China plans to ban new vehicles powered by gasoline and diesel engines. The implications for the global auto industry run deep.

The move is spun as an environmental story. But it’s a major economic story as well.

China will set a deadline for carmakers to stop selling cars that run exclusively on gasoline or diesel fuel. The news was announced over the weekend by Xin Guobin, the country’s industry and information technology vice minister.



No date was given, but earlier this year Britain and France each vowed to implement such a ban by 2040. Several other European countries and India have announced their own versions, pressured in part to reduce greenhouse gases under the international Paris accord on climate.

The country has another aim too. In 2010, it made clear its long-term intent to become the No. 1 nation in electric vehicle sales.

“The China market itself is pretty gigantic,” said Bill Hampton, AutoBeat Daily publisher. “This will push the China market along very quickly and certainly could create a powerhouse for exports and propel China into the global electric vehicle market.”

“Chinese regulators see the success of Tesla and other Californian companies, and want to promote the same success amongst Chinese car manufacturers,” said Sophie Lu, Beijing-based China research head for Bloomberg New Energy Finance, which analyzes energy markets.

The move could affect automakers’ corporate strategy, capital spending, trade policy and intellectual property sharing. Some analysts say the plan could further inflame trade tensions between China and the Trump administration.

In an opinion piece in Automotive News China, Michael Dunne of Dunne Automotive in Hong Kong said Monday that new regulations probably will be “designed to give China a decisive upper hand in the market for electric vehicles.”

The Chinese government requires foreign automakers to enter into 50/50 joint ventures with Chinese companies to make and sell cars and trucks in the China market, which is huge. Last year, total vehicle sales in China reached 28 million, up 13.7% from the previous year, according to IHS Markit. In the U.S., 17.5 million vehicles were sold and growth remained nearly flat. Electric car sales in both countries were tiny: 359,000 in China compared with 159,000 in the U.S., with half of those in California.

To tap into China in a big way, U.S. automakers will need electric and “electrified” vehicles in their lineups, said Michelle Krebs, executive analyst at AutoTrader. Electrified vehicles include plug-in hybrids, which typically can run a few dozen miles on electric power alone.

“Regardless of what we do here in the U.S. on a federal level, U.S. automakers will continue to develop those vehicles because they can’t ignore the China market,” she said. “It’s huge, and it’s where their future growth and future profits will come from.”

Entry to the China market comes at a price, however. High tariffs on imports mean only vehicles with huge profit margins — the Ford 150 Raptor backroad pickup truck, for example — can be shipped to China at a profit.

So most automakers enter joint ventures and build vehicles in China. Under current joint venture contracts, the China partner pays royalties for intellectual property developed by the foreign company — say, software algorithms that make battery use more efficient.

The arrangement will change, according to Dunne, forcing EV joint venture partners to share intellectual property with no compensation other than the profits that result.

Some see that as intellectual property theft, allowing Chinese EV companies to compete globally with technology they neither paid for nor developed on their own. President Trump and his trade representative, Robert Lighthizer, who already are investigating China’s approach to intellectual property, will take note.

Automakers in the U.S., Europe and other Asian countries find themselves in a tough spot, said Mark Wakefield, managing director at AlixPartners.

They desperately want full access to the burgeoning China market and may have to give up intellectual property to a future competitor as the price of entry.

“China is the biggest market with the biggest growth going forward,” he said. “If you took China’s [motor vehicle sales] growth out of the calculations, the last 15 years would have been a flat market” for automakers worldwide.

China already is ahead of the rest of the world in sales of electric cars. AlixPartners measures the electric vehicle proliferation with a metric called e-range. Rather than units sold, e-range takes units sold and multiplies them with each vehicle’s electric range. The results include the electric range in plug-in hybrids. In 2017’s second quarter alone, China totaled 13.97 million e-range miles, compared with 5.62 million in the U.S.

China’s home-grown manufacturers account for 43% of total vehicle sales in China, Wakefield said, but 96% of all-electric vehicles.

Continue Reading Here