The true state of environmentally-friendly vehicle development in China is not as it appears on the surface

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Understanding the Chinese environmentally-friendly vehicle development for 2010

The true state of environmentally-friendly vehicle development in China is not as it appears on the surface

　Toyota and Honda have led the introduction of HEVs (hybrid electric vehicles) to the Chinese market. However, the sales of hybrid vehicles have been sluggish, due to the high price of these vehicles and general consumers’ preference for larger vehicles. This situation was also reflected at the Guangzhou Motor Show held in November last year, where, with the exception of a few manufacturers, most displays noticeably focused on promoting the quality and performance of gasoline-powered vehicles. Despite this, China is currently burdened with problems such as serious air pollution and securing a stable energy supply, so reducing the country’s dependence on oil-based fuels for vehicle use has become a national issue. The Chinese government has started up a promotional plan for the environmentally-friendly ‘eco-car’ industry, principally to popularize hybrid vehicles and electric vehicles (EVs). Construction of facilities for the development and production of environmentally-friendly vehicles is progressing in various areas around China, and there has been an increase in business partnership activity between Chinese automotive manufacturers and foreign suppliers. Automotive manufacturers are urged to diligent preparations from a long-term perspective.

Sluggish sales of environmentally-friendly vehicles in China

　Toyota was the first pioneer to release hybrid vehicles in China. Toyota first began local production of its Prius model in China in 2005, with sales commencing in January the following year. Approximately 2 years later, Honda released its Civic Hybrid model car in late 2007. However, sales of hybrid vehicles in China are weak. According to a survey by Fourin, Inc., average monthly sales of the Prius in 2008 were 40 units, and just 10 units monthly for the Civic Hybrid.

　One of the problems behind sluggish hybrid sales in China is the retail sales price. The main price bracket for compact passenger vehicles is 100,000 yuan. In contrast to this, the price of the Prius and Civic Hybrid is set at around 270,000 yuan. Local Chinese ‘knock-down’ production of the Prius still requires parts to be imported from Japan, while the Civic Hybrid is imported in its entirety, so the sales price is inevitably expensive. The 270,000 yuan price-tag is equivalent to that of a luxury vehicle, pushing it out of reach of the average consumer. Furthermore, hybrids lack appeal as vehicles targeting the high-end consumer market. Affluent Chinese consumers in higher income brackets tend to use their vehicles as status symbols, so a consumer willing to pay higher sum of money would generally purchase a large luxury vehicle (see Figure 1).

　According to Mr. Mitsuhiro Yokota, the Director General of the Guangzhou office of JETRO (Japan External Trade Organization), “a concept known as ‘LOHAS’ (Lifestyles of Health and Sustainability) is beginning to emerge in developed countries, although it yet to make an appearance in China. Having been monitoring Chinese consumers closely, Mr. Yokota makes the observation that there are few consumers in China who are willing to pay a premium to be environmentally-friendly. According to Mr. Yokota, Chinese consumers generally select a car looking well. Consequently, the best-selling vehicles in inland China are making a good show, yet reasonably priced, while along the coast, the best-sellers are those that give the impression of luxury and status.

Toyota and Honda are polar opposites at the Guangzhou Motor Show

　As far as displays of environmentally-friendly vehicles were concerned, the Guangzhou Motor Show held in November last year was different from the Frankfurt Motor Show (September, 2009) and the Tokyo Motor Show (October, 2009), both of which focused principally on environmentally-friendly vehicles. In the Guangzhou Motor Show, different manufacturer took different approaches on exhibition of environmentally-friendly vehicles. Figure 2 depicts a summary of the status of models displayed by 5 major companies at the Guangzhou Motor Show, namely Toyota, Nissan, Honda, Volkswagen and GM.

　Toyota was the company that was most passionate about its display of environmentally-friendly vehicles. In addition to displaying 3 concept cars on the main stage, comprising both hybrid and electric vehicles, Toyota also executed a technology display for hybrid vehicles using cutaway models including the Prius and Camry Hybrid, in an attempt to actively promote the appeal of these hybrids (see Figure 3). In addition, Toyota also established a separate hybrid section within its Lexus booth to display 3 Lexus hybrid models (see Pictures 1 and 2).

