CHINESE vehicle makers from state-owned FAW to Zhejiang Geely are racing to sell more eco-friendly cars as they try to meet tough fuel economy rules due next year as part of Beijing’s battle against pollution.
But many of China’s smaller indigenous vehicle makers will struggle to make the costly upgrades needed to meet the new rules, which aim to push more efficient energy use and are expected to be toughened every year through 2020.
A technology deficit versus bigger foreign vehicle makers and the cost of developing or obtaining the new technologies needed will probably speed up consolidation in a fragmented industry of more than 80 registered manufacturers.
The Chinese government last week unveiled tough penalties tied to the new fuel economy rules – from naming-and-shaming those who fail to make the grade to restricting production at non-compliant car makers.
“Restricting production is a severe penalty,” said He Hui, an analyst at the International Council on Clean Transportation, an adviser to China’s government on fuel-economy policies. “Chinese car makers lag behind foreign firms in their technology repertoire, so the rules add pressure to those already struggling domestic brands.”
By next year, all car makers in China, the world’s biggest vehicle market, will be required to achieve average fuel economy of 6.9 litres per 100km across their product line-up. By 2020, the target will have been made more stringent to 5 litres per 100 km.
That means each car maker would have to improve fleet average fuel economy by more than a third by the end of the decade from today’s levels, said James Chao, the regional director at IHS Automotive, estimating it would cost “billions and billions of dollars” for the industry as a whole to comply.
“Who’s at a disadvantage… the local lower volume (manufacturers),” Chao said. “This may well be the catalyst for them to either find a partner or to be acquired.”
Almost 30 percent of vehicle makers in China failed to meet suggested fuel economy targets for 2013, and most of those were Chinese, including Lifan Industry Group and state-owned GAC Group’s passenger car unit. Some foreign makers, too, especially luxury car producers, are likely to struggle to meet the new rules, and are rushing to adopt green car technologies, according to Chao. – Reuters