Speaker 1: Hi everyone. On June ninth, BENEF published its annual flagship
Speaker 1: report on transport, the Long Term Electric Vehicle Outlook, or
Speaker 1: EVO for short. The report looks at how electrification, shared mobility,
Speaker 1: and autonomous driving will impact road transport from now out,
Speaker 1: and a couple of weeks will have the head of
Speaker 1: Transport for BENF and evo's lead author Colin mccaracter on
Speaker 1: the show to run us through what they found. But
Speaker 1: today we've got kind of a preview or trailer for it,
Speaker 1: or at least an important part of it, which is China.
Speaker 1: In the report, Colin and the authors state that they
Speaker 1: expect evs to account for passenger vehicle sales in China
Speaker 1: rising and seventy. Now, this will put about two twenty
Speaker 1: million e vs on the road in China at that point.
Speaker 1: Needless to say, this is going to be a huge
Speaker 1: chunk of the global market. But how will things get there?
Speaker 1: How will the market grow to that point? Sure, there'll
Speaker 1: be a build out of robust charging infrastructure that's needed,
Speaker 1: and there are direct purchasing centers for consumers, but those
Speaker 1: are being phased out this weekend the show. We've got
Speaker 1: me Electric Vehicles analysts for BENF based out of Beijing.
Speaker 1: She's going to tell us about some of the government
Speaker 1: policies put into place to help accelerate e V adoption.
Speaker 1: See what I did there? Sorry, I couldn't resist. In particular,
Speaker 1: she'll tell us about the New Energy Vehicle or any
Speaker 1: V targets and corporate average fuel consumption credit systems. Under
Speaker 1: the n e V credit system, automakers are required to
Speaker 1: generate any V credits from the production of battery, electric,
Speaker 1: plug and hybrid and fuel cell vehicles in order to
Speaker 1: meet the government assigned any V targets. Manufacturers that do
Speaker 1: not generate enough credits can purchase them from other automakers
Speaker 1: to avoid penalties. It's kind of like cap and trade,
Speaker 1: but for cars. And see he's going to tell us
Speaker 1: all about it. Our discussion is based on a report
Speaker 1: China's New Energy Vehicle Credit system. Being a user can
Speaker 1: get this report on benef go on the Bloomberg terminal,
Speaker 1: BENIF dot com and the beanof mobile app. As a reminder,
Speaker 1: Beanis does not provide investment or strategy advice, and you
Speaker 1: can hear the full disclaimer at the end of the show.
Speaker 1: I'm Mark Taylor, and you're listening to switch on the
Speaker 1: BENF podcast see thanks for joining today, Thanks for having me.
Speaker 1: Can you start us off just with a very very
Speaker 1: high level overview of China's emission reduction target. China's presidents
Speaker 1: EMP actually announced that zero carbon neutrality targets in September.
Speaker 1: So the goal is to have China reach the carbon
Speaker 1: peak by and to reach carbon neutral by. So what
Speaker 1: it translated into the world transport sector is that well,
Speaker 1: although there's no specific targets set for particular sector, paints
Speaker 1: a very direct picture that the country, the central government
Speaker 1: wants all sectors in the in the country to essentially
Speaker 1: to de carbonized and the passway for different for different
Speaker 1: sectors company as far as a lot. So they want
Speaker 1: to hit their peak of emissions. Would you say, okay, wow,
Speaker 1: and then start coming down to zero by so thirty
Speaker 1: years too to come down the mountain. I guess today
Speaker 1: we're going to focus mostly on e v s or
Speaker 1: electric vehicles and a policy that's come into play to
Speaker 1: try to get those sales up and therefore get the
Speaker 1: emissions down from the transportation sector, can you explain to
Speaker 1: us just the well, start us off with the name
Speaker 1: of the policy and a bit about its objectives. These
Speaker 1: policy tools actually called New Energy Vehicle Mandate, So New
Speaker 1: endin Vehicle is kind of China's definition of the electric vehicle,
Speaker 1: which include battery, electric, plug in hybrid, and fuel cell vehicles.
