Case study and interview
China aims for zero internal combustion engine vehicles in 2035
◆Chinese President Xi Jinping declares carbon neutrality at the UN General Assembly
In his general debate speech at the UN General Assembly in September 2020, President Xi Jinping said, “China will strive to peak out CO2 emissions by 30 years and achieve carbon neutrality by 60 years.” The ambitious declaration by the world’s largest greenhouse gas (GHG) emitter will surely push other countries to take action in the future. Also, The United States, which withdrew from the Paris Agreement, is also likely to return to the agreement after a change of administration, and it seems quite likely that each country’s global warming measures will accelerate in the future.
In line with this declaration, on October 27, the China Society of Automotive Engineers, an affiliate of the Ministry of Industry and Information Technology, announced a technology roadmap for NEVs (New Energy Vehicles) and energy-saving vehicles, and on November 2, the State Council Office announced the “New NEV Industry Development Plan (2021~35). The technology map sets the goal (see the blue part of the bar graph) of having all new car sales in 2035 being electric vehicles, with half of them being NEVs and half HEVs (Hybrid Electric Vehicles), and the elimination of gasoline and other vehicles powered solely by ICE (Internal Combustion Engine).
Figure 1 Target share of NEVs and energy-saving vehicles among new vehicle sales in China (%) (Source: Code map from China Society of Automotive Engineers)
◆Final year of the "Energy-Saving Vehicles and NEV Industry Development Plan (2012~20)" (1st stage)
The first NEV plan (2012~20) was announced in 2012. At the time, there were those who believed that the plan had to be shifted to NEVs due to the failure of the existing domestic auto industry to develop the ICE, which requires complex and advanced technology. In fact, sales of NEVs have increased steadily due to the effect of subsidy policies by the central and local governments, reaching 1.24 million units (4.4% of new vehicle sales) in 2018. China has been the world’s No. 1 producer and seller of NEVs since 2015, with 1.24 million NEVs sold in 2018, 80% of which were BEVs (pure electric vehicles).
Figure 2 Number of new vehicle sales in China (yearly)
However, due to the termination of local government subsidies at the end of June in 2019, sales declined from July (red circle) onward, as shown in the graph below, and the annual sales volume was only 1.2 million units (4.7% of the total), falling below the previous year.
Figure 3 NEV sales in China (monthly) (Source: CEIC Data)
In addition, the first round of subsidies was scheduled to be discontinued in 2020, but due to the drop in sales, it was hastily decided to extend the subsidy for two years. The subsidy is capped at 300,000 yuan per vehicle and will be reduced by 10% in 2020 compared to 2019 (e.g. 22,500 yuan for a vehicle with a range of 400 kilometers or more), 20% in 2021, and 30% in 2022. In addition, the exemption from the 10% vehicle purchase tax will continue until 2022.
At the beginning of 2020, new car sales fell due to the spread of the COVID-19.
In October 2020, however, new vehicle sales increased by 12.5% y-o-y to 2.57 million units, the seventh consecutive month of growth, due to an increase in demand, especially for commercial vehicles, as a result of subsidies provided by local governments for new vehicle replacements and increased government investment in infrastructure. Sales of NEVs also doubled year-on-year to 160,000 units for the fourth consecutive month of year-on-year growth, thanks to the easing of restrictions on the issuance of license plates in various regions and subsidies in rural areas to promote purchasing. However, cumulative sales for the January-October period were only 870,000 units, far short of the planned 2 million units, and some forecast that sales will hover at 1.1 million units.
Figure 4 New vehicle sales and NEV ratio in China (monthly) (Source: CEIC Data)
◆Outline of the Second NEV Industry Development Plan (2021~35) released by the State Council Office
The second NEV development plan for the period of 2021 to 2035, announced by the State Council on November 2, is based on the technology roadmap and the 14th Five-Year Plan (until 2025) to strengthen the competitiveness of the NEV industry. In particular, electrification, connectivity, and smart technology will be promoted, and the latest target is to increase the ratio of NEVs from the current 5% to 20% by 2025, and to reduce the average power consumption of BEVs to less than 12kWh/100km.
