Yan Zhang, Powertrain Market Analyst

18 December 2020

China reaffirms route to electrification with new technical roadmap

The new ‘Energy-saving Vehicle and New Energy Vehicle Technical Roadmap 2.0’, or ‘Roadmap 2.0’ for short, was published in Shanghai in late October of this year. The plan was commissioned under the guidance of the Chinese government and organised by the Chinese Society of Automotive Engineers.

It details a roadmap for electrifying the Passenger Car fleet, primarily from a technical perspective. With the fast pace of progress in electrified vehicle technology and observations on how the market has developed over the past few years, it was necessary to release an update of the roadmap from previous versions. Roadmap 2.0 is also considered to be an important input into China’s 14th Five-Year Plan of economic and development initiatives.

Four key categories and three future milestones of the Roadmap 2.0 are outlined below:

While the Roadmap 2.0 forecast for total vehicle sales is somewhat higher than the LMC Automotive projection, the salient point is that new sales of pure ICE vehicles are to be rapidly replaced by hybrids and New Energy Vehicles (NEVs), and completely phased out by 2035. Although no actual ban on pure ICE vehicles has yet been put into law, it would be necessary by this time.

The regional disparity in Chinese NEV sales over the years, for instance because of the difference in charging point densities, makes it unlikely that the majority of the pure ICE population nationwide would be replaced by NEVs. Instead, a multi-technology approach is needed. The good news is that with the inclusion of the new ‘Energy Saving Vehicles’ category in government policies and subsidies, 48V mild hybrids (MHEV) and, in particular, full hybrids (FHEV) will be a critical part of the solution. The likes of Toyota and Honda, who have accounted for around 99% of FHEV sales in China to date, stand to benefit greatly, but this policy will go a long way to encourage other OEMs to enter the FHEV market in future.

The roadmap asserts that BEVs will make up the vast majority (95%) of NEVs in the long term. We happen to share this view, that PHEV is a transitional technology and will ultimately become obsolete as BEV technology improves. There is evidence that this has already started to happen. For January to September 2020, PHEV sales decreased by 13% compared with the previous year. 44% of PHEV sales are in seven cities where there are restrictions (Shanghai, Beijing, Shenzhen, Hangzhou, Guiyang, Guangzhou and Tianjin) and are propped up by the free registration plate policy. When this incentive ends in 2022, PHEV sales are likely to nosedive. The consensus is that BEV is the technology of the future and there is a sentiment that OEMs without a comprehensive BEV strategy will not survive.

Roadmap 1.0 was published in 2016 and the target back then for 2020 was that NEVs would account for 7-15% of Passenger Car sales. But based on the data for the year to date and our forecast for the remainder of 2020, we estimate the figure at around 5%. Understandably, it is difficult to predict the evolution of new technologies, and while Roadmap 2.0 rightly has a more realistic target to phase out pure ICE, the 2030 NEV target has been increased from 20% to 40%. From today’s perspective, this is ambitious, but, ultimately, anything should be possible, given the correct policy and support.

However, there are several reasons that the Chinese NEV market will continue to grow, namely the pressure from ever more stringent CO2 and pollutant emissions regulations, the need for oil security, and the focus on urban air quality. The progress in electrified technologies, and economies of scale and supply chains for those technologies are helping to alleviate the barriers to a vaster NEV market.