China has formulated a lot of policy supports for EV promotion, but the volume of the actual EV development is still far behind the plan. How to effectively uptake the EV market is an urgent issue we must pay attention to. This paper will discuss several key problems through factual proof and policy analysis.
3.1. Battery EV or Hybrid EV
Most domestic people have clearly recognized that the EV market still needs 10 or more years to achieve. The coexistence of multiple energies will last a long time and there is no any sign that traditional ICEVs will out of market. Therefore, the EV development should be a long-term strategy, not a short-term behavior.
From the perspective of energy conservation, studies demonstrated that HEVs have more benefits than both BEVs and ICEVs currently and in the near future (2030) in China [53
].This is especially true for the Jing-Jin-Ji Region of China, where coal is an overwhelming power source. In those regions with a high share of coal power, HEV is a better choice than BEV to reduce CO2
]. The theoretical CO2
breakeven point between BEVs and HEVs is 60% coal power, which means that BEVs would have a CO2
reduction advantage over HEVs if the coal power proportion is below 60%. However, many projections for the coal power proportion in China are higher than 60% in 2030 [55
]. Besides, it is estimated that by 2030, if fuel economy reaches Japan’s present level and HEV attains 50% of the market share in China, China’s transport could probably realize 42% energy saving in vehicle fuel consumption [56
From the perspective of technology, the battery energy storage issue is still a fatal weakness. In terms of energy density, the ratio of EV to ICEV is about 1:100, that is to say, if an ICEV’s fuel consumption is 10 liters per hundred kilometers, it can run 500 km with 50 liters (nearly 37 kg) in the tank. However, an EV must install more than 3.5 tons of batteries to achieve the same distance in current Chinese technology. While for HEV, because it uses both internal combustion engine and electric motors as power sources to move itself, it could have a relatively higher energy storage capacity compared to BEV [57
]. The relevant EV technologies are still in R&D phase and difficult to put into market. Therefore as a transition, HEV is more realistic solution in this case [58
From the perspective of supporting infrastructure, domestic charging infrastructure is still lacking, especially fast-charging stations. Meanwhile, the high construction costs and, yet, unified charging station interface standard are also restricting the rapid development of BEV market. In contrast, HEV owns a more convenient way for energy supply. Thanks to its characteristics of energy source, additional charging equipment is not indispensable. They could get charged through both gas station and charging station/pile. That is to say, they could be developed based on existing infrastructure.
3.2. Public EV or Private EV
Since 2009, when China promoted EVs, the market of private EVs has still been slacking. It’s difficult for the private market to harbor the NEVs due to a series of reasons, like the extravagant price, the imperfect performance of the vehicles and inadequate infrastructure. In addition, criteria, such as charging time, costs/benefit, appeal/status, risk, and comfort, also influence the purchase of consumers [47
]. According to the results of the survey supplied by the Ernst and Young global auto center, the main determinants which significantly influence Chinese consumers to buy a HEV or BEV are fuel-efficient, environmental effect, safety, and incentives of the government. Moreover, the survey also provides what makes the respondents hesitant when buying EVs, the answers are the following factors: battery range, the charging station distance, reliability, security, performance, price, battery maintenance, technical limitations, and the number of seats [61
]. Because it is difficult to solve these problems in a short period of time, domestic experts believe that if we intend to make a large volume development of EVs, breakthrough will still be in the bus, taxi, sanitation vehicle, and other public transport.
Considering energy conservation and emissions reduction, orderly charging can significantly reduce the burden of power grid through achievement of collaborative scheduling of renewable energy (wind, solar, etc.). However, disordered charging of EVs will increase the negative effect on the grid. In general, the way of ordered charging will not only attain the settlement of low-carbon energy, but also address the current renewable energy consumptive problem in China. Due to the diversity of private charging mode, the large-scale development of private EVs will lead to predicament of disordered charging. Government and power enterprises should promote some policies about electricity price or restrictions, which can effectively guide the private users’ behavior of charging. Compared to this, public transports, mainly refers to electric buses and taxis, have some strengths. They possess regular running time and route, it, therefore, could realize orderly charging.
