Government announces big investment in R&D institute

 

China announced on Thursday, 500 million yuan ($76.6 million) will be invested in a research and development institute for new energy vehicle batteries, with the government leading nine companies in search of breakthroughs in advanced traction battery technology.

 

Minister of Industry and Information Technology Miao Wei said at a news conference: "Advanced traction battery technology determines the performance, quality, safety, and more, of new energy vehicles. As far as we know, all the other new energy vehicle manufacturers, except BYD, are purchasing not making batteries."

 

The announcement was made a day after the State Council, China's cabinet, released new guidance on Wednesday designed to encourage the development of the new energy vehicle industry.

 

The sector is to receive incentives instead of the current subsidies, and the government is encouraging enterprises, universities and research institutions to cooperate in traction battery research and development, in expectation of "revolutionary breakthroughs" in battery performance.

 

Rechargeable traction batteries are used to power NEVs, especially pure electric vehicles that need high-capacity batteries.

 

The makers of traction batteries will receive incentives when their products meet the required performance standards and their sales volumes reach a certain level. More battery charging facilities will be built, but the constructor and operators' incentives will be decided by the amount of electricity consumed.

 

Zhang Junyi, a partner of Roland Berger Strategy Consultants, said: "The central government has shown its determination, as the policies are becoming more precise. It has considered operation and maintenance, and the new measures evade one-off deals. To receive the money, a company must have cars or facilities in operation for a while with accumulative data."

 

"The big players deserve the support, as they can secure the quality and safety with advanced research and development. They have the edge in technology and market advantage, especially the manufacturers of electric buses," said Jia Xinguang, a senior analyst at the China Automobile Dealers Association.

 

The State Council has pledged to establish a NEV safety monitoring system, compensation scheme and market exit mechanism. Other measures include increasing the share of new energy vehicles in the public transportation system and improving their quality.

 

NEVs have continued to gain popularity in China, as the market size exceeded 331,100 units last year, more than triple that of 2014, according to data from the China Association of Automobile Manufacturers.

 

Battery technology

 

Chen Ning, director of Deloitte China Automotive Consulting Practice, said ternary lithium was the mainstream technology, and many battery makers had expanded their production capacities to meet the volume criteria for government subsidies.

 

However, the Ministry of Industry and Information Technology halted subsidies for ternary lithium batteries earlier this month, and abolished the subsidy program in January for all ternary lithium battery powered buses.

 

Huang Shilin, chairman of Contemporary Amperex Technology Ltd, China's leading traction battery maker, told China Daily earlier that the battery industry in China has developed very fast thanks to the government subsidies and tax cuts.

 

He calls for the market to be rationalized, in terms of the number of players, as at present the good and the bad exist side by side. He is also concerned that a serious incident might be a setback for the industry.

 

Yale Zhang, general manager of Automotive Foresight (Shanghai) Co, said: "The new guideline and ternary lithium ban are to improve safety, especially for public transportation electric buses.

 

"Lithium iron phosphate batteries aren't a fire or explosion hazard in a collision like ternary lithium batteries. They also have a larger number of cycles than ternary lithium batteries. However ternary lithium batteries have a higher capacity and longer life."

 

As a pure electric taxi driver in Beijing told the writer: "The carmaker claimed a 200 kilometer driving range, but the battery died after a 60 km drive in cold weather, when the temperature fell below zero."

 

The ministry has set the national threshold output at 200 Wh/kg for passenger car batteries in 2015, and it will be raised to 300 Wh/kg by 2020.

 

Fraud probe

 

Among the new set of guidelines, the State Council also announced a crackdown on subsidy fraud following an investigation in January into the NEV sector.

 

The investigation covered government bodies, manufacturers and business customers, after allegations by some insider insiders that the subsidies for electric buses had been misappropriated.

 

Their claims were backed up by an investigation earlier this month by The Economic Observer, a Beijing-based newspaper, which found the high subsidies for new energy vehicles and a lack of supervision have given rise to fraudulent behavior.

 

Yale Zhang of Automotive Foresight said: "Besides non-functioning electric buses, fraud also exists in the construction of charging facilities. There was no clear profit model for the constructors, so they live on subsidies.

 

"A constructor may buy a piece of land in remote area, and install charging facilities there. Nobody really recharges there, but the company receives subsidies as long as a charging post is installed. A charging post doesn't cost much."

 

Local media also reported that some charging facilities are damaged and aren't repaired, while some are never put into use.

 

The central government gives 4,000 yuan in subsidies to local governments for every charging post installed, and the local governments distribute the majority to the constructors, according to the 2014 guideline.

 

The October guideline said China will complete more than 12,000 new charging stations before 2020, to form a charging network to fulfill the demands of more than a million NEVs.

 

"The country is in need of charging facilities in communities. But specific compulsory targets and model projects are needed so NEVs are promoted well," Zhang added.

 

Fan Feifei contributed to this story.