China's anti-Teslas: cheap models drive electric car boom
More electric cars are sold in China than in the rest of the
world combined, but are mainly locally-branded models that are cheaper and have
a shorter range than those offered by foreign automakers such as Tesla (TSLA.O) and Nissan (7203.T).The Chinese-branded electric vehicle (EV) market
is propped up by huge government subsidies as part of Beijing's policy to build
global leadership in cleaner energy driving.China has spent billions of dollars on subsidies to help
companies including Warren Buffett-backed BYD (002594.SZ) (1211.HK) and BAIC Motor (1958.HK) achieve large-scale production
of plug-in vehicles, which are gaining traction among urban drivers as well as
taxi fleets and government agencies.Sales of battery electric and plug-in hybrids increased 60
percent in January-November, to 402,000 vehicles. By 2020, China wants 5
million plug-in cars on its roads.The domestic EVs don't have the 'wow' factor of a fast,
longer-range and luxury-style Tesla. They sell on price.In Shanghai last year, a two-door battery electric Chery eQ
cost around 60,000 yuan ($8,655) after subsidies. Without subsidies, the eQ
would cost an additional 100,000 yuan or so. At this week's Detroit auto show,
General Motors (GM.N) showed off its latest Bolt EV, which costs around
$30,000 after a $7,500 federal tax credit."EV cars are very cheap (in China), you'll only spend a
little money to buy a car. If you just go to work or use an EV in the city,
it's OK ... for using within 100 kms (62 miles)," said Xie Chao, who works
for a chemical company in Shanghai.Xie said he has bought three EVs since 2015 - an Anhui
Jianghuai Automobile (600418.SS) iEV4, a BAIC EV160 and a
Geely Automobile (0175.HK) Emgrand EV - one for him to
use, one for his wife and one he rents out.Most Chinese electric cars come with similar specifications,
so price is the deciding factor, said Dawei Zhang, CEO of EVBuy, a dealer. The
eQ has been the top seller in recent months, with decent enough quality at a
low price, he said."It's a transport tool. It's purely for mobility rather
than for showing off, having a big car for all the family, or for any
technology factors," he added.Some EV buyers in Beijing and Shanghai said they primarily
bought plug-in vehicles to easily get a license plate. Half a dozen of China's
biggest cities tightly control license plates for traditional gasoline cars,
but freely award plates that can only be used by plug-in vehicles.For those set on buying a plug-in, price is key."I only considered BYD and BAIC. I definitely can't
afford the 300,000-600,000 yuan price of a luxury-style Tesla or Denza,"
said Qu Lijian, a 31-year-old government worker in Beijing, who eventually
opted for a BYD Qin pure electric car.Denza is a Chinese brand produced by a joint venture between
BYD and Daimler (DAIGn.DE).
SUBSIDY
SLOWDOWN
China's cocktail of pro-electric policies is a challenge for
global automakers, as foreign manufacturers can access subsidies only via joint
ventures with local partners, producing cars under new made-for-China brand
names such as Denza.But those brands lack the cachet of established foreign
marques, and cost more than most local brands even after subsidies.That's in part because Chinese automakers are more aggressive
in lowering their costs regardless of quality, said an executive at a
multinational auto parts firm."The lowest price wins (the contract). That's the
process, no questions asked," said the executive, who declined to be
identified to avoid impacting future contract bidding."And when you win, they come back and ask you for
another price reduction," the executive added, noting less stringent
safety regulations in China also help keep costs lower than in the United
States.The version of the Leaf that Nissan's joint venture with
Dongfeng Automobile (600006.SS) offers in China, under the
Venucia brand, "isn't selling very well," Nissan's global chief
Carlos Ghosn told Reuters in November. Chinese EV buyers don't want to spend
much more than $8,000, after incentives, and the Nissan vehicle is too
expensive, Ghosn said.The playing field for foreign brands in China should, though,
gradually even out as subsidies are phased out by 2020.This year, subsidies have been reduced by a fifth, likely
adding about 15,000 yuan to the price of a Chery eQ, though official 2017
subsidies for individual models aren't yet clear, notes EVBuy.Local EV manufacturers have, with the help of subsidies, been
able to build economies of scale, pushing down their cost per unit and allowing
them to spend more on research and development, Li Yunfei, BYD's deputy chief
of branding and public relations, told Reuters."By 2020, China will have no subsidies, but your scale
has expanded, your costs have come down, and you'll be able to hit a price that
consumers can accept," he said.While China has grabbed early-mover advantage, global
automakers plan to quickly ramp up their plug-in offerings in the world's
biggest market. GM's local joint venture, for example, promises to spend 26.5
billion yuan ($3.8 billion) on electrification and developing 10 "new
energy" models by 2020.It won't be one-way traffic.Chinese brands such as GAC Motor and BYD are looking to
advance on global rivals' home turf.GAC Motor, part of Guangzhou Automobile Group (601238.SS), debuted its pure electric
GE3 sport utility vehicle, among other models, at the Detroit show on Monday. A
spokeswoman told Reuters that the company plans to enter the United States by
2019, delaying from an initial target of 2017, without further explanation.Shenzhen-based BYD already sells its electric buses in
Africa, Europe and South America and has a factory in the United States. The
company is preparing "on all fronts" to enter foreign passenger car
markets, Li said, without elaborating."Because Chinese companies have this large Chinese
market, when they have big enough scale and their power grows, their products
improve and they increasingly understand foreign markets," he said."In the future, they will definitely take the world
stage. The potential is huge."(Reporting by Jake Spring, with additional reporting
by Joseph White in DETROIT; Editing by Ian Geoghegan)
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