　In contrast, Nissan displayed its ‘NUVU’ concept model electric vehicle together with its ‘Teana XV,’ a vehicle with a 3,500cc engine size (see Picture 3). At the Tokyo Motor Show in October 2009, Nissan aggressively promoted electric vehicles. However, at the Guangzhou Motor Show, Nissan’s display was more of a balance between future models and current models. As for its electric vehicle-related display, in addition to ‘NUVU’, Nissan exhibited lithium-ion batteries for electric vehicle use (see Picture 4). ‘Leaf’, an EV to be introduced into China from 2011, was absent from the display.

　Honda was the least enthusiastic about displaying environmentally-friendly vehicles. Honda’s exhibition was divided into 2 distinct booths, one for Guangqi Honda and another for Dongfeng Honda. Honda’s display of environmentally-friendly vehicles was nothing more than exhibiting the existing Civic Hybrid at Dongfeng Honda’s booth. The principal model on display on Dongfeng Honda’s main stage was the ‘Spirior,’ a sedan with an engine size of 2,400cc. Guangqi Honda’s main stage was graced by the ‘Accord,’ a core model that has sold a total of over a million units in China (see Picture 5).

　Although Volkswagen (VW) had displayed hybrid and electric vehicles at last September’s Frankfurt Motor Show, it chose not to do so at the Guangzhou Motor Show. Instead, its display focused strongly on the fuel efficiency-improved ‘TSI+DSG’ technology being employed in its gasoline-powered vehicle lineup (see Pictures 6 and 7).

　GM is currently developing the ‘Chevrolet Volt,’ a plug-in hybrid vehicle, but chose to display its ‘Cadillac Escalade Hybrid,’ a large-model SUV with engine size of 6,000cc (see Picture 8) at the Guangzhou Motor Show. GM has been selling this model in China since April, 2009. Next to the vehicle itself, there was a display of the hybrid drive system fitted in the same model (see Picture 9). There was no display of the ‘Chevrolet Volt’ plug-in hybrid, which is scheduled for release in the US before the end of this year.

Facing up to energy and environment

　The exhibitions at the Guangzhou Motor Show alone would seem to indicate that environmentally-friendly vehicles are still a long way off into the future in China. However, in light of the increasingly serious air pollution and the predicament of future demand for petroleum fuels, hybrid and electric vehicles are a reality that must be dealt with. In terms of air pollution, levels in China’s urban centers are already 5 times higher than those recommended by the World Health Organization (WHO), the specialist United Nations’ institution. WHO guidelines define air pollution as being a concentration of more than 20μg particulate matter per cubic meter of air. In contrast to this, measurements in China’s major urban centers conducted in 2004 indicated levels of 100μg/m³ in both Chongqing and Tianjin, and 89μg/m³ in Beijing. It goes without saying that these kinds of air pollution levels lead to serious health hazards such as asthma and bronchial ailments. In addition, smog generated by air pollution also affects the operation of public transportation. On November 26 last year, which coincidentally was during the time of the Guangzhou Motor Show, a dense smog occurred that restricted visibility within the city to around 3 or 4 kilometers. Twenty-four flights were delayed and many of the cities’ residents were stranded (see Figure 4).

　It is desired that environmentally-friendly vehicles should be promoted from the perspective of energy issues. Figure 5 illustrates projections for the future scale of energy consumption in China. Currently, annual energy consumption per capita in China is equivalent to 1.1 metric tons of oil. This is just 25% of current levels in Japan, where this figure is 4.2 metric tons per capita, or just 14% of the US, where levels are at 7.9 metric tons per capita. However, in terms of the gross volume of energy consumption, China’s consumption already accounts for 15% of the world’s energy use. Hypothetically speaking, if China’s energy consumption were to rise to per-capita levels equivalent to those of Japan, China would require energy equivalent to approximately 60% of the world’s current levels. Furthermore, if China’s per-capita energy consumption were ever to rise to levels as high as those in the US, China’s energy requirements would actually exceed the total volume of energy currently being consumed around the globe.

The Chinese government is making a strategic move for HEV and EV

　The Chinese government is starting up some new approaches to popularize environmentally-friendly vehicles, particularly hybrid and electric vehicles, as well as to nurture this industry. (>> Download a free white paper to read the full story)

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