In 2010, A123 Systems, a leading advanced lithium-ion battery manufacturer, opened the first and largest U.S. manufacturing facility to produce batteries for electric vehicles (EVs). The project was supported by a$249 million grant from the U.S. Department of Energy. But when President Barack Obama called to congratulate A123 Systems on the milestone, which he said foreshadowed “the birth of an entire new industry in America,” he never would have imagined the subsequent bankruptcy of this rising star and its acquisition by China’s Wanxiang Group in 2012.
Although this overseas acquisition is one of Wanxiang Group’s highest profile actions, the company has long been quietly acquiring and investing in dozens of auto parts manufacturers. Wanxiang has expressed interest in supporting the struggling Fisker Automotive, a manufacturer of luxury plug-in hybrid electric vehicles (PHEV) and a previous client of A123 Systems. Wanxiang chairman Guanqiu Lu’s strategic ambitions to be an electric vehicle manufacturer are becoming closer to reality than ever before. According to the global consulting firm McKinsey, in 2010 China ranked third (together with Germany) in financial support for clean-vehicle technology development, just behind the United States and France.
As early as 2001, China’s Ministry of Science and Technology (MOST) had included electric vehicle technologies as a key project in the National High Technology Research and Development Program (863 Program). In order to reduce dependence on oil, compete with more developed foreign automobile industries, and reduce air pollutants, MOST proposed focusing on three types of vehicles: hybrid-electric vehicles (HEV), electric vehicles, and fuel cell vehicles (FCVs), as well as three key components: battery/fuel cells, electric motors, and power controls, with an investment of 880 million RMB (US$106 million) within five years.
As prototypes rolled out and major technical targets were achieved, China began trial use of EVs, mainly for urban public transportation and government use. These prototypes were featured at the Beijing 2008 Summer Olympics, Shanghai 2010 Expo, and Shenzhen 2011 Universiade. In 2009, MOST, together with the Ministry of Finance, Ministry of Industry and Information Technology, and National Development and Reform Commission, initiated the “Ten Cities & Thousand Vehicles” program. The government provided subsidies for purchases of “new energy” (unconventional and clean energy, including solar and wind) vehicles by the public transportation sector or private owners, to support EV development in 25 cities.
In early 2012, MOST’s 12th Five-Year Plan for electric vehicles laid out a technological roadmap: commercializing hybrid-electric vehicles and demonstrating commercially available small electric and plug-in hybrid vehicles between 2010 and 2015, and achieving a full-fledged production chain of electric vehicles between 2015 and 2020. In addition, three supporting systems (standardization and testing, energy supply, and integration demonstration) were proposed and were expected to be in full function soon.
With strong stimulus from the government, some state-owned automobile companies and universities have been successfully developing prototypes of EV, HEV, and FCV. Private sector actors, especially a few pioneering companies, have been making noteworthy progress as well. Build Your Dream (BYD), has already integrated value-chain segments in the EV industry (semiconductor manufacturing, energy storage, and solar power) and developed several HEV models (F3DM andF6DM) and EV models (E6 and K9) for the Chinese market.
Geely, another key private player in China’s auto industry, is partnering with Kandi Technologies to enter the EV market through joint venture. Geely also is competing with state-owned Dongfeng Motor to acquire Fisker Automotive, the U.S. luxury PHEV manufacturer that Wanxiang Group is interested in investing in. Foreign companies such as General Motors (GM), Nissan, and Volkswagen also have plans that will intensify competition in Chinese EV market, including introducing EV products and conducting research and development on battery technology.
Despite this progress, the Chinese government and automobile industry are still far from a full blossoming of the domestic EV market. When the “Ten Cities & Thousand Vehicles” program was initiated in 2009, many cities set ambitious goals such as increasing the number of “new energy” vehicles by 10,000–30,000 within four years. Plans also called for 24,220 “new energy” buses to be put into operation by 2012. Only 11,777 made it onto the road.
Shenzhen and Beijing were the only cities to adopt more than 1,000 such vehicles (2,024 and 1,120, respectively) by the end of 2012. BYD, collaborating with Shenzhen to deploy EVs, also suffered from a fatal accident in 2012, in which three people died in BYD’s EV E6 when it was rammed by a car from behind and caught fire. The company lost market value of 6 billion RMB within five days of the accident. Overall, according to a 2012 McKinsey report, China has been falling behind other major markets in “EV readiness” and ranked fifth in that year behind Japan, the United States, France, and Germany.