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Outlook for electric cars in China remains murky

A Tesla Model X electric prototype automobile, produced by Tesla Motors Inc, is seen on display on the second day of the 83rd Geneva International Motor Show in Geneva, Switzerland, on Wednesday. Valentin Flauraud / Bloomberg

Tesla Motors Inc acts as if it knows something about the electric-vehicle market that seasoned observers don’t.

The Silicon Valley company raised eyebrows at the Detroit auto show in January by announcing it would open its first Chinese dealership, in Beijing, this spring. George Blankenship, Tesla’s vice-president of worldwide sales, described as “perfect” the timing of the move into the “incredibly important” market, but didn’t elaborate.

Tesla, which already has dealerships in the United States, Japan, Australia and Europe, has since declined requests for details on its Beijing plan, disclosing in its fourth-quarter earnings release only that construction on the sales outlet is underway.

Given weak worldwide demand for electric vehicles, some analysts wonder how Tesla, or any electric-vehicle maker, can wring significant sales from China. Recent spells of thick smog in Beijing and other Chinese cities have refocused attention on low-emission vehicles as a way to rid China of a hazard to both human health and the country’s economy. The State Council has called on the domestic auto industry to achieve production and sales targets of 500,000 pure-electric (battery-powered) and plug-in hybrid vehicles by 2015 and 10 times that number by the end of the next decade.

But nearly two years after global auto makers Nissan Motor Co and General Motors Co began selling their electric cars in China, sales have been weak, limited to government and corporate customers. “The government’s been trying to promote them [electric vehicles], but it’s not an easy sell,” said Tim Dunne, director of Asia-Pacific market intelligence at consumer-research firm JD Power and Associates.

“While everyone [who does business with China] would like China to reduce their dependence on oil and reduce emissions,” Dunne said, “EV sales are anemic in most markets around the world.”

Data from the China Association of Automobile Manufacturers show that in the first three quarters of 2012, only 3,000 electric vehicles were sold in the country. Global consulting firm McKinsey & Co predicts the Chinese market will remain mostly unchanged, at least for the next five years, as individual buyers continue to be indifferent to electric vehicles.

Highlighting the difficulty of making money from electrics, Japan’s Toyota Motor Corp in fall 2012 said it would pull back on plans for an all-electric subcompact, saying plug-in hybrid cars that can run on either gasoline or battery power are a better way to serve the market. In January, Nissan slashed $6,400 off the US price of its Leaf electric vehicle, after sales of 9,819 last year fell far short of the 20,000 cars the Japanese auto maker aimed to sell to Americans.

Still, auto makers, particularly homegrown ones, continue to express confidence in the potential of the Chinese market for electric vehicles. Shenzen-based BYD Co, in which legendary US investor Warren Buffet owns 10 percent stake, plans to launch the Denza, a new electric vehicle developed with German joint-venture partner Daimler AG, later this year. And Hangzhou’s Zhejiang Geely Holding Group Co and Wuhan’s Dongfeng Motor Group are bidding for a majority stake in California electric-vehicle maker Fisker Automotive Inc.

Investors, apparently, also believe in the promise of the Chinese electric-vehicle market. In the past six months, the Hong Kong-traded shares of BYD Co has more than doubled, even as BYD’s car sales have remained flat. Tesla’s New York-traded stock, meanwhile, has surged more than 30 percent, including a 40 percent jump since early November.

Various factors buoy hope for the electric vehicle market: China has the world’s largest coal reserves, which could produce the electricity to power the cars; Beijing has begun offering free license plates and a $19,000 rebate to private buyers of electrics; and the US government recently approved Hangzhou-based Wanxiang Group’s purchase of Massachusetts electric-vehicle battery maker A123 Systems Inc.

Consumers, however, seem to require more persuading before they’ll open their wallets for an electric car. Their concerns include:
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