China: Leading the Transition to Electric Cars?

My friend Bill Russo has posted a very interesting powerpoint slideshow from his recent presentation to the European Chamber of Commerce in Shanghai. The topic of his presentation was China's Next Revolution: Leading the Transition to Electric Cars.

If you are interested in this topic, you will find his presentation to be filled with interesting data that leads to his conclusion that China enjoys favorable conditions for widespread adoption of electric cars. Among those conditions is the fact that China is not saddled with as much legacy infrastructure as the developed world, and therefore, it will be easier for Chinese consumers to make the leap to new energy vehicles.

While I tend to agree, I think this is not as much of an advantage as some think it is. The obvious comparison is telecommunication technology. According to the story, China had an advantage in making the leap to mobile telecoms because it wasn't saddled with a massive wired infrastructure.

In the early to mid-'00s, I found this to be generally true as I envied the mobile phones carried by Chinese whenever I visited China. The US was late to the mobile telecoms game because we all had easy access to wired telephones, and therefore had no real urgency around getting our hands on mobile technology.

Of course, by now that has all changed. The United States has launched 3G networks faster than China, and the US-designed iPhone is the envy of many Chinese who wanted it so badly they have paid upwards of $700 for a smuggled iPhone.

While I don't want to claim that EV technology will follow exactly the same path as that of mobile telecoms, my point is that new technology, regardless of its origin, moves into new markets at an accelerating pace. Whether the next big battery breakthrough originates in China, the US or Iceland doesn't really matter. These technologies will be of interest to everyone.

I think the most important point that Bill makes in his presentation is on the final page:

It takes a combination of business and government working together to make this revolutionary change possible and nowhere in the world is there a closer link between business and government than in China.

The switch from gasoline powered to battery powered cars is so revolutionary that it is hard to imagine any large country pulling this off without partnerships between business and government. Tesla may have built the coolest electric vehicle available, but Tesla isn't going to build charging stations all over the country. And until those charging stations are available, the Tesla will remain an overpriced golfcart for people with too much money on their hands. Someone has to step in and build the infrastructure.

In the US, Nissan is already working with local governments and public utilities to prove their concept that electric vehicles are a viable replacement for gasoline powered cars for the everyday commute. I would be surprised if there aren't already several other manufacturers following a similar path.

While this may seem rather novel for the US, in China, it is simply the way things are done. Among the top 15 Chinese automakers, all but three are SOEs. In other words, they are the government. The question is whether the Chinese system is flexible enough to allow the market to dictate which alternatives to the internal combustion engine are the most commercially viable.