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Brendan Clift

The future looks bright for electric vehicles, in inverse proportion to the skies over Beijing, as the central government signals its increasing resolve to combat pollution against the backdrop of fresh global accord on climate change.
But the arrival of the electric car depends on the battery – a component short on capacity and supporting infrastructure, with an unclear technological development path and misaligned supply and demand.
The mainland is about to replace its three-year electric vehicle subsidy programme with an ambitious new one, targeting 2 million electric vehicle sales annually and 5 million in accumulated shipments by 2020.
It’s a substantial step up. Unit sales are expected to reach 292,000 this year, and the market will need to sustain a compound annual growth rate of 48 per cent to meet the 2020 target, Nomura analysts say.
But it’s supported by a strongly positive trend line. Volume is up 257 per cent this year, fuelled by explosive growth in the e-bus market which has leapt 404 per cent.
Subsidies have been a major driver. The policy shift towards pure electric buses, as opposed to hybrids, boosted the former’s share of new sales from 61 per cent in 2014 to 76 per cent in the first three quarters of 2015.
Local battery suppliers are aggressively expanding their capacities, owing to the current bottleneck
Leping Huang, Nomura
At the consumer end, compact passenger models from the likes of Geely and JAC Motors sell for between 50,000 and 70,000 yuan after subsidies – a discount of around 30 per cent.
While these models account for just 7 per cent of electric vehicle revenue, they make up 37 per cent of sales volume, just 3 per cent behind buses and commercial vehicles.
All this means surging demand for electric vehicle batteries. Nomura analysts say the market will grow from 14 gigawatt-hours to 99 GWh by the end of the decade, and suppliers have already ramped up supply to an estimated 23 GWh.
“Local battery suppliers are aggressively expanding their capacities, owing to the current bottleneck,” said Leping Huang, a Nomura research analyst. “Battery supply was a clear laggard behind growth of demand in previous years.”
The state of the art presents other problems. Current battery technology gives a compact car a range of around 150km. For mid-sized motors like the Tesla, it’s less, and analysts say this is turning off potential buyers.
“We believe it will take more than 10 years before lithium-ion battery capacity becomes large enough to satisfy average passenger car drivers,” said Jefferies equity analyst Yoshihiro Azuma.
That could be addressed by the government’s plans to build electric vehicle infrastructure, including 12,000 charging stations by 2020. But the average motorist may be dismayed to see the distance between charges diminish as the battery ages.
“Battery life is not a serious problem for smartphones, as most users dispose of their smartphones after two to three years. However, it is unlikely that electric vehicle users would dispose of their electric vehicle after only three to four years,” Azuma said.
These problems will be difficult to overcome without years of research and design, as lithium-ion battery technology nears the performance limits inherent in its materials, setting aside potential compromises on size or safety.
If that wasn’t enough to temper enthusiasm on the sector, consider its costs. According to Sunwah Kingsway, a compact electric vehicle costs over 80,000 yuan to manufacture, with the battery making up nearly 40 per cent of the cost.
“Without government subsidies, electric vehicle and battery makers will face an uphill battle to cost down their components,” said Sunwah Kingsway analyst Phelix Lee.
Lee said electric vehicle battery and parts manufacturers average less than 3 per cent net profit, but policy support and demand for replacement batteries could drive improved returns for mature suppliers like Camel and Lifan Industry.
They will be competing with global battery suppliers like LG Chem, Samsung SDI and Panasonic, but also with local carmaker BYD, which allocated more than 10 billion yuan to battery capacity expansion this year and plans to own 15 GWh by the end of 2016.
Many say hybrid vehicles – which require one-tenth the battery power of a pure electric vehicle – are the sensible bridging technology for the medium term. But China’s citizens may breathe easier knowing Beijing is pushing ahead with the electric car.


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Batteries may stall China’s electric vehicle push

Residents on their bicycles and electric bikes wait for the traffic at an intersection amid heavy smog in Shijiazhuang, Hebei province, China, December 10, 2015. Picture taken December 10, 2015. REUTERS/Stringer ATTENTION EDITORS - THIS PICTURE WAS PROVIDED BY A THIRD PARTY. THIS PICTURE IS DISTRIBUTED EXACTLY AS RECEIVED BY REUTERS, AS A SERVICE TO CLIENTS. CHINA OUT. NO COMMERCIAL OR EDITORIAL SALES IN CHINA.

A man walks past a billboard showing electric buses during the China International New Energy Vehicle show in Hong Kong last month. Photo: AFP

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High costs and technological constraints threaten to undermine Beijing’s drive for clean cars and buses
