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eNews from Tuesday, May 5, 2009

China Heading Toward 'Green' Cars, According to Frost & Sullivan

PRNewswire -- SHANGHAI -- May 5, 2009 -- Held on April 22-28, the 13th International Automobile Industry Exhibition has become one of the most important global automotive industry events. 'Green' vehicles seem to be one of the highlights of the just-concluded show. In response to the alleviation of oil dependence and ever-increasing emission problem, the OEMs have been banking on 'green' cars as the long-term strategy for sustainable mobility. This trend does not only happen to global manufacturers, but especially holds true for domestic Chinese OEMs. This could be echoed by the fact that a couple of domestic OEMs like Chery, Geely, SAIC, and Changan took the wraps off of their green cars.

Frost & Sullivan, the growth partnership company will briefly discuss the development of 'green' cars and the future trends.

Which direction to go?

When referring to the words 'green' car, what pops up in your mind? Is it a hybrid or one of the numerous electric cars emerging these days? Perhaps a hydrogen car or a biofuel car? There are various technology options available.

From the geographic perspective, different countries go to different paths. Japan is the market leader in hybrids today, with cars like the Toyota Prius and Honda Insight. In Europe, diesels comprise a large amount of the cars driven. The United States has been a laggard in alternative vehicles. In South American countries, biofuel vehicles seem to have certain markets.

If we take a look at OEMs, the strategies are varied as well. Nissan oriented for battery electric vehicles and fuel cell vehicles and expect they can cover every market segment. Honda sees hydrogen as the long-term alternative to gasoline. Volkswagen originally focused more on diesel, but changing to hybrids now.

Apparently, car-makers tell us we have plenty of green vehicles to choose from. The question boils down to which way China should head toward and which technology Chinese OEMs will choose? In other words, what the technology roadmap looks like in terms of 'green' cars.

'Green' Cars Roadmap in China

Frost & Sullivan believes that there are three phases for the development of 'green' cars in China. The short term alternative solutions are LPG/CNG and hybrids. The market will gradually transit to Electric vehicles in the middle stage. Fuel cell vehicles will be the choice in the long run.

Hybrids Prevail in the Short Term

LPG/CNG vehicles have been used in China for many years. The development of LPG/CNG is hindered by the short of gas infrastructure and relatively unfavorable vehicle performance. Therefore, the application of LPG/CNG is limited to taxies and buses in several cities like Chengdu, Chongqing, Beijing and Shanghai. Hybrids running on both electricity and gasoline, on the other hand, seem to gain momentum in recent years. In 2009 Shanghai auto show, more than 20 hybrid vehicles are unveiled by Chinese domestic OEMs. Since their introduction in the US in late 1999, hybrid cars were considered as a short-lived second-rate technology that briefly serves a purpose until it can be substituted with something better and more enduring. Instead of being a 'bridge technology', however, Frost & Sullivan sees hybrids a necessary step for eventually heading toward battery electric vehicles or fuel cell vehicles and remain in the mainstream for quite some time in China. This is because the consumers are not fully aware of the advantages of battery electric vehicles and will slowly accept the technology. Hybrids especially plug-in hybrids will help the public to have confidence to transit from hybrids to completely battery powered cars in the future. Moreover, pure electric vehicles require an extensive public charging infrastructure. It may take decades to construct the charging stations and infrastructure in China.

Electric Cars, the Next Movement

According to Tristin Lin, Senior Consultant from Frost & Sullivan, electric cars will be the next step after hybrids in China. Chinese OEMs have every reason to develop electric vehicles. Frost & Sullivan gives the detailed explanations from the Government, OEM and customer's perspective.

Firstly, Chinese Government has determined to turn the country into one of the leading producers of all-electric vehicles within three years, and making it the world leader in electric cars and buses afterwards. As is known, electric cars by its very nature requires an integration of vastly different technologies like battery, motor and electronic controls. Successful electric car market requires integrated efforts of various market participants. Chinese Government is powerful in leveraging the resource from the very top in an efficient and effective way when it comes to support an industry development. The development of electric cars is put on the agenda of Government. According to government officials and Chinese auto executives, China is expected to raise its annual production capacity to 500,000 hybrid or all-electric cars and buses by the end of 2011.

Secondly, from OEM's perspective, Chinese OEMs would also like to make intensive efforts to develop electric cars. Opposite to making gas-powered vehicles which China lags far behind the United States, Japan and other countries, the development of electric cars makes it possible for Chinese firms to circumvent the current technology and get a leap to the next stage. The leap to a new technology can be less burdened by legacy issues for the long term.

Thirdly, from customer's perspective, electric cars have practical advantages in terms of Chinese customers' driving behavior. Under rare occasion that Chinese drive a long distance between cities. Commutes are fairly short and frequently at low speeds because of increasingly heavy traffic. So the limitations of all-electric cars, for instance, the limited distance range are not a big deal.

Based on the technology of electric cars, eventually, China is going to move toward fuel cell vehicles. The technologies of hybrid and electric cars are also applied to fuel cell vehicles.

The Key Question: When?

"Green" is an emerging automotive marketing term which the public is beginning to see through. The golden age of "green" cars will eventually come, but the key question is how long it will take until hybrid, electric cars and fuel cell vehicles can see a certain penetration in Chinese passage car market. It's not a favorable thing if 'green' car just become another rhetoric put out by OEMs' public-relations departments or little green lipstick OEMs put on it. The first hybrid in China, Toyota Prius, was introduced in 2006. However, the total sales of hybrid in Chinese market only amounted to around 2,100 units with limited models availability. This is not just happening in China, but also worldwide. Globally, fuel cell cars have been hyped as the best solution for over ten years, now. Ten years ago the engineers said it would be "ten years" before the technology is practical for use. 5 years ago these same engineers said it would be another "ten years" to go. We heard again a "ten years" on this year's auto show. The question is often raised both in the automotive industry and customers when it will really happen.

Apparently, it's a hard question to answer. A lot of issues need to be addressed like battery technology, recharging infrastructure construction, and governmental subsidy, etc to realize the dream of 'green' cars. Frost & Sullivan forecast that hybrids for the masses will come true by 2011-2012 in China. The battery electric cars will start in 2010 and see gradual penetration in the next decade. For fuel cell vehicles, it will still be a long way to go in China market.

About Frost & Sullivan

Frost & Sullivan, the Growth Partnership Company, enables clients to accelerate growth and achieve best in class positions in growth, innovation and leadership. The company's Growth Partnership Service provides the CEO and the CEO's Growth Team with disciplined research and best practice models to drive the generation, evaluation and implementation of powerful growth strategies. Frost & Sullivan leverages over 45 years of experience in partnering with Global 1000 companies, emerging businesses and the investment community from more than 35 offices on six continents. To join our Growth Partnership, please visit http://www.frost.com/.

CONTACT: Riona Jin of Frost & Sullivan Corporate Communications - China, +86 21 5407 5783, ext. 8652, mobile, +86 139 169 87828, riona.jin@frost.com

Web Site: http://www.frost.com/

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