On April 1, China’s Development and Reform Commission released a draft of guidelines for foreign investments that limits foreign capital to 50% of any investment in certain electric vehicle component technologies. The draft defines different components, as well as required performance metrics for any manufacturer wishing to supply the Chinese market with vehicle components, including high-energy-density batteries (over 110 Wh/kg and 2,000 cycles), cathode materials (capacity greater than 150 mAh/g, with over 2,000 cycles before 80% capacity), and battery separators (thickness from 15 to 40 microns with 40% to 60% porosity). The draft also covers battery management, motors, fuel cells, and power electronics, as well as other technologies used in internal-combustion-engine (ICE)-powered vehicles, such as electric power steering and start-stop systems.
It is common for China’s government commissions to draft regulations for different industries, and to send them out for feedback from and possible amendment by both foreign and local corporations most likely to be impacted. In this case, the strict conditions laid down by the Chinese government sends a clear message to foreign corporations that China will move aggressively to protect its domestic manufacturers, and that major amendments are unlikely. If enacted, the policy will force foreign companies to form joint ventures with China-based companies, and likely rely on China-based manufacturing capabilities in order to serve the Chinese market. Already, there is protest abroad, with U.S. Senators Carl Levin and Debbie Stabenow urging the U.S. government to fight the proposed requirements, citing the fact that many U.S. manufacturers will be forced to share proprietary technologies with Chinese partners.
The drafted regulations not only threaten foreign participation in the electric vehicle market; they may extend to the market for conventional vehicles as well. Whether these new regulations would take precedence over previous standards remains an open question. If so, it would potentially impact the entire supply chain for ICE-powered vehicles, which made up the bulk of the 18 million vehicles sold in China in 2010. Though we remain conservative regarding electric vehicle adoption, (see the report “Small Batteries, Big Sales: The Unlikely Winners in the Electric Vehicle Market,” client registration required) China may be able to overcome the obstacle of cost in certain segments using aggressive policies, such as that mandating the implementation of electric buses in multiple Chinese cities. Regardless of the size of the future market, foreign players will quickly find that the Chinese government is intent on giving its own corporations the upper hand.
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