Daimler-BYD Start Production Of The Electric Vehicle Denza In China

by Trefis Team
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China has introduced new incentives and subsidies for electric vehicle owners, as the country looks to reduce pollution, curb dependence on fuel and adopt more environmentally-friendly means of automotive development. Demand for electrically powered vehicles is rapidly rising around the world mainly due to a relatively less harmful impact on the environment, rising concerns over global warming and lower running costs, as compared to gasoline-powered engines. In addition, governments around the world provide various incentives to boost electric vehicle sales. Moreover, electric vehicles also have lower battery prices, adding to their appeal. Due to these reasons, global light-duty plug-in electric vehicle (PEV) volumes are expected to grow at a CAGR of 24.6% through 2023, compared to only 2.6% growth in the overall light-duty vehicle market. [1] PEVs are growing at a fast rate, but still form less than 1% of the net unit sales in the U.S., the largest PEV market at present. China, the world’s largest automotive market, is the fourth largest electric vehicle market in the world, behind the U.S., Japan and the Netherlands. Although the country had previously set ambitious EV sales targets, high running costs due to the absence of a well established battery-charging infrastructure has dissuaded consumers from purchasing electric vehicles.

However, China has again stepped-up its focus on electric vehicle sales, by introducing new incentives and committing to related infrastructural development. Daimler, in partnership with BYD, will launch the electric car Denza in China next month, and aim for significant volume sales, aided by the government’s subsidies and anticipated strong demand for EVs.

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China Ramping Up Investments In The Electric Vehicle Market

Owing to growing pollution concerns, China, the world’s largest carbon emitter, had earlier in 2012 set the target of reaching 500,000 PEV sales by 2015, and over 5 million PEV sales by 2020. This means that China aimed for PEVs to constitute around one-seventh of all vehicle sales in the country by the end of the decade. However, plug-in electric vehicle sales stood only at 17,600 in China last year, comprising 14,604 pure electrics and 3,038 plug-in hybrids. [2] Although this market grew by an impressive 38% year over year, reaching the aggressive figure of 500,000 sales by next year seems improbable. Through the first half of this year as well, electric vehicle volumes doubled to over 20,500 units, but still formed only a minute 0.2% of the net vehicle sales in the country during this period. [3] Consumers seem hesitant to purchase electrically powered vehicles as running costs could be high due to the absence of a well established battery-charging infrastructure at present. However, the government has increasingly taken steps to persuade consumers to go green, which could boost sales for electric and hybrid-electric vehicles (EV/HEVs) going forward.

  • Local Subsidies Will Allow For Increased Distribution Within China

China aims for electric vehicles to make up at least 30% of all government vehicle purchases by 2016. [4] In addition, the central government has pushed provincial governments to extend subsidies on PEVs to manufacturers based outside the regions as well, in addition to automakers within the regions. This move has benefited local companies such as BYD, which previously sold only a small portion of its electric vehicle offerings outside its home province of Guangdong. Shanghai also plans to incentivise the purchase of electric cars, by handing out up to 3,000 free license plates to owners of imported electric vehicles. These subsidies and incentives aim to make electric vehicles more profitable for customers, and combined with the national subsidies, could make PEVs over 30% cheaper. [5]

  • China, Along With Automakers, Aims To Improve Battery-Charging Infrastructure

China has been somewhat unsuccessful in its attempts to drastically increase electric vehicle volumes. The country now plans to provide around 100 billion yuan ($16 billion) in government funding to construct battery-charging facilities and facilitate demand for electrically-controlled vehicles. [4] In order to reduce dependence on oil imports and also improve pollution levels, the State Grid Corp. of China plans to bring in private capital to build charging facilities for EV/HEVs. [6] China’s largest power grid operator in terms of sales also aims to make battery-charging more practical, with costs going as low as $0.08 (0.5 yuan) a kilowatt-hour. China plans to build around 400,000 charging stations by next year, but the difficulties in building these networks might prolong the completion of this program. Nonetheless, as the country looks to improve electric-vehicle-friendly infrastructure, sales for EV/HEVs could be strong moving ahead.

BMW, together with State Grid Shanghai Electric Vehicle Company, plans to set up 50 charging stations in Shanghai. [7] The American company Tesla also rolled out its Model S, which sold only two units in China in the first quarter. However, the automaker is expanding its charging network in China, from 13 supercharger locations currently, and plans to sell at least 5,000 vehicles in the country this year itself. [8]

Daimler-BYD To Launch Denza In September

Daimler has a joint venture with domestic manufacturer BYD for developing electric vehicles. BYD already has a strong presence in China, and leads the country’s PEV market with a 37% share. The Daimler-BYD partnership, which led to the establishment of Shenzhen BYD Daimler New Technology Co., Ltd., will launch the all-electric car Denza next month. [9] The DENZA-brand electric cars will be locally manufactured in a production line in Pingshan, Shenzhen, with an annual capacity of 40,000 units. Domestic production will help Daimler evade China’s 25% export taxes, in addition to the value added tax and consumption tax, which combine to substantially raise model prices. Lower prices will enable Daimler to compete with other automakers on a pricing front in China.

Apart from lower taxes, Daimler’s ambitions in the Chinese EV/HEV market are boosted by government incentives. As the country looks to persuade consumers to purchase environmentally-friendly electric vehicles, government subsidies could lower the 369,000 yuan (around $60,000) starting price for a Denza by around 110,000 yuan, almost 30%. In addition, starting next month, China will also exempt new energy vehicles, including plug-in electric and hybrid-electric and fuel-cell vehicles, from a purchase tax. This will further lower prices for Denza and make the high-priced electric vehicles more affordable for customers. Annual PEV volume sales could rise to 100,000 to 400,000 units in China by 2017 to 2018, according to Bloomberg. [10] Even though this represents only a small proportion of the overall estimated vehicle sales in China by then, due to BYD’s strong positioning, Daimler’s strong brand appeal and attractive government incentives, the Daimler-BYD partnership could grab a considerable portion of China’s EV market. An estimated 15% share in this market by 2018 could mean around 60,000 annual unit sales for Daimler by then. Just for reference, Daimler’s passenger vehicle division Mercedes-Benz sold 218,045 units in China last year.

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  1. Greencarcongress forecast []
  2. Plug-in ev sales in China rose 37.9% to 17,600 in 2013, January 2014, chinaautoweb.com []
  3. China’s BYD develops new electric car with Daimler, ft.com []
  4. China weighs $16 billion car-charging fund, bloomberg.com [] []
  5. New rules lift BYD’s electric car sales, wsj.com []
  6. State grid corp. of China to invite private capital for ev charging, wsj.com []
  7. BMW unveils plans to build electric-car charging stations in Shanghai, wsj.com []
  8. Tesla supercharger locations []
  9. Chinese drivers hesitant to adopt electric cars, April 2014, cnn.com []
  10. Nissan plans for 20% of China’s EV sales, fleetdrive-electric.com []
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