In 2009, China identified new-energy vehicles as one of seven "strategic emerging industries" (战略性新兴产业). At the time, there was a lot of excitement, as BYD was seen as a rising star. The Shenzhen-based private car maker was seen as having an excellent chance to turn its original strength in batteries into a successful electric car manufacturer. Warren Buffet invested a ton of dollars into BYD.
The results so far? The China Association of Automobile Manufacturers just released its 2011 figures. Total auto sales in China in 2011 reached 18.5 million units, up 5% over 2010. That's impressive for a country where a decade ago most people still rode their bicycles to work. But the story isn't pretty for new-energy vehicles. There were only 5,579 cars bought in China last year; hybrids faired even worse, with only 2,580 units driven away by Chinese consumers. That means new-energy vehicles accounted for 0.04% of total auto sales in China in 2011.
I guess that means there is a lot of room for growth in the industry. What will it take for the sector to take off? For one, the cost of new-energy vehicles has to come down a lot, and so far, existing subsidies for consumers aren't sufficient to make these vehicles compeititive. More importantly, there needs to be an infrastructure put in place for charging vehicles, and it needs to extend broadly across cities and regions. Drivers are not going to buy vehicles that they can only charge at home; most Chinese live in apartments, and it's not easy to find a place to plug in on the street.
How likely is either? Not likely soon. A back-of-the-envelope calucation suggests it would take subsidies of RMB 55.5 billion to make new-energy vehicles competitive enough so that they would account for 5% of vehicle sales in a single year. (That assumes a conservative 33% premium for electric or hybrid vehicles.) Building electric charging stations would be even more expensive. Much of the cost of both would have to be borne by the central and local governments, and considering the current economic climate, with slower growth and substantial debt, it's unlikely government budgets will put up these kinds of funds any time soon.
Lovers of conventional cars can rest easy. The rest of us can continue to enjoy polluted air and growing traffic jams. The better option: ride the subway!