Based on statistics from the China Association of Automobile Manufacturers, Yang (2010), affirms that the country became the world's leading automotive market in 2009. According to this researcher, the Chinese government started providing incentives of around US$ 15 billion for the industry to strengthen its commitment to encourage EV development, generate jobs, and reduce urban pollution and dependence on oil imports.
The Chinese government has sought to stimulate the production of electric vehicles and is concerned with regulating the sector. According to Wang and Kimble (2011), it established the first standards and regulations in 2009, when it published a roadmap for the development of the battery industry – Access Regulations for New Energy Vehicle Manufacturers and Products. The government's concern, additionally to the regulatory framework, lies in overcoming the obstacles arising from the low EV production due to the lack of efforts to seek ways to reduce costs – and expand the potential market for such vehicles. Kimble and Wang (2013) also consider infrastructure, i.e., charging stations, an important technological challenge for the feasibility of electric cars in China.
Infrastructure needs represent a challenge to both government authorities and private agents. According to Wu, Ma, Mao, and Ou (2015) public authorities choose to build home charging stations within communities, but these investments raised conflicts with property management companies. Based on a two-period imperfect information game theory model to study the moral hazard of this conflicting relationship, the authors find that the optimal choice for governments is to constantly improve the incentives mechanisms and strive to reduce or eliminate the conflict of interest. Therefore, they recommend that the Chinese government should focus on long-term returns that will be derived from increasing dissemination of EVs.
Searching for the rationale and impacts of the EVs in China, Hao, Ou, Du, Wang, and Ouyang (2014) studied the ownership cost analysis of the battery electric passenger vehicles vis a vistheir counterpart conventional passenger vehicle models. They investigate the existing government subsidies for the production of EVs. They conclude that in the short term, China's subsidies are very necessary; however, in the long term, with the decrease of the manufacturing cost of batteries, the ownership costs are projected to decrease despite the phase-out mechanism of government subsidies. For these authors, batteries of passenger vehicles could become less or not reliant on subsidy to maintain cost competitiveness by the next five years. Furthermore, they also consider that by now subsidies are not enough for the EVs market to take off and further technological improvements regarding the limited electric range and reductions of the battery costs are essential for the further development of this market.
In an incipient market, subsidies have proven to be critical for the development of new technologies and to foster demand. Worldwide we have several examples of this common practice. In the US, currently the biggest consumer market for EVs, government incentives began in 2004–2006 focusing primarily on the demand side, through rebates, tax credits and fee waivers (Diamond, 2009). In Japan, one of the pioneers in this industry, the same idea was used to improve demand by giving buyer's preferential conditions since 1999, but no support was provided to companies for the development of EVs (Phol & Yarime, 2012).
In France, government incentives have been driven by concerns focusing on energy and environmental issues, especially the reduction of greenhouse gas emissions. With the coordination of PREDIT – National Program of Research and Innovation in Transportation, cooperative research projects have been developed involving car manufacturers, major suppliers, industrial firms from other sectors (oil sector) and public institutions (the French Oil Institute). Public laboratories and universities received 23% of 2002–2007 total funding to invest in projects concerning electric and hybrid motors with a strong emphasis on the development of batteries (Oltra & Jean, 2009).
In other cases, governments are raising barriers to discourage demand cognizant of the necessity for carbon emissions reduction. In Denmark, conventional petrol or diesel cars are subject to high registration fee. As a result, energy companies, transport companies, regulators and public authorities have been more willing to adopt electric cars (Christensen, Wells, & Cipcigan, 2012). By 2014, sales of EVs reached the highest worldwide market share representing 2.5% of total global sales.
Considering public awareness and acceptance of alternative fuel vehicles in China, Zhang, Yu, and Zou (2011) found that the timing of a consumer's purchases of an EV is influenced by whether he holds an academic degree, annual income, the number of vehicles, government policies, the opinion of peers and tax incentives. They also found that the willingness to pay for an EV is influenced by individual characteristic including the owner's age, number of family members, number of vehicles, the opinion of peers, maintenance costs and safety.
Zhang et al. (2013) examined the impact of government policies on the acceptance of EVs measuring four important factors influencing consumer's decisions: the willingness to purchase, the purchasing time, the environmental awareness and psychological needs. These authors found that performance attributes, rather than financial benefits, are the most important variable to influence the consumer's decision to purchase an electric vehicle. These authors therefore argue that government policies have had a moderate effect regarding the purchasing intention, time and price.
Gong, Wang, and Wang (2013) outline Chinese Government efforts to disseminate the use of EVs under the widely called The Thousands of Vehicles, Tens of Cities (TVTC) Program. This pilot program, which also started in 2009, has been selecting and subsidizing Chinese cities to implement EVs as a way to disseminate the culture of this mode of transportation in the country. Thirteen medium- or large-sized cities that met the criteria were chosen to serve as pilot sites to the experience. In a short period, the number of cities scaled to 25, and in all of them, according to Zheng, Mehndiratta, Guo, and Liu (2012), public utility sectors such as buses, taxis, sanitation vehicles, postal fleets and official vehicles were prioritized. Tagscherer (2012) reviews this and other public policies that did not generally accomplish the expected results.
Despite the development of batteries with lengthened driving ranges, Earley, Kang, An, and Green-Weiskel (2011) argue that hybrid vehicles could serve as a bridging technology in China because of the high cost of technology and the difficulties to disseminate and popularize pure EVs. Hybrids have the positive attributes of traditional vehicles and are partly battery powered with smaller batteries and shorter charging times. They emphasize that it is vital that expectations from governments, automakers and infrastructure contractors be aligned. According to EV News (2015), by the end of 2013, there were just over 400 charging stations in China. Without coordination, the scaling up of the industry will be quite limited given the current level of available infrastructure.
Despite the need to overcome current technological challenges, two benefits can be perceived with the development of EV production in China. According to Li et al. (2015), EVs radiate less heat as compared to traditional vehicles and this difference could mitigate the effect known as the urban heat island, that is, the phenomenon that raises temperatures above normal in large cities like Beijing in warmer months. For these researchers, the resulting cooling from replacing all internal combustion vehicles for EVs could mean that city residents will reduce their usage of air conditioners, a major contributor to energy consumption. The costs and benefits of developing a particular new industry are always difficult to measure. But, as exemplified below by the BYD's 7 + 4 strategy and the amount of Chinese subsidies to this emerging branch of the automotive sector, it is fair to say that the benefits exceed the costs.
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