Some Thoughts on Clean Cars that Sell Side Reports Typically Miss: How to Get Customers to Buy Them

Major 3 Regulations in the US Automotive Industry: The Yield of the Automotive Industry to Decline

Consumer Discretionary / Industrials

Henry Kwon

Thematic (Sector/Industry)

China Automobiles / Thematic (Sector/Industry)

<p>The basic structure of China's proposed NEV Credit system was modeled after California's ZEV Credit system, but that is where the similarities end.  While California's standards are designed to move tailpipe emissions to the point of power generation (which in many cases lie outside of California), China's NEV credit system is national and more protectionist in nature.   Here are some thoughts as to why:</p><div class="content-highlight"><ol><li>There are two broad long term policy objectives in China that converge on the NEV Credit standards: energy security and technological leadership in the global auto industry.</li><li>The existing CAFC standards are very similar to the U.S. Federal CAFE/GHG standards in that they address total emissions and are more balanced to cut emission and oil imports in the long run, and already include NEV credits that are separate from the NEV Credit scheme that is proposed to go into effect in 2019.</li><li>The NEV Credit system seeks to cut oil imports faster by making NEV production mandatory for the entire country (not just a specific region like CA).  The cap and trade system goes a step further in emphasizing high end technology transfer from foreign OEMs especially on range and energy density which is consistent with the national policy aim of leapfrogging to technological leadership in EVs.</li></ol><p><strong>Impressions: </strong>With government subsidies on NEVs slated to expire in 2020, China faces the same dilemma as other governments that have implemented clean car standards: by only indirectly addressing the customer, China has largely ignored what drives customer acceptance of NEVs.  Case in point: California's 20 year struggle to get 10% of cars sold in the state to be ZEVs (it was 3.9% in 2016).  In the end, OEMs will bear both added production cost and R&amp;D cost burdens with negative margin implications for the global industry over the next 5 years.</p></div>

The basic structure of China's proposed NEV Credit system was modeled after California's ZEV Credit system, but that is where the similarities end.  While California's standards are designed to move tailpipe emissions to the point of power generation (which in many cases lie outside of California), China's NEV credit system is national and more protectionist in nature.   Here are some thoughts as to why:There are two broad long term policy objectives in China that converge on the NEV Credit standards: energy security and technological leadership in the global auto industry.The existing CAFC standards are very similar to the U.S. Federal CAFE/GHG standards in that they address total emissions and are more balanced to cut emission and oil imports in the long run, and already include NEV credits that are separate from the NEV Credit scheme that is proposed to go into effect in 2019.The NEV Credit system seeks to cut oil imports faster by making NEV production mandatory for the entire country (not just a specific region like CA).  The cap and trade system goes a step further in emphasizing high end technology transfer from foreign OEMs especially on range and energy density which is consistent with the national policy aim of leapfrogging to technological leadership in EVs.Impressions: With government subsidies on NEVs slated to expire in 2020, China faces the same dilemma as other governments that have implemented clean car standards: by only indirectly addressing the customer, China has largely ignored what drives customer acceptance of NEVs.  Case in point: California's 20 year struggle to get 10% of cars sold in the state to be ZEVs (it was 3.9% in 2016).  In the end, OEMs will bear both added production cost and R&amp;D cost burdens with negative margin implications for the global industry over the next 5 years.

Some Thoughts on China's Proposed NEV Credits:  What Can Kandi Do that Tesla Can't?