Feeling Pressed by Beijing, Auto Makers Set Plans to Build Electric Cars in China

The Wall Street Journal, April 21, 2017

Consumer demand, availability of batteries are some of the manufacturers’ concern

SHANGHAI—The world’s top auto makers are gearing up to build electric cars in China, despite concerns about market demand and the potential their technology could be compromised in a market with weak safeguards for intellectual property.

Companies including Volkswagen AG , General Motors Co. and Toyota Motor Corp. set out plans for electric-car production in China at this week’s Auto Shanghai vehicle expo, bowing to pressure from Beijing.

China is the world’s largest market for electric vehicles, or EVs, and auto makers who don’t set up production here could find themselves shut out of it.

Even so, some admit privately to being anxious about opaque regulations governing battery production and technology transfer, and misgivings about near-term demand for battery-powered cars.

GM, for example, confirmed it would build a Buick version of the plug-in hybrid Chevrolet Volt in China with its local partner, SAIC Motor. But Mark Reuss, GM’s product-development chief, sounded less than bullish when asked if there was genuine demand for EVs in China.

“I think there could be,” Mr. Reuss said.

Ultimately, the indispensability of China’s auto market meant it was “manifest destiny” that foreign auto makers would agree to set up electric-car plants in China sooner or later, said Bill Russo, Shanghai-based managing director at consultancy Gao Feng Advisory.

Tesla Inc., which didn’t attend Auto Shanghai, is now almost alone in having not yet lined up to confirm plans to manufacture electric cars in China. Even Toyota, which previously rejected the EV technology in favor of hybrids and fuel-cell vehicles, said it would ramp up EV development.

An estimated 350,000 EVs were sold here last year, roughly half the global total. Most analysts expect the market to grow especially quickly as China moves to reduce air pollution from gas-powered vehicles and offers incentives for consumers to buy EVs.

Auto makers are unsure about demand, however, fueling concerns that they may need to offer big discounts to move inventory. Automotive Foresight, a Shanghai-based research company, estimates 650,000 to 2 million electric and plug-in hybrid vehicles will be sold in China in 2020, out of an estimated 26 million car sales over all that year.

At the auto show, Toyota’s senior managing officer, Hiroji Onishi, told reporters he felt “skepticism [about] whether the consumers would still want to buy EVs” once subsidies disappear, which is expected to occur about 2020.

Building cars locally makes it far easier to generate sales, since China slaps a 25% tariff on imported cars. But, profits from locally built cars must be shared with a Chinese joint venture partner.

Last month the European Chamber of Commerce in Beijing attacked Chinese industrial policies, questioning a new EV manufacturing law that calls for foreign auto makers to demonstrate their green-car technology before they can build them in China.

The law could just be a ploy to get foreign car makers to reveal technology secrets to their local Chinese partners, the chamber warned. China’s industry and information technology minister Miao Wei rejected that interpretation, and assured foreign manufacturers last month that they would not be compelled to hand over intellectual property.

Volkswagen China Chief Executive Jochem Heizmann said he was sufficiently reassured by Mr. Miao’s remarks to push ahead with an EV “offensive” involving the local production of eight plug-in hybrid or pure electric models, including a mass-market vehicle set to enter production next year through a new joint venture with Anhui Jianghuai Automobile Co. Mr. Heizmann said Volkswagen aims to sell 1.5 million green cars in China by 2025.

GM’s target is more modest, at 500,000 by 2025. Even so, GM’s commitment now contrasts with the reluctance voiced by then-chief executive Dan Akerson back in 2011. Mr. Akerson said “technology risks” meant GM would hold back from building the then-new Volt in China, even if it meant missing out on government incentives.

Batteries are among the technology risks that some auto makers say still remain in China. Chinese regulations require that EVs built here use batteries made in China, but as yet no foreign maker of EV batteries has received certification.

Earlier this month Ford Motor Co. said it, too, would start building EVs in China. The company aims to use batteries produced by Panasonic Corp. , said Trevor Worthington, Ford’s vice president for product development in Asia. He dismissed concerns expressed privately by some auto makers that China might shut out foreign battery makers, saying that would contravene World Trade Organization rules.

Write to Trefor Moss at Trefor.Moss@wsj.com and Mike Colias at Mike.Colias@wsj.com

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