In terms of infrastructure, firstly, private users’ demand is difficult to predict, while public transport, which can be commanded by government policies or company has more certainties. Thus, it is beneficial to promote public transport for determining the scale of facilities on battery replacement or direct charging. Secondly, parking remains a problem in China. For example, half of the automobiles have no parking places in Beijing at present, so they have to park on the street or indiscriminately park in some areas, where charging piles cannot be established. Compared with charging station, charging pile is a kind of convenient charging equipment, it does not need additional cost of land expropriation and both of its construction cost and artificial cost are low. However, an EV generally needs to be charged for 6–8 h via charging piles, much slower than charging stations. In addition, to gain the approval from the planning department for parking building construction is extremely difficult. Moreover, the inconvenience caused by the deficiency of supporting facilities will reduce consumers’ enthusiasm on purchasing EVs and the lower expectations for the EV market share in turn cuts down the investment returns of charging infrastructure construction. All of the above would be detrimental for the development of private EVs. However, advancing public EVs will not be easily troubled by these. It is a prerequisite to build fixed parking space for public transport, which could realize the centralized charging. In addition, because of fixed driving route, it could generally guarantee the normal driving without additional charging or at least reducing the charging times. Ultimately, the promising path is to advance public EVs and infrastructure construction as the breakthroughs, through which to stimulate the development of the entire EV market.
From the perspective of government subsidy, firstly, fiscal subsidies have been concentrated more on public transportation from Table 4
and cities with private EV subsidy are only Shanghai, Hangzhou, Hefei, Changchun, Shenzhen, and Beijing. Secondly, subsidy for corporate is the main manner of the subsidy policy for private EVs in pilot cities. This way seems to have more advantages because it can reduce administrative procedure in the process of tax subsidies, while certain drawbacks still exist, such as the difficulty to determine whether the consumers enjoy the full-specified amount of government subsidies, as well as the lack of relevant supervision departments who could supervise on the employment of subsidies. All these disadvantages will curb consumers’ purchase intention. Reversely, this kind of situation will not appear in public transportation companies.
It is worth nothing that China has numerous official automobiles. According to statistics, there had been 5,221,755 official cars in China by 30 November 2007, equivalent to nearly 20% of overall private automobiles in 2007 [62
]. Although the number of official vehicles has decreased through the reform in recent years, their total amount is still large. Generally, most official vehicles run within the scope of city and may suit for running by EVs. Therefore, the special case of China’s official vehicles provides a possible alternative to EV development as well. On this occasion, China’s central and local governments should promote the event.
To sum up, it should still strongly concentrate on the public transportation first in the future for the uptake of Chinese EV market, so as to drive the construction of supporting facilities and influence people’s concept in the use of EVs. Finally, the whole EV market will be well established.
3.3. Direct Charging or Battery Replacement
The debate on whether direct charging or battery replacement has never been stopped since 2008. Behind the debate, an invisible hand works, that is the interests of different stakeholders, which are mainly composed by power grid companies and automobile companies, then government makes the final decision [63
]. During the conflict, the power grid companies support the mode of changing batteries, so as to monopolize the energy supply of BEVs by controlling batteries and grabbing the main links of the industry. However, the automobile companies give priority to the charging mode, because they are worrying about the loss of huge state subsidies, as well as poor sales of produced plug-in EVs.
From the point of power grid companies, the State Grid and Southern Power Grid companies agree with the operation mode which refers to “mainly in battery replacement and supplemented by charging”. This path mainly depends on the influence for the grid in the following two ways:
In terms of power load, several factors work on it, such as the charging behavior of the EV users, the driving characteristics of the EVs, the distribution of charging facilities and charging power, among which the charging behavior of EV users has the most significant impact. Since China is still at the promotion stage and the ownership of EVs is small, EVs have small impact on the load at present. However, the load issue will be taken seriously in a short period based on the development momentum of EV. Serious haze problems these years have pushed the central government and some local governments to formulate several policies to speed up the development of EVs. For example, In Beijing, the local government put forward that the EV capacity will achieve 100,000 by 2015. For the whole country, the central government is vigorously promoting the EV infrastructure construction to achieve the goal of building 400,000 charging piles and 2000 charging or battery displacement stations in more than 20 cities by 2015. In addition, China has not established corresponding scheduling mechanism and it seems likely that the mechanism will not be achieved in a short time. Under this circumstance, the battery replacement mode could realize centralized control, which will reduce or avoid the adverse impact on the power load if conduct is orderly. While direct charging way, due to its scattered distribution and diversity, always leads to the growth of maximum load, as well as the peak and valley difference.
