The Wall Street Journal Market Watch, June 8, 2014
By Joanne Chiu
Despite being based in one of the world's biggest and most polluted car markets, Chinese electric-car maker BYD Co. until recently sold few of its hybrid or battery-powered electric cars outside of its home province of Guangdong, thanks to a system of local subsidies.
Those rules are now changing under a new effort by China's central government to push local authorities to treat equally all Chinese car makers when granting green subsidies. This year for the first time, big cities are relaxing subsidy rules that effectively prevented sales of electric and hybrid cars by local manufacturers that weren't based in their jurisdictions.
Such restrictions had been a drag on green-car sales in China, particularly for BYD, a midsize manufacturer of cars, buses and batteries. In 2008, BYD became the first Chinese auto maker to produce electric cars, a move that helped attract a $232 million investment from Warren Buffett's Berkshire Hathaway Inc.
This year "is an inflection point for China's electric-car industry," Li Yunfei, BYD's domestic sales executive, said in an interview. "We expect China's electric car sales will continue to record strong growth rates in the next few years," he said, without providing details.
BYD in March said it hoped to sell 20,000 electric vehicles in 2014, a big increase from some 2,000 sold last year. Mr. Li said sales in Beijing and Shanghai, one of the first cities to loosen regulations, have already helped push sales of BYD plug-in hybrid passenger cars to 3,294 in the first four months of this year, with 8,000 more on order. Plug-in hybrids are cars that can run on either gasoline or battery-power.
BYD's change of tone reflects a broader policy shift in China, as the country's leaders make a renewed push to stimulate demand for green cars in a bid to combat pollution and curb rising oil dependence. The nation has set for itself the ambitious goal of putting 500,000 plug-in hybrid and electric vehicles on the road by next year, and five million by 2020.
One example of the shift is the central government's recent push to have provincial governments extend subsidies for electric and hybrid cars to makers based outside, as well as inside, their regions. Such subsidies are vital because they make pricey green-cars affordable. When combined with national subsidies, they can cover around one-third of the cost of a car. BYD's flagship e6 electric car sells for around 380,000 yuan ($60,800) without subsidies. Foreign electric-car makers have limited benefits: Shanghai, for instance, pledged to offer 3,000 license plates free to buyers of imported electric vehicles.
The governments of Beijing and Shanghai started offering subsidies for BYD green cars in recent months, and other major cities are expected to follow suit later this year. Other cities plan to build charging stations so electric car owners won't worry about being stranded away from home.
Plenty of hurdles remain. BYD's Qin hybrid car gets 70 kilometers, or 43 miles, on a single charge compared with 121 kilometers, or 75 miles, in a Nissan Leaf. BYD also is still heavily dependent on sales of traditional gasoline cars, and those are declining as more Chinese consumers flee to higher-quality foreign brands. BYD's first-quarter net profit plunged nearly 90% versus the previous period, to 12 million yuan.
At the Chongqing auto show on Friday, hundreds of would-be car buyers milled around the stands of foreign auto makers such as Volkswagen AG, while visitors to BYD's stand were noticeably fewer.
"How do you finance all these new technologies when you're not making money in your core business right now?" wonders Janet Lewis, an analyst at brokerage Macquarie Group who estimates that electric and hybrid cars accounted for only 3% of BYD's car shipments in the first four months this year.
The charging infrastructure for electric cars remains minimal in China, discouraging buyers. Once green-car demand does pick up, the chief beneficiaries may be foreign manufacturers like Nissan Motor Co., which have more-established electric-car businesses. Nissan later this year will produce electric vehicles for the Chinese market through a joint venture with Wuhan-based Dongfeng Motor Group, making it eligible for local subsidies as well. BMW AG and Tesla Motors Inc. also are making a green-car push in China.
"BYD isn't as well established a brand as a manufacturer like Nissan," said Bill Russo, president of Synergistics Ltd., an automotive-focused consultancy. "It will take BYD time to create trust in the marketplace to allow them to sell in significant numbers.
Mr. Li shrugged off potential competition, saying moves by others to ramp up electric-car sales in China will boost interest in green-cars overall. "It isn't a time to compete with each other," he said. "It's a time to develop a bigger market and create economies of scale."
Mike Ramsey contributed to this article.
Write to Joanne Chiu at joanne.chiu@wsj.com and Colum Murphy at colum.murphy@wsj.com
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