By 2035, BEVs will be the mainstream, accounting for more than 50% of new car sales, while PHEVs (Plug-in Hybrid Electric Vehicles), FCEVs (Fuel Cell Electric Vehicles), and other environmentally friendly NEVs will be expanded. In addition, preferential measures such as public transportation management systems and financial support for infrastructure construction, such as loans, will be implemented to reduce the number of ICEs in new car sales to zero by 2035.
◆New preferential treatment of HEVs as fuel-efficient vehicles to achieve zero ICE
New vehicle sales in China peaked at 28.94 million units in 2017 and have continued to decline to 28.03 million units in 2018 and 25.75 million units in 2019. Assuming that sales continue to level off at a pace of 25 million units, the target sales volume of NEVs and HEVs for 2025 will be 5 million units and 1 million units, respectively.
In June 2020, it was also decided to give preferential treatment to HEVs, positioning them as new “fuel-efficient vehicles” from January 2021. Toyota, which has sold a total of one million HEVs in the Chinese market, has started to provide HEV-related patents free of charge in 2019 to cooperate with Chinese manufacturers. Until now, the Chinese government has not recognized HEVs as NEVs, but the current electric power composition in China, although the ratio is decreasing, is still largely coal-fired, at 60%, and increasing the ratio of NEVs will not necessarily lead to a reduction in GHG emissions. In consideration of the reduction of oil imports and the emission problem, it is presumed that the company has chosen the realistic route of HEVs with an eye to zero ICE.
◆In addition to BEVs, FCEVs are also on the horizon.
The 14th Five-Year Plan also incorporates supportive measures for the development of innovative technologies for hydrogen energy and FCEVs, the improvement of technology maturity, and the advancement of FCEV commercial vehicle technology and industrial development. FCEVs are already used in Beijing, Shanghai, and other cities, mainly in commercial vehicles such as buses and trucks, and more than 7,000 units are in widespread use throughout China.Japan has set a target of a cumulative total of 40,000 FCEVs by FY2020, but by the end of FY2019, only about 4,000 units will be in use. Japan has taken the lead in the development and sales of FCEVs, but has been overtaken by China in their use.
Shanghai city has set a policy of promoting the use of 10,000 FCEVs by 2023, with the goal of producing over 20,000 tons of hydrogen energy per year and installing 100 hydrogen stations.
Support for the development of the NEV industry will be provided not only for BEVs but also for FCEVs.
◆The emergence of low-cost domestically produced BEVs and the export of domestically produced BEVs
The Chinese economy is quickly recovering from the disaster of COVID-19, but the new car sales market is largely dependent on government support measures for both NEVs and ICEs. However, there is no doubt that the domestic industrial base related to NEVs is becoming quite competitive.
In the area of lithium-ion batteries, which are said to account for 1/3 of the price of a BEV vehicle, CATL became the world’s No. 1 supplier during the first NEV Plan. In addition to CATL, there are other strong lithium-ion battery manufacturers such as Guoxuan Hi-Tech and Farasys Energy. LG Chemical, which competes for the leading position in the lithium-ion battery market, has also started operating a plant in China.
The quality of domestically produced BEVs is also improving. The U.S. company Tesla began exporting the model 3 (about 5 million yen) produced at its Shanghai plant to Europe in October, and plans to produce 550,000 vehicles at the Shanghai plant and export 110,000 to Europe in 2021. BMW will produce the new BEV “iX3” (about 8 million yen) at its joint plant with Brilliance Auto in Liaoning Province and start exporting it to Europe in early 2021. In addition, Renault will produce the Dacia Spring Electric (about 1.9 million Yen) at the joint plant with Nissan and Dongfeng Motor, and sell it in Europe. Polestar (a Volvo-affiliated company), a subsidiary of Zhejiang Geely, began exporting the Polestar 2 (approx. 7 million yen), which ranked third in sales in Norway, and China’s presence as an export base for EVs is increasing.
In China, SAIC-GM-Wuling started selling the Wuling Hongguang MINI EV, a four-seater car designed for city driving with a cruising range of 120km, at a price of 28,800 yuan (about 460,000 yen). It has overtaken Tesla’s model3 to take the top spot in NEV sales since September (14,000 units) and sold 33,000 units in November. During the first plan period, production and sales were almost the same in China’s NEV market, but from now on, it will be necessary to pay attention not only to the sales volume but also to the production volume as a supply base for the global market.
This article was first published in the Asahi Research Center Watching Report and written by Hiroyuki Moriyama, Asahi Research Center.