Shanghai Surprise Motor Show Heralds Rapid Growth of E-Cars in China

The Shanghai motor show starting this week will herald an era of much faster-than-expected growth in electric cars. China, the world’s biggest auto market, will play a key role in readying the technology for the mass market.
The e-car market is rapidly growing in China. Picture

Electric cars are expected to get a decisive push at the Shanghai motor show starting this week. China's government is determined to ditch the combustion engine to tackle chronic air pollution in its cities, and the world's top automakers, led by Germany's premium brands, are racing to roll out new battery-powered models to keep up with the world's largest auto market.

China wants to become the pioneering market for the development and mass market introduction of electric cars, and sales figures underscore that ambition. Last year, global sales of electric and hybrid models amounted to 870,000 units, of which 507,000 were sold in China.

Electric cars accounted for 2.1 percent of new registrations in China last year compared with just 0.8 percent in Germany. Analysts predict that the number of new electric cars registered in China will rise to over 700,000 in 2017, 4 million in 2020 and more than 10 million five years after that.

German automakers, who have been slow to embrace electric mobility until recently, are bent on exploiting that growth. "We will do everything to expand our leading position in China," the head of VW, Matthias Müller, said at the show, which opened its doors to the media before its general opening on April 21.

Under that scenario, 30 percent of cars will be purely electric by 2030, 40 percent will be hybrids and 30 percent will be pure internal combustion engines.

In the last three decades, VW has established itself as the undisputed market leader in China by exclusively selling internal combustion cars. But times are changing, and fast. The Chinese government wants 5 million electric cars on China's roads by 2020 in an ambitious drive to put China at the forefront of the changeover to electric mobility.

Beijing plans to set fixed quotas for electric cars from next year and is considering starting off with a requirement that they account for 8 percent of total new registrations. The quota is to rise every year. But it's still unclear whether the government will go ahead with the plan.

"We have to live with these uncertainties," said Mr. Müller. The head of VW's China business, Jochem Heizmann, is confident that VW would be able to meet the government's quotas because it's ramping up the number of plug-in hybrids it produces in China.

VW, bruised by the diesel emissions scandal, plans to invest some €4 billion, or $4.27 billion, in its 30 or so Chinese plants this year, and the focus will be on new electric vehicles. The group plans to sell 400,000 purely electric and hybrid cars in China by 2020, rising rapidly to 1.5 million just 5 years after that.

VW plans to produce mass market electric cars in China in cooperation with local partner Anhui Jianghuai Automobile, and will also make its e-Golf model in China. In 2020, it will roll out its ID family of electric cars globally. The company will also offer electric SUVs such as the ID Cross, which will be presented in Shanghai this week and will be manufactured in China.

"Shanghai is the trade fair of the future," said German auto analyst Ferdinand Dudenhöffer, head of the Center of Automotive Research at the University of Duisburg-Essen. "And the future has a lot to do with China."

"Electric cars could achieve a mass market breakthrough sooner than even optimists are predicting," the head of German auto parts group Schaeffler, Klaus Rosenfeld, told Handelsblatt in an interview. He said Schaeffler, which still earns more than 50 percent of its revenue from components linked to international combustion technology, had reassessed its long-term market outlook last year and had come up with an accelerated scenario for battery cars. Under that scenario, 30 percent of cars will be purely electric by 2030, 40 percent will be hybrids and 30 percent will be pure internal combustion engines. That would mean that by the end of the next decade, two out of three cars manufactured would have an electric engine. So far only Elon Musk, the founder of electric car company Tesla, has been venturing such radical predictions.

It won’t be long before China buys as many cars in a month as Germany does in a year. Last year the total in China was 24 million, compared with 3 million in Germany.

Many of the big auto manufacturers in Europe and the US but especially in China, have announced they will intensify their electrification initiatives, Mr. Rosenfeld said. "At the same time one has to expect that the regulatory framework will become even more restrictive globally.

He added: "In cars with purely electric drivetrains, certain products that we produce today are no longer needed. Such as a 10-gear transmission. That will no longer be needed. So it's necessary that we develop new solutions. Such as electric axles or hybrid modules. We're doing well in that field. Schaeffler, he said, had been investing in those systems for years.

Last year's fears over slowing Chinese growth appear to have been forgotten, at least as far as the auto sector is concerned. McKinsey expects the country's auto market to grow at an annual rate of 5 to 10 percent in the coming years as car ownership plays catch-up with Western economies. China has 131 cars per 1,000 inhabitants, compared with 608 in Germany and 850 in the US.

That explains why everyone is piling into the Chinese market. Volvo Cars, owned by Geely of China, and Britain's Tata Motors, have announced they will be showing new electric models in Shanghai.

Ford has announced that by 2020, around 70 percent of all its models sold in China will also be available as electric versions. And Chinese manufacturers will also be underscoring their ambition to be serious competitors in e-mobility. They've caught up in terms of quality and have closed the technology gap, which is why they're going to be exporting more in future: names such as Lynk & Co or NIO will become increasingly familiar outside China as well.

In the first quarter of 2017, car sales in China rose 7 percent from the year-earlier quarter. The Chinese auto market should be able to grow by up to 8 percent this year too, said Frank Schwope, auto analyst at German bank NordLB. That's good news for the likes of VW, which sells around 40 percent of its cars in China, and premium maker Daimler, which sells 25 percent there.

The three German premium brands BMW, Mercedes and Audi last year increased their sales in China by 13 percent to just under 1.6 million.

It won't be long before China buys as many cars in a month as Germany does in a year. Last year the total in China was 24 million, compared with 3 million in Germany. In 2005, China's share of the world market in car sales amounted to 6 percent – now it's 28 percent and that share will rise in the coming years, albeit at a slower pace.

Analysts said China could be the gateway for automakers to expand their sales across Asia. German firms are still relatively weak in Southeast Asia and in India which is fast approaching China's population level.


Stefan Menzel writes about the auto industry focusing on Volkswagen. To contact the author: [email protected]