China investing heavily in green auto tech

Chinese automakers, unscathed by a savage global downturn, are ramping up efforts to get more cleaner, low-emission vehicles on the roads, counting on the green drive to propel them into the top ranks of the global auto industry.

From leading Chinese auto group SAIC Motor to rising star Geely Automotive Holding, indigenous players will show off a host of new green vehicles at the Beijing auto show that starts this week, including some futuristic concept models.

"Green energy cars represent sort of gold mine on the horizon that all the companies hope to reach eventually," said Stephen Dyer, principal with A.T. Kearney China.

"Almost all the major Chinese manufacturers have on-going development programs. Some may be more politically motivated but clearly some are very serious pursuits that are backed by large investments and substantial research teams."

Big auto groups backed by government money, such as SAIC, are likely to emerge as winners, industry analysts say, while leading private-sector players, like Warren Buffet-backed BYD, will also be a front runner as it pushes into foreign markets.

But the road for low emission, alternative fuel vehicles in China is a long one. Sales of Toyota's Prius, the world's best-known green car, numbered just 300 in China last year, when it overtook the U.S. as the world's largest auto market.

"Frankly, it is still a little premature to say there is now or soon to be major customer demand for electric or hybrid cars in China or anywhere in the world," said A.T. Kearney's Dyer.

"In China, there may even been a higher bar to pass. This is because the majority of consumers are first time car buyers and they tend to be practical than the green energy car buyers in the U.S. who may have political or philosophical reasons."

Placing bets on the future
Still, many companies are betting heavily on an electric and alternative fuel future, and Chinese models are expected to snatch some significant share.

SAIC, which will showcase its self-developed electric car E1 and hybrid models at the auto show, is investing 6 billion yuan ($879 million) in green vehicles. Its hybrid Roewe 750 saloon is scheduled for mass production later this year, followed by a plug-in version of a smaller Roewe 550 and E1 in 2012.

Another state-backed heavyweight, Beijing Automotive Industry Holding, unveiled its BE701 electric car in November and is building a 2.28 billion yuan production base on the outskirts of the Chinese capital, capable of making 50,000 electric vehicles and twice as many hybrids.

"There is still a technology gap between local and foreign (firms), but this is a relatively level playing field and the Chinese are not that far behind. They have a chance to catch up," said Mervin Guo, a senior analyst with J.D. Power.

Other industry observers cited Daimler's tie with BYD as a recognition of China's growing strength in this field.

"The Daimler-BYD tie is different from those in the early days when local automakers tended to rely heavily on their foreign partners for technologies. They are equal partners," said Chen Liang, an analyst with Huatai Securities.

Not without critics
Chinese automakers, however, are still newcomers with somewhat patchy reputations for quality, and are never short of critics.

"In China, they are going to develop some low cost EVs that won't have all the performance characteristics of cars we have in the Western world," said Kevin Wale, president and managing director for General Motors' China operations. "There is going to be quite a difference in the types of electric vehicles," Wale told Reuters.

The No.1 Detroit automaker will sell its much-touted Chevy Volt plug-in hybrid in China in 2011 following its North America debut later this year.

Foreign automakers are continuing to test the waters for hybrid or electric models in China, but many are moving cautiously, given the chilly reception of some pioneering hybrid models, including Toyota's Prius, GM's Buick Lacrosse and Honda Motor's gasoline-electric Civic.

A made-in-China Prius costs as much as $41,000, nearly matching the price tag of much bigger gasoline-powered Camry, making it a turn-off for Chinese buyers, who still have a penchant for big cars.

Annual sales of imported Civic hybrids are also a few hundred, according to a Honda official, who blamed the hefty price tag of nearly $40,000--roughly twice as much a China-made non-hybrid version--and lack of government incentives.

"Green cars like hybrids are expensive. Without government subsidies, the market just won't take off," said the Honda official, asked not to be identified.

Beijing pledged late last year to hand out rebates to private car buyers, expanding a pilot scheme targeting public transport operators, but no timetable has been set.

Wait and see
Some foreign automakers are also treading cautiously to see which technologies the government endorses before making any big investments.

Still, both GM and Nissan Motor are on track to import the Volt and Leaf next year, followed by BMW, which will bring its first hybrids for China--a gasoline-electric BMW X6 and BMW 7--later this year.

On top of a formidable price tag, a lack of industrial standardization and inadequate infrastructure network are also cited as major obstacles for plug-in vehicles.

The southern boom town of Shenzhen, where BYD rolled out its plug-in hybrid, F3DM, late last year, has just three charging stations.

Moreover, the facilities, built by a major Chinese state power grid, are off-limits to other entrants like Nissan's Leaf.

"You can't charge the Leaf at the facilities as the charger just won't fit in. We'll have to have our own facilities when we sell Leaf in Shenzhen," said Tsunehiko Nakagawa, vice president of Nissan China Investment.

"We are working with local governments and other Japanese carmakers right now. We want to make sure that new charging facilities to be built could be at least be shared by us all."