Speaker 1: So the mandate itself is very similar to California Stereo
Speaker 1: Emission Vehicle or the mandate, and it requires automakers to
Speaker 1: sell electric vehicles in order to produce NAP credit that's
Speaker 1: going to meet a government assigned target. So essentially the
Speaker 1: policy tool is designed to push automakers to sell more
Speaker 1: electric vehicles, which the broader goal of China's push behind
Speaker 1: the autric vehicle is not only to reduce carbon emission,
Speaker 1: but also to reduce all the import and to transform
Speaker 1: is industry towards more advance. Okay, so the idea is
Speaker 1: that to reduce emissions by getting more electric vehicles out
Speaker 1: on the road, and they do that by giving in
Speaker 1: a new Energy Vehicle or an any V credit for
Speaker 1: each electric vehicle sold to the automakers. Is that how
Speaker 1: it works? Yeah, I think the policy itself is kind
Speaker 1: of like just to force automakers, essentially to push automaker
Speaker 1: to sell more evs. I think that's like the one
Speaker 1: I subject for this policy. So the government will sign
Speaker 1: like a target just in proportion to an automaker's domestic
Speaker 1: production and imports of internal combustion and general ice vehicles.
Speaker 1: So the more ice vehicles and automaket selling, the higher
Speaker 1: target they will face. That means they will need to
Speaker 1: sell more credits in order to meet the target, or
Speaker 1: they have to buy credits from their competitors. I think.
Speaker 1: Also the second part of the net credit met or
Speaker 1: the ne credit mandate is that it's linked with China's
Speaker 1: few economy regulations that some of the automakers can use
Speaker 1: the MAP credit to offset there or two as a
Speaker 1: compliance tool to help them meet to the stringent few
Speaker 1: economy regulations. Okay, so the government sets a target. It
Speaker 1: started I think last year at ten of all sales
Speaker 1: having to go to e vs. Is that right? And
Speaker 1: then this year it's yeah, the target set up ten
Speaker 1: percent for so the new energy vehicle credit policy. Can
Speaker 1: you explain just very basically how that works. China's new
Speaker 1: editor vehicle credit system is kind of a policy that
Speaker 1: requires automakers to sell electrical vehicles in order to meet
Speaker 1: and government assigned the target. And when did it start?
Speaker 1: It started last year. So the policy was actually is
Speaker 1: shooting into A seventeen, but it came into effact throughout
Speaker 1: a nineteen national And what does the government target mean?
Speaker 1: How does that work? So the government target is set
Speaker 1: ten percent in twenty nineteen and twelve percent in and
Speaker 1: we'll kind of linearly increase to eighteen percent in. So
Speaker 1: the ten percent is proportional to an automaker's dometics, domestic production,
Speaker 1: imports of internal combustion, and general ice vehicle. But this
Speaker 1: doesn't mean that the e V share of their total
Speaker 1: cells have to be reached ten percent in twenty nineteen. Okay.
Speaker 1: So if I'm an automaker and I sold a hundred vehicles,
Speaker 1: you know, a hundred ice vehicles during I don't know
Speaker 1: during this year, that means I'm on the hook to
Speaker 1: produce ten n V credits, is that right? And then
Speaker 1: twelve in the next year. Ten credits in twenty nineteen.
Speaker 1: First one, you have to have at least like fourteen
Speaker 1: and you BI credits this is fourteen, okay, So how
Speaker 1: do I get those credits? So there's a few different options, right, Yes,
Speaker 1: I think the simple as option is that you just
Speaker 1: produce more evs, which kind of include very large joy
Speaker 1: plug in hybrid or fuel cell vehicles. I think the
Speaker 1: second option is that if you cannot have that enough,
Speaker 1: or if you do not have enough e B cells,
Speaker 1: you can buy credits from your competitors, or you can
Speaker 1: have some of the credit transfer from like your joid
Speaker 1: venture set. Okay, so this is kind of like cap
Speaker 1: and trade in power, right, So you you cap the
Speaker 1: emissions I guess in this this case instead of two
Speaker 1: commune smokestack, it's from a tailpipe. This is kind of
Speaker 1: like cap and trade for for for power plants, right,
Speaker 1: but instead of capping CEO two from the exhaust from smokestack,
Speaker 1: it's from tailpipe. Is that right? Yes? Okay, you know
Speaker 1: you can either switch you know, to renewables or in
Speaker 1: this case e V s and if you don't have
Speaker 1: the the capability of doing that, you can buy credits
Speaker 1: so you can keep selling internal combustion or ice vehicles.
