What the rise of solar in China says about the future of EVs

What the rise of solar in China says about the future of EVs

The Tesla Model X on display during the 2017 Shenzhen-HongKong-Macao International Auto Show in Shenzhen, Guangdong, China.

As the United States, at least publicly, begins to withdraw from the Paris climate agreement, other countries have space to gain further notoriety for their action on climate change. China, for one, is well positioned to maintain and bolster its clean energy presence and also has the political backing to do so — an essential ingredient for market growth in China.

As Yongyong Ji, an energy consultant specializing in South and East Asia, put it, "The Chinese government often sets some sort of agenda, or strategic area, where the state will give very good support."

This is well exemplified in the rise of solar manufacturing in China. In only the span of a decade, China employed substantial industrial policy that propagated and perhaps propped up growth until the industry came into its own, today hosting the most solar energy capacity worldwide and over 53 percent of the world’s solar module assembly production, as reported by SPV Market Research. Now, the heavy hand of the Chinese state is moving the vehicle market.

Electric vehicles in China

The electric vehicle (EV) industry enjoys much of the same government attention the solar industry benefited from in China. Like solar, electric vehicles align with the state’s clean energy and climate change goals. Electric vehicles, however, have the added opportunity to claim a significant stake in the global vehicle industry in which China has been historically absent.

As such, it has been no secret that the Chinese government seeks to cultivate the local electric vehicle industry. The state has been implementing subsidies since 2009 aimed to allow local electric vehicle giants to emerge. And in large part, it has worked. After outpacing the United States in new EV registrations in 2015, China became the largest local market for electric vehicle consumption and production. And as the International Energy Agency’s (IEA) Global EV Outlook reported, the market in China has seen continued growth through last year.

Industrial policies driving the growth of EVs in China share many of the same characteristics as those that begot the rise of the solar industry. Demand has been met by direct purchase by public entities — the central government heavily subsidizes the purchase of transit buses, taxis and other public vehicles. In fact, a significant portion of new energy vehicles on the road are publicly procured, encouraged by national new energy vehicle goals and not likely to slow down in the coming years. China’s Ministry of Industry and Information Technology (MIIT) announced in May a target of 7 million electric vehicles, or 20 percent of the Chinese vehicle market, to be sold per year by 2025.

The high demand created by the state has encouraged the buildout of the electric vehicle supply line in the area. According to Colin McKerracher, head of advanced transport at Bloomberg New Energy Finance, global EV lithium-ion battery manufacturing capacity "will double to 200 gigawatts-hour based on factory commissioning announcements between now and 2020, and the vast majority of that is in Asia."

Looking forward

Clean energies and vehicles represent a solution to a number of problems facing the Chinese state. A rapid and ubiquitous transition away from fossil fuels would mean energy independence, pollution mitigation, job creation and international moral clout for the country.

The Chinese government is no doubt hoping that it can leverage the country’s manufacturing prowess to achieve the same global supremacy in the electric vehicle market as it has in the solar PV market, but it is certainly not there yet. While the local Chinese market for electric vehicles is already comparatively robust, there is still no significant presence of Chinese-made electric vehicles in the international market.

The parallels in Chinese industrial policies related to its solar and electric vehicle markets inspire a number of questions. Will Chinese electric vehicles become international staples as Chinese-made solar panels have become? Can we expect a price decline in electric vehicles analogous to the fall in the price of solar? Or more broadly, what can the history of the solar industry tell us about the future of the electric vehicle industry? Well, not much directly — the solar markets are not necessarily predictive of the EV markets as they are, after all, different industries with different constraints and opportunities associated. However, the parallels between the two remain compelling.

State entities in China are employing strikingly similar policy strategies to the electric vehicle market as they did to the solar market and are achieving comparatively swift growth. While this by no means guarantees the same result, we in the clean energy community should not claim surprise if we see a similar story play out in the electric vehicle decade.