry competitive in the global market, as Western countries have dominated the traditional auto technologies, leaping China for more than 10 years," Liu Fen, an auto analyst with Minsheng Securities, told Xinhua. "Moreover, China's competitive edge in batteries, electric motors, lithium and rare-earth resources can help the nation achieve its target of being a leader in the electric-vehicle industry."

China controls roughly one-third of known reserves of rare earth metals, and controls more than 90 percent of current global production of the crucial battery materials.

With the strong government support, and rising investor interest as well, GigaOm suggests that China could become the center for electric vehicle automotive startups.