Speaker 1: Is that right? Yes? So does this result in twelve
Speaker 1: percent higher e V sales or how does that work?
Speaker 1: So the twelve percent doesn't mean that each other maker
Speaker 1: have to have twelve percent of your total sales to
Speaker 1: be electric. For each electric vehicle they can generate more
Speaker 1: than one credit, and for bettery luxury they can generate
Speaker 1: up to five actually six credits in the period, and
Speaker 1: it's like around like somewhere like nearly four credits starting
Speaker 1: from this year, and for plugging hybrids is normally just
Speaker 1: like two credits. Oh wow. Okay, so that's pretty cool.
Speaker 1: So there's kind of a sliding skill, and I hate
Speaker 1: to keep going back to power, but it's kind of like,
Speaker 1: you know, there's a little bit of credit for gas,
Speaker 1: you know, a little bit fewer emissions, you know, you
Speaker 1: can equate that to a plug in hybrid, but then
Speaker 1: going fully electric you get more credits, kind of like
Speaker 1: going fully renewable in power. I guess you could say
Speaker 1: that's cool. So if I'm a pure play electric vehicle manufacturer,
Speaker 1: I'm producing all kinds of credits exactly. I think pure
Speaker 1: electric vehicle manufact are in a really poor position is
Speaker 1: credit because all they can have or they can generate
Speaker 1: thousands or hundred tons of thousands of credit without having
Speaker 1: any liabilities. Okay, so let's let's get into that in
Speaker 1: a second. But before we do, can we go a
Speaker 1: little bit further with the policy itself. You mentioned it
Speaker 1: started off at ten percent. Now it's at next year
Speaker 1: it's at four percent, and where will it go at
Speaker 1: the end the government sets the target will be fourteen
Speaker 1: percent for one and will kind of increase to eighteen
Speaker 1: percent in three and beyond that the government hasn't specified
Speaker 1: kind of a target. We expect there will be a
Speaker 1: more exponential increase. That's not really going to be linearly
Speaker 1: increased anymore. So the idea is to kind of to
Speaker 1: push automantor will sound more and more evs in by
Speaker 1: setting a higher target. Okay, so you expect they're using
Speaker 1: this is kind of a ramping period to where in
Speaker 1: a few years the target to be much higher and
Speaker 1: hopefully they'll just be producing whole bunch of vs at
Speaker 1: that point. Yeah, just stepping back a little bit. We
Speaker 1: talked in a recent show, I think it was four
Speaker 1: or five weeks ago about GM and Volkswagen taking on
Speaker 1: Tesla in the US and Europe. But we set an
Speaker 1: impediment to growth in those markets was a charging network.
Speaker 1: You know that most people would buy e v s,
Speaker 1: myself included, actually if the charging network were better. So
Speaker 1: how is the charging network in China? Is it an
Speaker 1: impediment to the NTV program or an enabling feature of it.
Speaker 1: So I think having a bar in order to reach
Speaker 1: count and ask if you have the option that trying
Speaker 1: to really need a better charging infrastructure network. By that
Speaker 1: I mean both for for the public chargers that also
Speaker 1: there there should be chargers available for a home or
Speaker 1: at the workplace. So I think China is still account
Speaker 1: for accounts on the half of the global public charger installations.
Speaker 1: So there has been a quick ramp up of public
Speaker 1: charging infrastructure, but all that's mostly because the buildings still
Speaker 1: kind of in China is mostly high high rise buildings
Speaker 1: that limits people's access to the private parking spaces. What
Speaker 1: are you seeing where you live and based in Beiging,
Speaker 1: So since Veiging in such a like a metropolitan city,
Speaker 1: I see public chargers almost everywhere in the hotels and
Speaker 1: the never office, so every almost everywhere. But I think
Speaker 1: what's been challenging for people living in major cities in
Speaker 1: China is to have access to home chargers because now
Speaker 1: all of them can guarantee a a private parking space. Yeah,
Speaker 1: that's the challenge for me here in London as well,
Speaker 1: or access to to charging. Okay, so moving on to
Speaker 1: a different part of the policy, the corporate average fuel
Speaker 1: consumption target sounds captivating. It's the C a f C.
