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Hope Springs Eternal: Electric Vehicles In China

Hope springs eternal — and nowhere is it gushing more strongly than with electric vehicle enthusiasts all over the world.

In the United States, investors in Tesla Motors, Inc. (NasdaqGS:TSLA), the U.S. maker of electric sports cars, seem to be shrugging off the fact that the company is losing a $100 million a quarter, the bankruptcy of battery maker A123 Systems, Inc. (OTC Markets:AONEQ), as well as the fact that the Obama administration, one of the biggest proponents of electric vehicles, is already walking back its prediction that there will be 1 million on the road in the United States by 2015. Why else would investors give Tesla a $4.3 billion market capitalization in the face of such question marks?

In China, the government planners have named new energy vehicles (“NEV”) as one of seven strategic emerging industries in its 12th Five-Year Plan, which began in 2011. China’s NEV plan is carried out under the country’s “863 Program,” a State High-Tech Development Plan that is funded and administered by the government to stimulate the development of advanced technologies in order to make China less dependent on foreign technologies. In a visit last September to Lishen Battery, a lithium battery maker in Tianjin, then-President Hu Jintao underscored the government’s enthusiasm for battery and NEV technology when he said: “New energy is a strategic emerging industry with great promise.”

China has two very important reasons for endorsing new energy vehicles. First, the country is looking for every way that it can to reduce its dependence on imported oil. Soaring car ownership and a recent shift to less fuel efficient vehicles, however, are making this an even greater challenge. Secondly, the government sees its NEV plan as a way for China’s automobile industry to technologically leapfrog the existing global automotive assemblers that have one hundred years of experience making cars with internal combustion engines. This objective is also running into important hurdles.

If any country can successfully implement a comprehensive electric vehicle program, it is China. In addition to strong political support, China’s urban infrastructure is still a work in progress with an estimated 270 million people expected to move from the countryside into China’s cities in the coming years. With a virtual blank page on which to draw, there is significant latitude to build in electric charging stations and the other infrastructure needed by an electric vehicle industry. Moreover, China’s car culture is still young, and the Chinese haven’t gotten accustomed to those long — and fast — car trips that their American counterparts take for granted. Theoretically, Chinese consumers should be more receptive to the limitations of electric vehicles.

In his recently published, authoritative “Blackbook” (Chinese Autos, Part 1: The Quest for Global Competitiveness — Technology, Competence, Ambition and Politics) on China’s auto industry, Max Warburton, senior auto analyst for Sanford C. Bernstein & Co., LLC, expresses grave doubt that China’s NEV plan is viable. In an interview for Warburton’s research, a senior German auto executive was quoted as saying:


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