Forbes.com: While the global automotive giants struggle to find a winning formula for electric vehicles (“EVs”), approximately 100 manufacturers in China have already identified a large potential market undiscovered by the traditional players. The common problems faced by EV automakers — high cost, driving range, and the availability of charging stations — are not issues for these manufacturers because their target customers are satisfied with low-speed and limited range EVs, as long as they provide affordable transportation. In 2014, 400,000 so-called “low-speed” EVs were sold in China, compared to only 84,000 conventional all electric and hybrid electric vehicles.
Despite the fact that China is now the world’s largest vehicle market, accounting for over 25 percent of the vehicles produced globally every year, vehicle penetration is still exceedingly low. Compared to the United States where there are more than 800 vehicles for every 1,000 people, there are just over 100 vehicles per 1,000 in China. Many of those without cars live in China’s Tier 2, Tier 3 and Tier 4 cities, as well as in the country’s urban fringes and rural areas. For this set of consumers, a high rate of speed is not necessary, nor is a long driving range. Instead, these consumers simply want an affordable car that can be used to get around town, or perhaps as a second car.
How big is this potential market? It’s estimated that there are over 90 million motorcycles and 120 million electric bicycles now being utilized in China. Subject to affordability, all of the individuals using these forms of transportation are potential buyers of low-speed EVs, and Chinese companies are expanding aggressively to fill the growing demand. There are already at least one million low-speed EVs in use in China, and companies in the industry expect sales to increase by at least 50 percent and top 600,000 units in 2015, and to reach at least one million units by 2020. In fact, some industry observers believe that the one million mark could be achieved within a year or two, and that as many as three million low-speed EVs will be sold in 2020, generating revenue of RMB 100 billion ($16.1 billion).
By definition, low-speed EVs have a top speed of 80 kilometers, or 48 miles, per hour. Because they are designed for short, quick trips around the city, the distance that can be traveled on a single charge is also not an issue. Once the requirements for speed and range are relaxed, a much lower-cost lead acid battery, rather than an expensive lithium ion battery, can be used. As a result, low-speed EVs can be sold profitably for between $3,000 and $8,000 per car. In addition to substantially reducing the cost, using a lead acid battery also greatly simplifies the charging issue. Lead acid batteries can be charged using regular electricity outlets and do not require expensive, specially constructed charging stations.
In addition to consumers who want affordable mobility, China’s local governments are also encouraging the use of low-speed EVs. While city officials would like their citizens to have greater access to cars, they do not like the air pollution that goes hand in hand with more cars being driven on city streets. In particular, provincial and city officials in Shandong, Jiangsu, Zhejiang, Guangdong, and Henan provinces appear to be taking the lead in using local regulations to encourage the use of low-speed EVs. Shandong Province, where approximately 25 percent of the low-speed manufacturers are located, has issued a regional industry standard for these EVs and is reportedly working together with insurance companies to ensure coverage.
Low-speed EVs are quickly becoming a big business in China. According to industry players, China’s low-speed EV companies had invested approximately RMB 15 billion ($2.4 billion) in manufacturing capacity by the end of 2013. The 22 low-speed EV manufacturers in Shandong Province alone sold 187,000 units in 2014, realizing sales of RMB 6.5 billion ($1.1 billion), or almost RMB 35,000 ($5,600) per vehicle.
One of the better known low-speed EV manufacturers is Xindayang Group Co., an electric motor company based in the city of Linyi in Shandong Province, which began producing electric cars in 2006. Xindayang, which has a 30,000 unit factory in Linyi and a 100,000 unit facility in the northwest city of Lanzhou, recently announced a plan to build a 300,000-unit plant in the eastern city of Ningbo, in partnership with Zhejiang Geely Holding Group Co., a Chinese car maker best known for its acquisition of Volvo, and GSR Ventures, a Beijing-based venture capital firm.
One potential roadblock facing China’s low-speed EV manufacturers is obtaining Beijing’s blessing. Despite their consumer appeal and provincial support, low-speed EVs are not officially recognized by China’s Central Government and are not counted in the official automotive statistics. The Beijing authorities do not currently have specific regulations for low-speed EVs, but are expected to issue regulations in 2015 covering items such as maximum speed, collision standards, insurance, the level of roads where low-speed EVs will be permitted, the license requirements for operators, and the type of license plate that will be issued.