Speaker 1: Can you explain what that is? So essentially it's a
Speaker 1: it does a few economy regulations for passenger cars. So
Speaker 1: many countries actually used for economy regulations to reduce the
Speaker 1: carbon mention as well as the few consumption so the
Speaker 1: average presenter car fleet. And as we also a way
Speaker 1: to to promote EVS by signing a really low few
Speaker 1: consumption or few consumption values for evs. So for China's policies,
Speaker 1: in the kind of the Chinese few economy regulation, it
Speaker 1: sets a target for the average passenger vehicle car fleet
Speaker 1: to ridge for leaders for a hundred kilometers by twenty
Speaker 1: which is very stringent, almost on par with that in Europe,
Speaker 1: and it's also more strangent than that team that's in
Speaker 1: place in Japan and the United States. Okay, so the
Speaker 1: government is setting a target for fuel economy and you
Speaker 1: can get there by having really ridiculously efficient ice vehicles,
Speaker 1: and I guess in evs which bring down the average
Speaker 1: to make you more efficient or more fuel economic. Is
Speaker 1: that right? Yes? I think the benefits of selling e
Speaker 1: VS is not only evs are are given basically zero
Speaker 1: few consumption values, but also because there's sometimes it will
Speaker 1: sign a multiplier too, So so producing each electric vehicle
Speaker 1: is counted twice or three times that of the ice car.
Speaker 1: Let's talk about the impact of these two policies, So
Speaker 1: the impact of the NYV credits and the c a
Speaker 1: f C there the corporate average fuel consumption target on
Speaker 1: sales and emissions. Can you can? I just walk us
Speaker 1: through both those for the n e V credit system,
Speaker 1: so it's just kind of push automakers to sell more
Speaker 1: e v s unless you lowered your overall ice production,
Speaker 1: which is something that automate hasn't really wants to lose
Speaker 1: their market share. I think for the few economy regulation,
Speaker 1: as you mentioned earlier, it's about forcing automakers to either
Speaker 1: have really efficient ice vehicles like hybrid or mildhabber, et cetera,
Speaker 1: or you have to sell more evs. So I think
Speaker 1: combining these two policies, the overall objective is just to
Speaker 1: accelerate the cells or the adoption of electric vehicles in China,
Speaker 1: and is it working to some extent, It is hard
Speaker 1: to say that it's working because China also have the
Speaker 1: kind of the some more more direct policy tools in place,
Speaker 1: like the purchase subsidies, which has been very powerful to
Speaker 1: in promoting the V cells. But I think as China
Speaker 1: plans to kind of phase out EV subsidies by the
Speaker 1: end of twenty two, the country will rely more and
Speaker 1: more on this sort of the supply side policies like
Speaker 1: the V credit system as well as a few economy
Speaker 1: or the CFC credit system, so essentially that automakers have
Speaker 1: to fulfill those targets. Okay, So there's kind of a
Speaker 1: carrot and a stick in place, So you have a
Speaker 1: subsidy for the purchasers or the buyers of evs, and
Speaker 1: I think he said in the report that made sales,
Speaker 1: you saw an eleven percent increase on evs. Is that right? Well,
Speaker 1: it's hard to say that it's kind of the subsidies
Speaker 1: is the most important factor or driver in EV cells
Speaker 1: last year, but yeah, I think it's still a very
Speaker 1: very useful to loosing place. Okay, So you have the
Speaker 1: carrot and the sticks, and so the carrot is going
Speaker 1: to be phased out so the e V subsidy, but
Speaker 1: the stick is going to be well more more powerful
Speaker 1: in terms of you know that the targets that will
Speaker 1: go up for the n e V and the c
Speaker 1: A f C. Is that right? Yeah, okay, cool, Let's
Speaker 1: talk about some of the other impacts of the policy.
