In China, Hybrids Are Tough Sell
BEIJING — At the Beijing auto show this week, companies are showing off their latest environmentally friendly technologies, including hybrid engines, electric cars and fuel-cell vehicles.
But there is little chance such innovations will help reduce the environmental fallout of the car-buying boom sweeping across China and other emerging markets like Russia and India soon.
![[photo]](http://s.wsj.net/public/resources/images/MK-AP235_ECOCHI_20080420204038.jpg) |
| Toyota has had disappointing sales of the Prius hybrid in China, where duties raise the price. On Sunday, it showed off its Hybrid at the Auto China 2008 auto show in Beijing. |
The problem is cost. The high-tech green solutions touted by auto makers are proving to be too expensive and often impractical in the developing world, where consumers are just beginning to afford the combustion engine. For instance, in China, where passenger-car sales soared 21% to more than 5.2 million vehicles last year, some consumers are environmentally conscious, but they also care about price.
Toyota Motor Corp. is learning this lesson from disappointing efforts to sell the Prius hybrid in China for the past three years. The Prius, with a starting price of $21,000, is popular in the U.S., where fuel prices are high.
But in China, the same car costs nearly $40,000 because of government duties on imported parts, higher production costs and, analysts say, no competition to drive down prices. For that money, many wealthy Chinese consumers are choosing high-end sport-utility vehicles and luxury cars.
So while sales of SUVs and luxury vehicles soared by double digits in China last year, Toyota sold only 414 of the hybrid vehicles, an 81% decline from 2006, according to J.D. Power & Associates’ Automotive Resources Asia unit. Toyota’s goal was to sell 3,000 cars.
“Chinese consumer awareness of the environment is still relatively low,” says Hitoshi Yokoyama, Toyota’s spokesman in China.
Similarly, Honda Motor Co. has sold about 150 of its Civic hybrids since the model came out in November. It costs about $38,000, nearly twice the price in the U.S.
The Chinese government is making some effort to promote more-affordable hybrids, mainly by pushing state-owned car makers to develop a domestic hybrid market. According to forecasts by CSM Worldwide, some 30 different hybrid models will be available in China by about 2010.
The upstart Chery Automobile Co. plans to start selling a lower-cost gas-electric-hybrid sedan with a 1.3-liter engine this year. General Motors Corp., which has partnered with a state-owned company, expects to start selling the Buick LaCrosse Eco-Hybrid in China this year. And Changan Automobiles, a car maker in the southwestern city of Chongqing, plans to introduce a hybrid hatchback, Jie Xun, at the end of the year.
GM says it chose the LaCrosse, a large and luxurious sedan, as its first hybrid offering in China because the car appeals to wealthier buyers who can afford a hybrid.
Car buyers who can shell out the extra money for a hybrid are also status conscious and expect a bigger and better-equipped car, GM says. “We believe that is the lesson to be learned from the sales performance of the Prius,” says Joseph Liu, executive director for vehicle sales, service and marketing at GM in China.
The hybrid LaCrosse will burn about 15% less fuel and produce 15% fewer emissions than a standard LaCrosse in city driving. Mr. Liu said the car will go on sale in June.
The question with hybrids, GM Chief Executive Rick Wagoner said Sunday, is: “Can we get the cost down on hybrids enough to get them to pay off for the average guy?” He said China will likely play an important role in providing economies of scale for producing energy-saving vehicles.
John Parker, Ford Motor Co.’s executive vice president for Asia-Pacific and Africa, said: “We’re trying to find solutions that work for the biggest volume of customers” in China and other developing countries.
While Ford refines its hybrid and other technologies and looks for ways to make them more affordable, it is also rolling out improvements globally to gasoline engines designed to make them more fuel-efficient and cleaner. The company says its new EcoBoost gasoline engine, used in city driving, reduces emissions by about 15% and improves fuel economy by about 20%, compared with a standard engine.
What would help hybrid sales, all car makers say, would be for the Chinese government to provide incentives — like tax cuts — to make the vehicles affordable. The government isn’t providing incentives to Toyota hybrid models because it doesn’t want to jeopardize the domestic market in development.
China needs to move quickly to back cleaner vehicles, says Michael Walsh, an independent consultant who works on motor-vehicle issues in China. The Chinese government has come a long way during the past decade, eliminating leaded fuel and adopting stricter emissions regulations, he says, but it still has a long way to go to curb emissions and reduce fuel consumption.
“They need to move quickly, or the levels of pollution and oil consumption are going to be out of sight,” he says.
International car makers have lobbied China to adopt other eco-friendly technologies they favor, mainly the ones they use back home. But these approaches face challenges. Biofuels, pushed by U.S. companies as a short-term solution, are losing support in the face of food-price inflation. Clean diesel, which European makers favor, would be difficult because China’s refineries don’t have the capacity to make the low-sulfur fuel that would be required, and upgrading them would cost billions of dollars. Electric vehicles and plug-in hybrids, designed to be recharged by plugging them into the country’s electricity grid, may not do much to help the environment in China. That is because most electricity in China is generated by burning coal, a polluting fossil fuel.
Still, Chinese car makers are exploring many of these alternatives. Chery has a fuel-cell car and hybrid on display at this week’s auto show. Geely Holding Group and BYD Auto Co., a unit of the Shenzhen-based BYD Group, both feature electric vehicles. BYD plans to mass-market its e6 electric car by 2009.
For now, however, China is focusing on hybrids, though challenges lie ahead. Chinese manufacturers haven’t yet reached the stage of trying to make hybrids affordable as they work out technical issues, such as battery endurance and cold-weather operation.
Wu Zhixin, director of research and development at the China Automotive Technology and Research Center, a think tank in Shanghai, says his survey research shows that the majority of Chinese drivers would be willing to buy a hybrid — if the price tag were no more than 20% higher than that of a conventional car. That is a tough challenge since compact and smaller cars, which made up 67% of all car sales in China last year, are selling for as little as $4,500.
“The money being saved on gas isn’t enough to cover the higher cost of the vehicles,” says Wu Zongxin, dean of Tsinghua University’s Institute of Nuclear and New Energy Technology. Mr. Wu says the government should start replacing its own vehicle fleets with hybrids to help auto makers gain economies of scale and bring prices down.
Last month, Toyota donated 50 Prius vehicles for use by government officials. Toyota also announced it was dropping the price of the Prius by 8%, or about $3,000.
That may not be enough to change sales, but Toyota is optimistic about the chances for sales to grow in years, if not decades, ahead.
“China is a country with a very long history, and we are at the point where the introduction of the hybrid car is taking place,” says Hideaki Homma, a Toyota spokesman. “Once the idea of hybrids catches on, we expect to see rapid growth.”
–Ellen Zhu and Norihiko Shirouzu contributed to this article.
via WSJ Online - Photo Associated Press