Inside BYD: the Chinese carmaker sells more electric vehicles than any other brand in the world © Bloomberg

Few countries have done more than China to push towards an electric future for the car industry. Beijing announced last month that it was looking at when to implement a ban on petrol and diesel cars, following announcements by France and Britain, which said they would ban traditional fuel vehicles by 2040, and Germany’s parliament, which has called for a ban by 2030.

Beijing also announced wide-ranging regulations forcing carmakers to start to meet steadily increasing production quotas for battery-powered cars, beginning in 2019.

Reactions to the announcement illustrate how China has managed to grow so quickly to become such a significant market for electric vehicles. China uniquely possesses the means to implement its will — it is the world’s largest car market, meaning it has unprecedented leverage over the global car industry, and also has a massive central planning mechanism.

Electric vehicles (EVs), both fully electric and hybrids, are part of a new industrial policy known as Made in China 2025, by which year Beijing wants to have national champions in 10 high-tech industries, including robotics, semiconductors and electric vehicles.

To achieve this, local and central governments have allotted subsidies that last year were worth up to Rmb100,000 ($15,000) per vehicle, according to Yale Zhang of Auto Foresight, a Shanghai consultancy specialising in the car industry.

Fitch, the rating agency, has found that average electric vehicle subsidies in China are the second most generous in the world after Norway.

China has also introduced a preferential vehicle licensing system in several cities. Licence plates are given out either by auction, lottery or after payment of a high fee in an effort to halt car congestion, but EV buyers get licence plates free and without a wait in at least six Chinese cities. These centres account for 70 per cent of domestic EV purchases, Fitch says.

A man checks his mobile phone while drivers take a break at a BYD Co. charging station in Shenzhen, China, on Wednesday, Sept. 20, 2017. China, the world’s biggest auto market, may have all buses powered by batteries by 2020 and all other vehicles will follow suit by 2030, BYD Chairman Wang Chuanfu predicts. Photographer: Qilai Shen/Bloomberg
China's national grid expects to put Rmb25bn into charging stations by 2020 © Qilai Shen/Bloomberg

China’s national grid is investing in EV charging stations. It expects to put Rmb25bn into charging stations by 2020; there are already 171,000 nationwide according to Xinhua, China’s official news service. This compares with 45,000 charging outlets and 16,000 electric stations in the US, according to official data.

In response to Beijing’s measures, the industry has boomed: sales of electric vehicles and hybrid vehicles were up 53 per cent in 2016 to 507,000, according to the China Association of Automobile Manufacturers, which estimated that the number accounted for 45 per cent of all such vehicles sold worldwide in that year.

However, it is difficult to tell if there would still be strong demand for electric vehicles without government incentives. When subsidies were cut in January 2017, BYD, a Chinese company that makes more electric vehicles than any other brand in the world, saw sales fall 20 per cent in the first half of 2017 after the group raised its prices to compensate.

The eventual phase-out of the subsidies will be mitigated by enabling EV makers to sell the recently introduced EV carbon credit quotas. This ruling states that companies making cars with traditional combustion engines must buy credits from EV manufacturers or generate them themselves through sales of EVs and hybrids.

Producers, though, will be selling into a crowded marketplace — Chinese industrial policy is famous for generating overcapacity in whatever industries Beijing targets, from steel to solar panels.

Electric cars are seen at a parking lot of an automobile factory in Xingtai, Hebei province, China April 26, 2016. REUTERS/Stringer/File Photo REUTERS ATTENTION EDITORS - THIS IMAGE WAS PROVIDED BY A THIRD PARTY. EDITORIAL USE ONLY. CHINA OUT. NO COMMERCIAL OR EDITORIAL SALES IN CHINA. GLOBAL BUSINESS WEEK AHEAD - SEARCH
Sales of electric vehicles and hybrid vehicles in China rose 53 per cent in 2016 © China Stringer Network/REUTERS

Already, more than 200 companies have announced their intention to make and sell EVs and hybrids in China, and some, such as Nio, WM Motors and Future Mobility, have ambitious plans to sell EVs globally.

Meanwhile, global majors such as Volkswagen and Ford have announced plans to produce electric cars through joint ventures in China. The three-decades-old requirement to have a local partner in certain industries in order to access the local market has been made even more challenging, from the standpoint of overseas EV companies, by the EV production quota system.

In August, the Renault-Nissan alliance became the latest car group to sign a joint venture to produce electric vehicles with longtime partner Dongfeng Motor Corporation, following an announcement by Ford the same month that it plans to partner with little-known Anhui Zotye Auto to make EVs.

Volkswagen in May received the regulator’s approval for a project dedicated to producing an electric vehicle with Chinese partner JAC, its third such joint venture in China.

Cars in Asia chart

GM said in August it would start producing the Baojun E100, an EV priced at about $5,000, with its longtime partner SAIC Motor.

China insists that its requirements are fair and that its EV quota system is similar to the zero-emission vehicle credits in a number of US states, which require manufacturers to make a set number of zero-emission vehicles each year to earn the credits or buy them from manufacturers that do, such as Tesla.

The implementation of this scheme in China, alongside the news that Beijing is studying a ban on combustion engines, has caused a boom in the electric vehicle market.

The Hong Kong-listed shares of BYD have almost doubled since the end of August, spurred by Beijing’s announcement that it would ban automotives with petrol and diesel engines.

The craze over electric vehicles has also sparked heavy trading in China in battery components such as lithium and cobalt.

In the longer term, however, the development of electric vehicles in China depends on aspects that the Beijing government can control and some that it cannot.

While China can build charging stations and use subsidies to make cars more affordable, it cannot control the energy density of batteries, which will have to become lighter and cheaper to appeal more widely to consumers.

Mr Zhang says the main problem is technological: the power density of batteries is about half of what it needs to be to sustain ranges of 400km, which is what consumers want to see.

Whether battery technology will edge ahead of combustion engines, which continue to become more efficient, is impossible to predict. “There is no Moore’s Law for batteries,” says Mr Zhang, referring to an observation that computer processing power had doubled every year since its invention.

“We need a breakthrough, and there is no way to tell when this will be,” he says.

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