Speaker 1: So what happens to companies in a credit deficit? So
Speaker 1: what is the penalty if an automaker fills to to
Speaker 1: meet the government assigned target, So it will kind of
Speaker 1: in a in a deficit of the a V credits.
Speaker 1: So to offsete those the credit deficit, they have to
Speaker 1: either buy or transfer some of the credits from their
Speaker 1: competitors and joint ventures. And if they still cannot make
Speaker 1: up the deficit. Right now, China doesn't really have a
Speaker 1: financial penalties and like those in California or elsewhere, so
Speaker 1: basically you won't face a like a fine for it.
Speaker 1: But but I think on the other side said the
Speaker 1: government do has a kind of a wet list for
Speaker 1: models that are can be available to solve. So that
Speaker 1: means that if you cannot need that that or if
Speaker 1: you if an automaker has a has a credit deficit
Speaker 1: that it cannot be ballanced out. It cannot sell particularly
Speaker 1: ice vehicles that's not really fuel efficient, So it's just
Speaker 1: that kind of losing market shares, So that's your real risk.
Speaker 1: It's not necessarily a penalty risk, but it's a risk
Speaker 1: of not being able to sell your car, yes, particularly
Speaker 1: like pickups, as you'll be sold those with like more
Speaker 1: higher fuel consumptions. And this means that EV credits have
Speaker 1: been sold and traded right, So if companies are in
Speaker 1: a deficit and they want to to get credits to
Speaker 1: cover their their deficit, they can buy from other manufacturers.
Speaker 1: As you mentioned, do we have an indication of either
Speaker 1: how this works or even the price for buying the credits.
Speaker 1: I think first is that the price is still where
Speaker 1: the preced is still very limited. First because China doesn't
Speaker 1: really have like a fine which always kind of serves
Speaker 1: as a price sailing for for the maximum level of
Speaker 1: the credit or the max level of the value per credit.
Speaker 1: So that means a lot of automakers right now are
Speaker 1: actually negotiating the the price of the table, so rather
Speaker 1: than entering into like a feed or except or an auction.
Speaker 1: We do think because like back in twenty nineteen, there's
Speaker 1: or in there's has been an over supply of a
Speaker 1: V credits in the market, which translated into probably lower
Speaker 1: credits or lower value per per credit. But however, we
Speaker 1: do see that because there's the supply of the n
Speaker 1: V credit has been decreasing because of the strandent target,
Speaker 1: and that will kind of help drop at the price.
Speaker 1: So some of the report or some of the articles
Speaker 1: suggested that back in nineteen the price per AV credits
Speaker 1: around like seventy dollars per credit, but now it had
Speaker 1: an increased to over two hundred dollars, which is still
Speaker 1: relatively low compared to other markets, etcetera. Relatively low, it
Speaker 1: seems high to me. Well, we we do expect that
Speaker 1: as the supplies of the credits decreases, the price of
Speaker 1: per any credit will definitely be going up in the
Speaker 1: next few years and even probably even double the current level.