In terms of distribution grid, there is no need to modify the existing distribution grid if battery stations were reasonably selected, while it is not the case for charging stations. It would not need to transform 10 kV distribution grids under the AC slow charging mode for vast majority of communities and commercial office buildings, only if EVs are accounting for over 20% of total automobiles. Moreover, a larger number of EVs, a higher charging rate and more random charging behaviors will intensify the reform of the distribution grids under the DC fast charging mode [64
From the perspective of automobile companies, they considered that direct charging mode has more benefits. Plug-in EVs have been exploited by the companies, such as Cherry, JAC, FAW, and SAIC. All these companies have realized production or owned production plans for plug-in EVs and many models are in commissioning phase. As a result, it will increase the enormous cost if the battery-replacement mode is in the ascendant, since these enterprises need to develop new products.
In June 2012, the State Council formally issued “Energy Saving and New Energy Automobile Industry Development Planning (2012–2020)”, in which government put forward “promoting charging infrastructure construction”, while simply mentioned “exploring a variety of business models for NEVs, battery lease, and the service of charging and battery replacement” [65
]. From this policy, it could be inferred that the government is inclined to the charging mode, which further means enterprises should raise the funds by themselves in the promotion of battery-replacement mode. However, is it right to abandon the battery-replacement mode? Considering the effects of two modes for grid and the existing successful cases in pilot cities, it seems more sensible to judge ways according to vehicle models. For instance, it is ideally suitable to develop the way of changing battery for the public cars (bus and taxi) because of the limitation of charging time, the predictable mileage, and unified management by the enterprises. On the other hand, it is also appropriate to develop the way of direct charging for private vehicles and official vehicles owing to their various models, not unified standards for batteries and mode of short running during the day and stopping at night.
3.4. Policy Suggestions
3.4.2. Adjusting Financial Subsidies
Local protectionism phenomenon is largely arising from the inapposite ways of state’s subsidies for NEVs. Since 2009, when China begun to implement the NEV subsidy policies for pilot cities, most local governments strongly support local automobile companies in order to increase their local taxation and GDP performance. In doing so, some local governments set rigorous threshold to companies in other regions. For example, the outside company is required to re-establish factory in the prefecture of local government, which could contribute to local economy performance. However, because repeated investment results in reduced R&D fund, a lot of adverse effects have appeared, such as excellent products are limited, the EV market becomes deformed, some car companies’ investments are aggravating and the advancement of NEV technology is contained. Therefore, the government should change the subsidy ways. On one hand, it is more sensible to convert urban-oriented subsidies into company-driven subsidies. China’s central government could elect automobile companies who possess advanced technology, strong foundation, high market reputation, and good product reflection as target subsidies, then motivate them truly committed to new technology research, good products development, and new markets exploration, thus, a robust market environment could be established. On the other hand, facing the fact that public EVs are promoted faster than the privates at this stage, the central government could require local governments to purchase a certain percentage of preponderant brands in other regions when purchasing public EVs. If there were no such limitations, the local protectionism would be difficult to break. As stated earlier when local government purchases the NEVs, the procurement of local brands actually makes the money in internal transfer and will increase the local GDP. In addition, some governments will couple the subsidies on the basis of state subsidies for which these governments prefer to give subsidies to local auto manufactures. Through setting limitations, some cities would be forced to break local protectionism, introduce competition mechanism and create breakthroughs in technology, quality and cost. Consequently, a fair EV market could be established. Inspiringly, MF, MIIT, and NDRC have just issued “Notice on the continuation of the promotion and application of new energy vehicles”. It specified that local government should ensure outside brand products account for at least 30% of purchases in order to break local monopolies. In addition, government agencies as well as public institutions are required to purchase NEVs. Under this policy guidance, local protectionism phenomenon will be gradually eased.
