More on Electric Cars

This is a follow up to my previous post on the auto market in China. Greentech Media reported yesterday that Shanghai Automotive Investment Corp (SAIC) will invest 2 billion yuan ($293 million) to develop hybrid and electric vehicles in a new venture called Shanghai Jieneng (“energy saving”) Automotive Technology Co.

SAIC is China’s biggest carmaker, and a JV partner for both GM and Volkswagen. This is another good sign that electric cars are catching on in the eyes of Chinese auto-makers. For SAIC, this represents a doubling down of their investment in alternative powertrain technologies: SAIC and JV-partner GM are scheduled to release a hybrid electric Buick.

So it seems like manufacturers are making moves to help push China toward electrifying the vehicle fleet. What are the key roadblocks to making such a vision a reality?

Cost
Certainly the higher costs of electric vehicles (EVs) will be a barrier to widespread adoption in China. According to a McKinsey study (PDF), most EVs cost 25% more upfront, due largely to the expense of the battery. Moreover, based on the studies calculations, EVs don’t make sense economically at current gasoline prices in China (6.6 RMB/ liter or $3.63/ gallon). [As a note for American readers, China hasn't lowered gasoline prices despite the recent fall in oil prices.]

McKinsey calculates that gas prices would need to reach ~10 RMB/ liter ($5.50/ gallon) for BYD's new EV to make economic sense to consumers. That's too bad, since gas probably won't get that high in the near term. Hopefully BYD and the new SAIC venture can help bring down the cost premium, but I imagine that this premium is pretty fixed in the near term. Frustratingly, as with most things green, upfront costs are a serious barrier to further adoption of EVs in China.

Renewable power and carbon
Can China install the necessary amount of renewable power needed to power the auto fleet? Last time, I mentioned that it’s incredibly important that China electrify their car fleet with renewable power. While I still think that has to be the end goal, it turns out that China can reduce their transportation-related CO2 emissions even if powered by coal-fired power plants. McKinsey estimates that a coal-powered EV would produce 19% less CO2 than a similar gasoline powered standard car in China.

But 19% isn't nearly good enough. How much renewable power would it take to power China's entire car fleet on renewables? According to a Sierra Club report (PDF), EVs use about 12 kWh to travel 50 miles, more than the average US auto travels per day. Chinese autos generally drive shorter distances, but we'll stick with the 12 kWh estimate anyway. This equates to 4,380 kWh per year. So assume that all of China's existing 40 million cars were electric: this equals about 175.2 billion kWh, or about 6% of the 3 trillion kWh that China uses annually, according to the CIA World Factbook. Presumably, if these cars were all charged at night during off-peak hours, only limited additional capacity will be needed.

Of course, kWh used is not the same as installed kW capacity. I couldn't find many details on how much installed renewable capacity China would need to power their auto fleet, but will do some digging and get back to you with more detail here. FYI, this NRDC/ EPRI report says that only 4% more generating capacity would be needed if half of the US auto fleet were electrified.

Infrastructure
Both grid infrastructure and charging infrastructure will be key to making EVs work in China. A smart grid will be critical to allow EVs to function most effectively and optimize peak power, a key selling point of the electric car model.

One related question I have concerns quick-charge battery technology. How can that work in the context of peak shaving? If batteries like BYD's are going to be 50% charged in 10 minutes, won't this put a massive strain on the electric grid? I have to look into this more.

As far as charging infrastructure goes, McKinsey estimates that China will have to spend between 5 and 10 billion RMB by 2020 to get to scale. Compared to the 1 trillion RMB that the State Grid plans to spend on grid infrastructure in the next three years, this is nothing, but still has to get approved by the government. Also, I have to imagine that the 5-10 billion needed for charging infrastructure is much, much cheaper than a similar scale of petrol station rollouts. But will the Chinese government challenge PetroChina and SinoPec and provide support for rolling out EV charging infrastructure? Or, alternatively, how can the oil companies put themselves in position to benefit from the trend toward EVs?

Buy-in from Chinese consumers
I think this will be the easiest piece of the EV puzzle for China. As the Greentech article on the SAIC investment noted, China already produces 5.5 million electric bikes a year. The streets of Beijing and Shanghai are already swamped with electric bikes, and they seem to outnumber motor bikes considerably. So I think the Chinese consumer already has a feel for electric transport, and it won't be a stretch to extend this to EVs. But as I mentioned in the last post, auto growth has been most rapid in the luxury and SUV sectors. Will newly affluent Chinese give up the power and feel of a V8 Audi for an electric vehicle, even if it's a Tesla Roadster?


Better Place?
All told, I think these problems are not actual roadblocks, but mere speed bumps on the road to electrifying China's vehicle fleet. In fact, I think the models already exist to overcome the problems described above. As I've mentioned before, I've really fallen in love with the Better Place model. And just yesterday, they announced a roll-out to Hawaii, in addition to the already announced roll-outs in the San Francisco Bay Area, Australia, Denmark and Israel. The reason I'm so fascinated with their business model is the way they can get over all four of the stumbling blocks described above. But most importantly, their model means that drivers don't have to buy the battery, bringing the price of an electric car in line with standard cars and eliminating the biggest hurdle to widespread adoption of EVs.

In my view, Better Place is a powerful symbol of what the future looks like. The company doesn't have any new technology, just an innovative business model for providing mobility. I've talked often about the need to use innovation to break the link between CO2 emissions and economic prosperity. While certainly some of this innovation will be high-tech, the majority will be low-tech innovation that finds new business models to deploy already existing technologies. Better Place is just one of the early movers, but I hope their success convinces other companies to follow their lead. And in the meantime, hopefully it helps the world electrify their auto fleet.

China Mobile is the biggest mobile phone network operator in the world. When will China Mobility, China's version of Better Place, become the biggest mobility network operator in the world?