Speaker 1: So that could be an expensive prospect for manufacturers that
Speaker 1: are in a deficit. So once again pushing for more
Speaker 1: actual evs to be sold in the market. Okay, so
Speaker 1: we're gonna take a quick break, and when we come back,
Speaker 1: we're going to talk about what this all means for manufacturers,
Speaker 1: both for and domestic in China, what this means for
Speaker 1: their sales in that market. Stay with us, Okay, let's
Speaker 1: talk about who's active in China and who's actually having
Speaker 1: to be concerned about these ny V credits and the
Speaker 1: c A f C. Can you tell us a bit
Speaker 1: about who the foreign and domestic players are in the
Speaker 1: Chinese auto market. So I think it really has to
Speaker 1: look down to bost the ice vehicle market, but also
Speaker 1: the EV market. I think for ice vehicle markets that
Speaker 1: a lot of the foreign manufacturers are still dominating trying
Speaker 1: to see your market Lexposkwagan General Motors and they sell
Speaker 1: through their Chinese story adventures. But for EV market it's
Speaker 1: mostly local brand particularly like b y D or b
Speaker 1: a Isa, etcetera. But there's also an increasing number of
Speaker 1: either the foreign companies as well as kind of pure
Speaker 1: e V players like Tessa being actively selling e V
Speaker 1: s in China for both credits and the few consumption
Speaker 1: CFC credit positions. So because a lot of the four
Speaker 1: international automakers, as just say like Bothwaga and they sell
Speaker 1: a lot of ice vehicles in China, that means they
Speaker 1: have a huge credits epicite in terms of both an
Speaker 1: EV credits but also the CFC credits. So on the
Speaker 1: other side, small domestic manufacturers like b y D and
Speaker 1: because they have a large portfolio or evs in their
Speaker 1: total stills and they get both surplus for an EV
Speaker 1: credits and CFC credits. Domestic automakers tend to have more
Speaker 1: an EV credits or the time to have a surplus
Speaker 1: of any credits. So my initial thought on that was that, okay,
Speaker 1: so it sounds like VW might want to rush to
Speaker 1: get it with I D three or electric vehicle into
Speaker 1: that market to kind of offset its ICE sales. Is
Speaker 1: that kind of what we're seeing happen or are they
Speaker 1: buying credits from other manufacturers? Yeah, I mean totally. I
Speaker 1: think what's fun is exactly in the position of they
Speaker 1: have to sell more evast in order to to meet
Speaker 1: the target. But unfortunately for probably the past few years,
Speaker 1: because there's such a huge amount of like ice be
Speaker 1: a coast with sol each year. So I think it's
Speaker 1: reported that VOT, one of the joint venture, is about
Speaker 1: to buy credits from Tesla in China out of price
Speaker 1: about like four four or four hundred sixty dollars per credit. Overall,
Speaker 1: I think the strategy for companies that Volts Wagening is
Speaker 1: skilled to ramp up their BB productions in China and
Speaker 1: to increase their EB lineup as like I D three,
Speaker 1: I D four at least six, So essentially they want
Speaker 1: to so increase the evselves by themselves. Wow. Okay, So
Speaker 1: it seems, going back to guess big picture, that you
Speaker 1: have Chinese peer play EV manufacturers and well, I guess
Speaker 1: Tesla and other foreign peer play EV manufacturers that are
Speaker 1: selling as much as they can in China to bank
Speaker 1: as many of these credits as they can to be
Speaker 1: able to use them in the future or sell them
Speaker 1: on to companies and deficits. That kind of how it's
Speaker 1: playing out. I think for for incumbent manufacturers like volt
Speaker 1: Swamen as well as their joint ventures with domestic players
Speaker 1: like w or I C I S, they're in a
Speaker 1: rough position this year. But therefore pew EV manufacturers like
Speaker 1: Testa or even domestic ones like Neal or x Poon,
Speaker 1: they're in a poll position because all the conset get
Speaker 1: is the pure credits and they can bank them and
Speaker 1: probably when the price reads of in futures they can
Speaker 1: sell them to or establish modermakers got a new revenue
Speaker 1: scream somehow, But it seems it seems like a short
Speaker 1: term game, right, It's short term pain for maybe v
Speaker 1: W I keep you know, VW is kind of an example,
Speaker 1: but it can mean any you know, ice dominant manufacturer.
Speaker 1: I guess that they're using this time, you know, to
Speaker 1: I guess pay other manufacturers for the credits while they
Speaker 1: bring in their evs into the market. Is that right, Yeah,
Speaker 1: it's that kind of the time they buy into become
Speaker 1: or when they try to ramp up BV production. Yeah.
Speaker 1: And so once I'm just trying to make sure I
Speaker 1: get this is that it would seem that as more
Speaker 1: evs enter the market, it's a revenue stream for nobody.
Speaker 1: That the the ultimate result of the policy is simply
Speaker 1: that you know, there's just more evs in the market
Speaker 1: and nobody's making money from this scheme through selling credits.
Speaker 1: Is that right or no? I think definitely having more
Speaker 1: evs is like one of the main objections for this policy.