Meanwhile, vehicle itself is still the main target of existing subsidy policy, while fast charging infrastructure, the prerequisite for the promotion of EVs, does not enjoy corresponding subsidies. Current market reality is that vehicle itself and charging infrastructure are two mutual restraint individuals. Car companies limit the NEVs production since the charging infrastructure is insufficient, which in turn negatively impacts the construction of charging facilities. Therefore, a national progressive subsidy combination mechanism should cover vehicle purchase, related parts, key technologies and supporting infrastructure.
3.4.3. Sustainable Financing Mechanism of Subsidies
In the future, the spending used to subsidize EVs and related infrastructure will increase with the development of EVs. Due to the large fixed cost of charging infrastructure, it is difficult to meet the huge cost requirements for the State Grid, Sinopec, and other enterprises alone. Thus, the sustainable development of EVs still needs innovative subsidy financing mechanisms. Government should introduce private capital into the construction of charging facilities since there is abundant private capital while lacking investment channels in China. In addition, because NEVs are environmentally friendly, some measures are benefit for NEVs’ development from the international experiences. For example, carbon emissions trade and carbon tax or environment tax are effective measures to mitigate climate change approved by the practices of many countries. China’s government should introduce these measures as quickly as possible. These measures are efficient to offset part of the charging facility expenses and provide a sustainable subsidy financing mechanisms for EVs. Moreover, national policy banks, commercial banks, various types of financial intermediaries, and the regional credit guarantee centers could together give priority to provide loans and guarantees to NEV companies. Through moderately relaxing lending conditions, lowering loan interest rates, increasing the intensity of discount loans, and actively expanding financing channels, a good financing environment for private enterprises engaged in the NEV field could be provided.
3.4.4. Compared with Subsidies, Obvious ICEV Limitation Policies May Be More Effective
Since 2009, when China started to vigorously promote NEVs, the government has formulated numbers of subsidy policies for vehicles’ R&D and consumer purchase. However, the promotion effect is still far behind the target. In the field of public vehicles, local governments and automakers have formulated the plans for EVs in buses and other special areas in response to national policies, yet private EVs still struggled to expand market situation.
At this stage, the promotion of NEVs is mainly reflected in tax subsidy ways, what causes the doubt that whether subsidies alone could greatly expand EV market. Recall China’s development experience of electric bicycles, there were tremendous attempts to commercialize electric bikes and scooters, but all failed before the latter 1990s. Then, the electric bike market in China underwent a great deal of success until the late 1990s, facilitated by favorable local regulatory practices in the form of motorcycle bans and loose enforcement of electric bike standards. These local motorcycle bans became the ultimate driver for the electric bike boom in China [66
]. By contrast, the experience of Taiwan was just the opposite. The government has developed a quantity of subsidies, covering car prices, charging facilities, R&D funds, and the consumer price, among which there is no limitation for the gasoline-fueled scooters. Consequently, Taiwan has not established a stable electric bike market so far. Therefore, subsidies alone may not be a sufficient development strategy [68
]. A new technology always requires a long period of time for promotion. Moreover, the failure of consumer’s first experience will always ruin a promising new technology. Therefore, only one way can bear fruits, that is a promotion with no alternatives. Only in this way should consumers try over and over again, providing buffer time for technical development and gradually accept it.
It is obviously impossible to prohibit traditional fuel vehicles on the road in current situation with such a large number of customers. Thus, will China’s EVs not be able to form a stable market? The answer, we insisted, is no. Though the government would not take this one-time restriction, incremental restrictions still could be applied. In terms of vehicle purchase fees, even if the EVs could reach a comparable price with price subsidy policy, their competitiveness with conventional fuel vehicles is still not enough. Put another way, other subsequent measures could be employed to reduce the competitiveness of traditional vehicles. For instance, charging parking fees and tolls only for traditional fuel vehicles, provide enough NEVs-only parks, waive the license fee for EVs, a longer warranty period, and preferential charging tariff EVs could enjoy. In addition, China could learn from London’s experience of introducing stringent congestion fees for traditional fuel vehicles, and, then, alternative cars exempted from the charges are booming [69
]. Through these efforts, a single subsidy policy will be transformed into a parallel combination of subsidy and limitation policies and it will guide the consumers’ willingness to buy EVs. In this way, EV technology updates buffering time will be extended, traditional fuel vehicles will gradually fade out and a stable EV market will be gradually established.