China’s Innovation Challenge: Reinventing the Automobile

by Bill Russo

Click here to read this article at auto.sohu.com

In 2010, China's automotive industry achieved world record sales of 18.06 million units, a 32 percent rise from 2009.  However, about 70% of the sales came from foreign brands. In spite of great progress, China’s domestic automotive industry is still in its infancy, and still lacks core technology development and innovation capabilities.  The strong growth in automotive consumption means that China will continue to attract foreign companies to invest and cooperate in the development of technology that is relevant to the China auto market. As the world’s largest automotive market, China has the opportunity to assume a leadership position in defining the standards and architecture for automobiles in the 21st century. 

One such development challenge is in the development of energy saving and new energy vehicles. The rapid growth in the consumption of automobiles has a direct impact on air pollution, energy reliance and traffic congestion. For these reasons, the Chinese government has actively promoted the development of alternative energy vehicles.  The development of a domestic electric vehicles industry has been set forth as one of seven key strategic industries in the 12th five-year plan.  The government is investing 100 billion RMB over the next 10 years and has set an ambitious target to have between 5 – 10 million alternative energy vehicles on road by 2020.  Domestic auto manufacturers have responded with demonstration projects, and investment is being made in building the infrastructure needed for charging and servicing electric cars.  However, market acceptance of these solutions remains limited, since the purchase costs of the technology outweigh the operation cost savings when compared with cars powered with internal combustion engines.

Over the next decade, we can expect the Improvements in EV technology can help reduce the cost of ownership gap. Closing such a gap will require innovation in the core battery, battery management system and electric motor technologies of the electric vehicle.  While China possesses several resource and infrastructure advantages, it is clear that Chinese automotive manufacturers lack overall vehicle and drivetrain systems engineering capabilities that will be needed to achieve the necessary breakthrough to drive market acceptance of EVs.  Such capabilities should be developed in partnership with multi-national players in order to accelerate the process.

Though China has the opportunity to lead the commercialization of EVs, it must be open to overseas as well as non-traditional partners (including new entrants) in the EV ecosystem.  Companies that provide integrated drivetrain system solutions, as well as companies from outside the traditional automotive ecosystem (such as utility and infrastructure servicing companies), must play a role in the commercialization of EVs. Chinese automotive manufacturers should conduct joint research and development with such organizations, and pursue new business models in partnership with the government to create solutions that make economic sense to consumers.

China’s automotive industry developed rapidly as a result of policies that encouraged foreign investment to realize rapid creation of a domestic supply and production system to mass-market affordable transportation solutions for Chinese consumers.  Repeating this success for electric vehicles requires even more collaboration to achieve mass-market acceptance. China has the opportunity to lead the reinvention of automotive propulsion technology. However, this cannot be achieved efficiently or effectively without assimilating leading technologies from around the world toward achieving the ambitious targets for the electrification of transportation. Industrial policies that encourage foreign investment in the development of the EV market should be pursued. The talent and technology spillover will accelerate the development of China’s domestic automotive industry.

China’s industrial strength is derived from its ability to leverage its huge domestic market to encourage rapid introduction and assimilation of technology from the best global companies with the goal of “making breakthrough innovations affordable” – this is the Chinese value proposition.  The technology sources needed to achieve China’s electrification strategy should not be associated with national flags.  China’s automotive manufacturers should strive to make such innovations affordable to mass-market Chinese consumers through the scale and cost benefits of producing such solutions in China. 

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