Speaker 1: So if if each of them makers having like a
Speaker 1: huge amount of evs ev sales, I think the sort
Speaker 1: of indicative policy is successful. Okay, I'm asking all the
Speaker 1: wrong questions. No, I mean it's yeah, I think as
Speaker 1: you're right, it's so kind of a short term game
Speaker 1: for the STARTUF, but also my personal senses that it
Speaker 1: depends on if be double can actually sell that many EPs,
Speaker 1: because it's not really up to them, or is more
Speaker 1: up to consumers whether they want to buy a Tesla
Speaker 1: or or re double car. Right, well, fair play, Yeah, sure,
Speaker 1: are you seeing longer term I guess winners and losers
Speaker 1: in this this scheme. So any automakers whospian batting on
Speaker 1: or increasing their bad on ebs, it's going to be
Speaker 1: a winner in this in this scheme. So I think
Speaker 1: there are automakers of horrible were we're relying more on
Speaker 1: hybridization or hybrid vehicles as a complise tool like Toyota
Speaker 1: or Honda. It's kind of make it more challenge for
Speaker 1: them to meet the target because so the hybrid doesn't
Speaker 1: really account for the EV credits. So I think that's
Speaker 1: kind of a trick for or that's challenging for for
Speaker 1: for those automans because for those incombents. Okay, can we
Speaker 1: go back to the really high level overview and talk
Speaker 1: about just kind of who's in deficit and who's in
Speaker 1: surplus after NYV credits and you know, kind of who's
Speaker 1: winning at this game. Most Chinese automakers are having a
Speaker 1: surplus of both the EV credit as well as a
Speaker 1: C physic credit because they're they're high relatively high EV
Speaker 1: share in their total sales and on the contrares that
Speaker 1: automakers most international automakers of either European or either domicide
Speaker 1: in Europe or in the United States like Volkswaga and
Speaker 1: General Motors for etcetera. So these automakers tend to have
Speaker 1: a huge deficit of a UNI credit as well as
Speaker 1: their CFC credits. I think for Japanese automakers, they used
Speaker 1: to have some surplus of the CFC credit because they
Speaker 1: sell hybrids, which is good to offer them to to
Speaker 1: meet the fewer consumption targets. But nowadays because hybrid doesn't
Speaker 1: really take account towards EV credits, that means that they
Speaker 1: still have a huge or they still have a deficit
Speaker 1: of the EV credits. Are you saying that the Japanese
Speaker 1: manufacturers can meet the c A f C with the
Speaker 1: hybrid but they're they're generating fury n e V s
Speaker 1: through the scheme. They meant the target in twenty nineteen,
Speaker 1: but not because it's kind of getting it harder to
Speaker 1: meet from selling hybrid only. I see this is really interesting.
Speaker 1: It seems like we know that the auto manufacturing industry
Speaker 1: is relatively young. Is that fair to say? Yeah, And
Speaker 1: it seems that the old legacy, you know, manufacturers are
Speaker 1: the ones that are in deficit. So you have your GM,
Speaker 1: and you know your American manufacturers, they've been making ice
Speaker 1: vehicles forever, your European ones, same thing. And then you
Speaker 1: have your Japanese manufacturers that have been doing hybrids for
Speaker 1: a long time, and they're the ones that have been
Speaker 1: in deficit. And your newer ones, your Chinese manufacturers and
Speaker 1: your Tesla's and your pure players, they're doing really great
Speaker 1: at this. Is that fair to say? Policy is probably
Speaker 1: just like the government is trying to send a signal
Speaker 1: that if you want Chinese car market, you have to
Speaker 1: focus on a lot for the vehicles, which is a
Speaker 1: lot of the domestic governament whose are doing. If they
Speaker 1: wanted to that onto the Tinnis market, they have to
Speaker 1: be go for for life for vehicles. Yeah. I think
Speaker 1: the signal is getting pretty clear. That's it's really interesting.
Speaker 1: A couple of shows ago, we we talked about the
Speaker 1: EU e t S or the European Emissions Trading scheme,
Speaker 1: and I was kind of surprised, you know, I was like, Oh,
Speaker 1: it's actually having an impact, it's has teeth, it's actually
Speaker 1: doing something. I guess I'm a skeptic most of the
Speaker 1: time and a lot of these things like this, but
Speaker 1: it seems like this is kind of working too that
Speaker 1: it's the signal is pretty clear, and then it's driving
Speaker 1: more EV sales in the market, and it will in
Speaker 1: the future, as you said, the target will ramp up
Speaker 1: most likely. Can we talk a little bit more about
Speaker 1: access to the market. So if I'm an American manufacturer
Speaker 1: and I want access to the market, I have to
Speaker 1: do a joint venture with the Chinese company. Is that right?
