China Changing The Auto World, Germany Lagging

Originally published on Gas2.

A report by the Center for Automotive Research at the University of Duisberg-Essen in Germany predicts the market for new cars in China will exceed 30 million vehicles a year by 2025 and it expects EV sales to make up 30% of that figure. In 2016, EV sales in China amounted to 2.1% of sales. While that number is minuscule in the overall scheme of things, it is still double that of other countries. In China, plug-in hybrids and fully electric cars are known as “new energy vehicles.” The CAR report counts both types in its EV sales calculation, according to Forbes.

CAR had harsh words for the German auto industry, which it castigates for clinging to the belief that diesel engines will still be crucial to the new car market for the next 15 years. Germans are fixated on the efficiency of the diesel engine, which was invented by a German. That national belief structure may have played a role in Volkswagen’s myopic decision to place diesel engine technology at the top of its corporate sales strategy.

The report said, “China is changing the world, and even more the auto world. The prayer-like expressions (from the German industry) that the diesel will still have great importance after 2030 doesn’t make sense. Instead of making progress, as in the case of the Chinese in Shanghai, attempts are being made (by the Germans) to reject technical progress with reassuring talk.” Ouch. CAR is concerned that German manufacturers will be overwhelmed in the China market by local companies more attuned to the aggressive government policies favoring electrified cars.

The Shanghai auto show underway now through the end of the month has been a celebration of NEVs. Chevrolet showed off its stunning FNR-X concept and General Motors announced during the show that it intends to build an all-electric car in China within two years. GM recently completed a battery manufacturing plant in Shanghai. It expects battery packs to begin rolling off the new assembly line in 2018.

Matt Tsien, president of GM’s operations in China, said the company plans to launch at least 10 “new energy vehicles” by 2020, according to Fortune. The US automaker has 11 joint ventures and two wholly owned foreign enterprises and sells vehicles under the Buick, Cadillac, Chevrolet, Baojun, Wuling, and Jiefang nameplates.

“We are convinced China will become the leading market for electromobility,” Volkswagen brand CEO Herbert Diess told Reuters in Shanghai. “There is a clear (Chinese) government policy in favor of electromobility — high subsidies and an industrial framework in the form of joint venture companies which are being encouraged to invest in this technology,” Diess said. VW unveiled its CROZZ concept electric SUV at the Shanghai show. Audi, a division of Volkswagen, also took the wraps off is E-Tron Sportback concept there.

If CAR is concerned about German companies continuing their love affair with diesel engines, what about the mania that Japanese car manufacturers have for hydrogen fuel cell cars? Toyota is upset by a recent move by the Chinese government to reclassify conventional hybrids like the Prius as just another gasoline-powered car and take it out of the new energy vehicle category.

“In China’s view, the Prius is no more than a gasoline car. We have no choice but to get over our EV allergy and come up with an electric car,” one unnamed Toyota official told Reuters in Shanghai. Hiroji Onishi, the head of Toyota’s China operations told the press last week his company would start selling plug-in electric hybrid cars in China next year, and intends to sell a fully electric car in China sometime in the future.

In the US today, California is the tail that wags the dog when it comes to what vehicles get built in America. The Golden State and 10 others impose higher fuel economy and emissions standards than the federal government. New car sales in those states account for about one third of the US automotive market, which forces car companies to meet the higher standard. It is simply too expensive to build cars just for those 11 states and different cars for the other states.

By the same token, China is controlling what kinds of cars automakers will sell worldwide. Once again, it is simply too expensive to build some cars for China and other cars for the rest of the world. Americans may not be ready to embrace cars manufactured in China quite yet, but the cars they do buy will be heavily influenced by the environmental policies mandated by the Chinese government now and in the future.