October 30, 2008 / 5:11 AM / 10 years ago

RPT-Electric cars are a big chance for China -McKinsey

BEIJING (Reuters) - China should push electric cars to curb its dependence on imported oil and foreign automobile technology, although they offer smaller cuts in carbon emissions than alternatives like hybrids, McKinsey and Company said.

In two decades it could create a world-leading industry and a domestic market alone worth up to 1.5 trillion yuan ($219.4 billion), even if less than a third of drivers go electric, the consulting firm said on Wednesday in a report, “China Charges Up.”

“China has a compelling case for embracing electric vehicles,” said the report, which weighed up oil imports, the cost to consumers, the potential for innovation, as well as carbon emissions.

“While a handful of firms in Japan and North America are making strides in developing electric vehicles, no nation has yet emerged as the clear leader in this sector,” it added.

The world’s number two crude oil consumer already churns out millions of automobiles for a growing middle class hungry for a better lifestyle. It relies on imports for nearly half its oil.

If China continues current growth rates it will almost double oil imports by 2030, the report said, but greater use of electric cars would cut this growth by around a quarter.

For consumers, the vehicles will not be cheap up front. They will have to pay a premium of about a quarter, 30,000 yuan ($4,387), for electric vehicles.

But if Beijing takes a bold step it has been flirting with for years, bringing in a significant fuel tax or raising pump prices, they could recover that extra cash in around five years.

One of the biggest problems in promoting a type of transport often espoused by environmentalists may be its limited impact on emissions, because China gets so much of its power from coal.

An electric car would have 19 percent less emissions than a conventional gasoline powered vehicle over its lifetime, but a full hybrid vehicle, running on gasoline with a high-tech engine and a battery to power acceleration, can make a 56 percent cut.

“If the fundamental goal is just to reduce greenhouse gases you could argue that maybe we just go with hybrid or improved gasoline engines,” said Paul Gao, lead author of the report.

REALISTIC CHOICE

However, electric cars could be a more realistic hope for widespread change because they may be the cheapest choice and meet a range of government goals.

“It depends on the government priorities...we look at the reduction of dependence on imported oil, cost of ownership and usage and also the chance to be at the forefront of the global industry,” Gao said in a telephone interview.

If Beijing sticks to a plan to ramp up renewable energy the emissions cuts will also grow, and if cars are charged at night they will save energy that is otherwise wasted by plants idling at a time of low demand, Gao added.

With no effort to cut emissions from passenger vehicles, they could reach 1.2 billion tonnes by 2030, the report said.

Beijing is already pushing development of an industry that would also help auto parts and software companies, with a policy that 10 percent of cars must run on alternative fuels by 2010, and at least one company is building a factory to produce 20,000 electric vehicles a year.

The government could provide a further boost by setting standards and giving tax breaks on clean cars, rather than subsidising cheap transport fuels as it has done in recent years.

“(China) could become a pioneer in the conversion of electric vehicles from an expensive niche technology, to an affordable, widely-used technology,” the report concluded.

($1=6.838 Yuan)

Editing by Anthony Barker

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