Speaker 1: Is that still how it works? Kind I used to
Speaker 1: have the stowing venture or restrictions for any automakers want
Speaker 1: to enter the domestic market, but the restriction has been lifted.
Speaker 1: So TESTA is the first one the stoptics. I can
Speaker 1: established Holly owned foreign manufacturing plan in China. And we
Speaker 1: also see a lot of like BMW, there's either increasing
Speaker 1: their their shares in their existing joint ventures or they
Speaker 1: are kind of thinking about maybe setting up like their own,
Speaker 1: the Holy owned one in the future. Okay, so access
Speaker 1: to the market is going to be much more about
Speaker 1: the technology selling a n V than it is about
Speaker 1: a j V in the future. Yeah, because I don't
Speaker 1: think there's will be any restriction or probably I didn't
Speaker 1: really touch but her purpose anyway. So I think there's
Speaker 1: other ways to kind of restrict access to the market
Speaker 1: when to specify kind of which we are called will
Speaker 1: receive the credits or receive subsidies, and they may kind
Speaker 1: of discount some of the or take some of the foreigning,
Speaker 1: may vehicles aut of the equation or out of the
Speaker 1: kind of the white list. I think that's also maybe
Speaker 1: a more subtle tool to block for an automakers from
Speaker 1: entering the Chinese market. I guess the final question from
Speaker 1: me is did this policy make it into your modeling
Speaker 1: for the upcoming electric vehicle outlook? You know, did it
Speaker 1: make it into the forecasting for the Chinese market growth?
Speaker 1: I mean totally. I mean I think particular for the
Speaker 1: short term forecast, we do factor allotting the policy impact
Speaker 1: in China, like the V credit as well as a
Speaker 1: few economy credits. These are two very important policies. They're
Speaker 1: going to drive a V adoption in China in the
Speaker 1: short term. A short term we've been period, so we
Speaker 1: do increase because of the hard to meet. So for
Speaker 1: the n e V credits, we do see that it's
Speaker 1: relatively easy to meet for the industry as a whole,
Speaker 1: So it requires around like fift to eleven percent of
Speaker 1: the total sales to be electrics by like in around
Speaker 1: one So that target is easy to meet. But for
Speaker 1: the few consumption targets, for the few CFC targets, that's
Speaker 1: really challenging, and we we do expect that will help
Speaker 1: drive up the EV cells. We do expect EV sells
Speaker 1: in China to be around that's a lot and soon
Speaker 1: is that going to be the biggest market? I think, yeah, yeah,
Speaker 1: it's gonna be the biggest thing. There, you have it.
Speaker 1: What are you gonna be watching for in the Chinese
Speaker 1: EV market next? Like, what's the thing that you're you're
Speaker 1: looking out for in your research? Well, I think policy
Speaker 1: is definitely something that we watch a lot in the
Speaker 1: past because it's such an important driver in EV adoption.
Speaker 1: But as kind of the evy adoptions is now regular
Speaker 1: about five percent, we see consumers moving from the from
Speaker 1: this early adopter to be gradually and enter into the
Speaker 1: to them what a mass adoption faces, that's why we
Speaker 1: observe a lot more nuanced factors are going to drive
Speaker 1: ev adoptions such as the charging infrastructure coverage as well
Speaker 1: as maybe the resell values of the lactural vehicles, and
Speaker 1: we do observe all other kind of the more other
Speaker 1: factors are going to drive or potentially drive drive or
Speaker 1: become a bottom act to the to the massive adoption
Speaker 1: in the in the future. So basically watching for signs
Speaker 1: at the tipping point or whether that tipping point is
Speaker 1: going to be blocked somehow. Yeah, wow, cool sounds exciting.
Speaker 1: See thanks for joining, Thanks for having me. Today's episode
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