China debates electric car policy

The Financial Times, August 23, 2011

By Patti Waldmeir in Shanghai

Beijing appears to be rethinking its singular focus on electric vehicles to reduce fuel consumption and improve air quality as it becomes increasingly clear that its targets for mass-producing electric vehicles in China are unrealistic.

China had planned to leapfrog a generation of conventional engine technology to develop what Beijing hoped would be an early advantage over the west in electric vehicles . No formal decision has been taken to abandon that plan, but top decision-makers in Beijing now see its original timetable as too optimistic.

“The shift in focus means that even traditional internal combustion engines could now see beneficial policies,” he said. China’s targets of 1m new-energy vehicles on the roads by 2015 and 5m by 2020 could be revised to include conventional hybrid vehicles, as otherwise the government will struggle to meet these goals, IHS said.

Wen Jiabao, the Chinese premier, reflected intense debate within the bureaucracy recently in a Communist Party journal article that questioned China’s “road map” towards alternative vehicles. Peter Huang, forecaster at consultants IHS Automotive in Shanghai, expects Beijing to shift its focus now to “hybrids and all vehicles that can reduce fuel consumption”.

Other Chinese analysts say while a battle is on for the future of China’s alternative fuel policy, any changes have yet to be agreed.

Industry analysts say Beijing has been disappointed by slow progress towards a domestic electric vehicle industry. China’s highest profile electric vehicle maker, BYD – which is backed by Warren Buffett – has repeatedly delayed plans to commercialise and export its electric vehicles.

Government subsidies of up to Rmb60,000 ($9,370) for pure electric vehicles and Rmb50,000 for a new generation of plug-in hybrids are already available in five Chinese cities on a trial basis, but very few individual buyers have taken them up.

“It was simply never realistic for a fledgling auto industry to skip conventional hybrids and immediately electrify,” said Bill Russo of Synergistics auto consultancy in Beijing, who previously ran Chrysler in China. “However, I believe this will not deter China from a long-term goal of pursuing such an endgame. They have planted the seeds for the future EV industry: it is just going to take much longer than they anticipated.”

Chinese buyers have shown little appetite for conventional hybrids: last year, Toyota sold only one Prius in China, produced by its local joint venture with FAW, according to Namrita Chow of IHS Automotive. Boosting sales of current-generation hybrids would depend on whether government subsidies currently available for electric vehicles are extended to other fuel-efficient vehicles.

Beijing’s review of its policy comes in the context of a growing industry debate over the viability of electric cars. All of the world’s big carmakers are developing electric or rechargeable hybrid models in order to comply with more stringent regulations on fuel efficiency and carbon dioxide emissions.

However, because of the electric vehicle’s limited driving ranges and high prices compared to conventional cars, there are doubts over how many consumers will buy them. Early reviews of Nissan’s all-electric Leaf, while mostly positive, have emphasised the car’s limited driving range and relatively high price for its size.

Toyota, the industry’s top-selling producer and leading champion of hybrid technology, is among the producers who think that pure electric vehicles will be a small niche market. Rival producers including Ford Motor and Volkswagen, while developing their own hybrid and electric models, also emphasise the major gains in fuel efficiency and CO² emissions that can be gained by downsizing and turbocharging of conventional engines.

Additional reporting by John Reed in London

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China's BYD profit plunges after auto tax breaks end

Reuters, August 22, 2011

(Reuters) - BYD Co Ltd (1211.HK) (002594.SZ), a Chinese carmaker backed by billionaire Warren Buffett, reported an 89 percent plunge in first-half net income as government policy changes hurt its auto sales.

The outlook for Chinese auto companies for the rest of 2011 remains unclear after Beijing stripped away tax incentives for small cars at the end of last year, helping to take the world's largest auto market off the boil.

BYD said it expected a 85-95 percent drop in its net income in the first nine months, while Great Wall Motor Co Ltd (2333.HK), China's top maker of sports utility vehicles, said earlier on Monday it will miss its sales target this year.

"The challenge facing BYD is more than a market slowdown. BYD had been expanding too fast in the past years and it will take time to make the necessary adjustments in its strategy," said Zhang Yu, an analyst at AJ Securities.

In a stock exchange filing on Monday, BYD said profit margins for its battery, cell phone parts and assembly businesses have also fallen due to competition and higher costs.

BYD, 10 percent owned by Buffett's Berkshire Hathaway (BRKa.N), delivered 259,915 vehicles during the period, down 19.3 percent from a year earlier. Sales fell 16.8 percent to 27,496 units in July, official data showed.

Xia Zhibin, head of the company's sales unit, resigned earlier in the month, citing personal reasons. Analysts said slumping sales were likely to have played a part in the move.

BYD reported a first-half net profit of 275.36 million yuan ($42 million), down from 2.42 billion yuan from a year earlier and slightly above an average forecast of 267 million yuan from three analysts polled by Reuters.

BYD forecast in July that it expected its first-half net profit to be between 121.06 million yuan and 363.18 million yuan.

The results lagged rivals such as Geely Automobile Holdings (0175.HK) which reported a 17 percent earnings rise and Great Wall Motor which more than doubled net profit on improved sales and margins during same period.

BYD's F3 sedan was China's best-selling car brand in 2009 and 2010, but demand for most of its other models, such as M6, S6 and L3, has been lukewarm.

"The problem is they didn't have a continuous flow of product launches that let them build on their initial success," said William Russo, an industry veteran who runs Beijing-based consultancy firm Synergistics.

BYD, which competes with Geely, Chery Automobile among others, has rolled out two cars, G3R and S6 sport utility vehicle, so far this year, to be followed by its most pricey sedan G6 in the second half.

The earnings announcement came after markets closed.

BYD's Hong Kong-listed shares, which have lost 54 percent since the start of the year, dropped 5.5 percent on Monday, lagging a 0.5 percent gain of the Hang Seng Index .HSI.

Its Shenzhen-listed shares ended up 0.8 percent on Monday at 26.31 yuan, slightly ahead of a 0.7 percent dip in the benchmark Shanghai index .SSEC.

(Editing by Erica Billingham)

Click here to read the article at reuters.com


Bill Russo to Present at Annual Conference of the Society of Indian Automobile Manufacturers

New Delhi, India, September 7, 2011

Bill Russo will be presenting on the topic “Alternative Powertrains & Challenges for Next Decade”. The theme of the conference is "Reinventing Mobility: Vision 2020".