Low-speed EVs may not fit the stereotype of today’s modern passenger car, but in China, where incomes remain low for a large part of the country’s population, affordability often trumps those values held dear in more developed countries.
Despite the fact that China is now the world’s largest vehicle market, accounting for over 25 percent of the vehicles produced globally every year, vehicle penetration is still exceedingly low. Compared to the United States where there are more than 800 vehicles for every 1,000 people, there are just over 100 vehicles per 1,000 in China. Many of those without cars live in China’s Tier 2, Tier 3 and Tier 4 cities, as well as in the country’s urban fringes and rural areas. For this set of consumers, a high rate of speed is not necessary, nor is a long driving range. Instead, these consumers simply want an affordable car that can be used to get around town, or perhaps as a second car.
How big is this potential market? It’s estimated that there are over 90 million motorcycles and 120 million electric bicycles now being utilized in China. Subject to affordability, all of the individuals using these forms of transportation are potential buyers of low-speed EVs, and Chinese companies are expanding aggressively to fill the growing demand. There are already at least one million low-speed EVs in use in China, and companies in the industry expect sales to increase by at least 50 percent and top 600,000 units in 2015, and to reach at least one million units by 2020. In fact, some industry observers believe that the one million mark could be achieved within a year or two, and that as many as three million low-speed EVs will be sold in 2020, generating revenue of RMB 100 billion ($16.1 billion).
By definition, low-speed EVs have a top speed of 80 kilometers, or 48 miles, per hour. Because they are designed for short, quick trips around the city, the distance that can be traveled on a single charge is also not an issue. Once the requirements for speed and range are relaxed, a much lower-cost lead acid battery, rather than an expensive lithium ion battery, can be used. As a result, low-speed EVs can be sold profitably for between $3,000 and $8,000 per car. In addition to substantially reducing the cost, using a lead acid battery also greatly simplifies the charging issue. Lead acid batteries can be charged using regular electricity outlets and do not require expensive, specially constructed charging stations.
In addition to consumers who want affordable mobility, China’s local governments are also encouraging the use of low-speed EVs. While city officials would like their citizens to have greater access to cars, they do not like the air pollution that goes hand in hand with more cars being driven on city streets. In particular, provincial and city officials in Shandong, Jiangsu, Zhejiang, Guangdong, and Henan provinces appear to be taking the lead in using local regulations to encourage the use of low-speed EVs. Shandong Province, where approximately 25 percent of the low-speed manufacturers are located, has issued a regional industry standard for these EVs and is reportedly working together with insurance companies to ensure coverage.
Low-speed EVs are quickly becoming a big business in China. According to industry players, China’s low-speed EV companies had invested approximately RMB 15 billion ($2.4 billion) in manufacturing capacity by the end of 2013. The 22 low-speed EV manufacturers in Shandong Province alone sold 187,000 units in 2014, realizing sales of RMB 6.5 billion ($1.1 billion), or almost RMB 35,000 ($5,600) per vehicle.
One of the better known low-speed EV manufacturers is Xindayang Group Co., an electric motor company based in the city of Linyi in Shandong Province, which began producing electric cars in 2006. Xindayang, which has a 30,000 unit factory in Linyi and a 100,000 unit facility in the northwest city of Lanzhou, recently announced a plan to build a 300,000-unit plant in the eastern city of Ningbo, in partnership with Zhejiang Geely Holding Group Co., a Chinese car maker best known for its acquisition of Volvo, and GSR Ventures, a Beijing-based venture capital firm.
One potential roadblock facing China’s low-speed EV manufacturers is obtaining Beijing’s blessing. Despite their consumer appeal and provincial support, low-speed EVs are not officially recognized by China’s Central Government and are not counted in the official automotive statistics. The Beijing authorities do not currently have specific regulations for low-speed EVs, but are expected to issue regulations in 2015 covering items such as maximum speed, collision standards, insurance, the level of roads where low-speed EVs will be permitted, the license requirements for operators, and the type of license plate that will be issued.
Low-speed EVs may not fit the stereotype of today’s modern passenger car, but in China, where incomes remain low for a large part of the country’s population, affordability often trumps those values held dear in more developed countries.
