WEBVTT - Tesla Crushing it in China's Car Cap and Trade 0:00:00.080 --> 0:00:03.480 Hi everyone. On June ninth, BENEF published its annual flagship 0:00:03.520 --> 0:00:07.480 report on transport, the Long Term Electric Vehicle Outlook, or 0:00:07.720 --> 0:00:11.880 EVO for short. The report looks at how electrification, shared mobility, 0:00:11.920 --> 0:00:14.480 and autonomous driving will impact road transport from now out, 0:00:15.800 --> 0:00:17.079 and a couple of weeks will have the head of 0:00:17.079 --> 0:00:20.079 Transport for BENF and evo's lead author Colin mccaracter on 0:00:20.120 --> 0:00:22.239 the show to run us through what they found. But 0:00:22.280 --> 0:00:24.720 today we've got kind of a preview or trailer for it, 0:00:25.120 --> 0:00:27.600 or at least an important part of it, which is China. 0:00:27.800 --> 0:00:29.880 In the report, Colin and the authors state that they 0:00:29.920 --> 0:00:33.640 expect evs to account for passenger vehicle sales in China 0:00:35.080 --> 0:00:41.520 rising and seventy. Now, this will put about two twenty 0:00:41.600 --> 0:00:43.960 million e vs on the road in China at that point. 0:00:44.440 --> 0:00:46.000 Needless to say, this is going to be a huge 0:00:46.040 --> 0:00:48.599 chunk of the global market. But how will things get there? 0:00:48.640 --> 0:00:51.400 How will the market grow to that point? Sure, there'll 0:00:51.400 --> 0:00:53.680 be a build out of robust charging infrastructure that's needed, 0:00:54.640 --> 0:00:57.360 and there are direct purchasing centers for consumers, but those 0:00:57.400 --> 0:00:59.800 are being phased out this weekend the show. We've got 0:01:00.280 --> 0:01:03.320 me Electric Vehicles analysts for BENF based out of Beijing. 0:01:03.600 --> 0:01:05.039 She's going to tell us about some of the government 0:01:05.080 --> 0:01:07.640 policies put into place to help accelerate e V adoption. 0:01:08.080 --> 0:01:10.640 See what I did there? Sorry, I couldn't resist. In particular, 0:01:10.959 --> 0:01:13.120 she'll tell us about the New Energy Vehicle or any 0:01:13.200 --> 0:01:16.800 V targets and corporate average fuel consumption credit systems. Under 0:01:16.800 --> 0:01:19.200 the n e V credit system, automakers are required to 0:01:19.200 --> 0:01:21.880 generate any V credits from the production of battery, electric, 0:01:22.160 --> 0:01:25.160 plug and hybrid and fuel cell vehicles in order to 0:01:25.160 --> 0:01:28.800 meet the government assigned any V targets. Manufacturers that do 0:01:28.920 --> 0:01:32.120 not generate enough credits can purchase them from other automakers 0:01:32.160 --> 0:01:34.720 to avoid penalties. It's kind of like cap and trade, 0:01:34.760 --> 0:01:36.720 but for cars. And see he's going to tell us 0:01:36.720 --> 0:01:39.080 all about it. Our discussion is based on a report 0:01:39.720 --> 0:01:43.200 China's New Energy Vehicle Credit system. Being a user can 0:01:43.200 --> 0:01:45.279 get this report on benef go on the Bloomberg terminal, 0:01:45.600 --> 0:01:48.639 BENIF dot com and the beanof mobile app. As a reminder, 0:01:48.680 --> 0:01:50.840 Beanis does not provide investment or strategy advice, and you 0:01:50.840 --> 0:01:52.560 can hear the full disclaimer at the end of the show. 0:01:53.000 --> 0:01:55.120 I'm Mark Taylor, and you're listening to switch on the 0:01:55.120 --> 0:02:05.160 BENF podcast see thanks for joining today, Thanks for having me. 0:02:05.480 --> 0:02:07.920 Can you start us off just with a very very 0:02:08.160 --> 0:02:13.880 high level overview of China's emission reduction target. China's presidents 0:02:13.919 --> 0:02:18.680 EMP actually announced that zero carbon neutrality targets in September. 0:02:18.880 --> 0:02:22.320 So the goal is to have China reach the carbon 0:02:22.400 --> 0:02:27.040 peak by and to reach carbon neutral by. So what 0:02:27.240 --> 0:02:30.400 it translated into the world transport sector is that well, 0:02:30.440 --> 0:02:34.400 although there's no specific targets set for particular sector, paints 0:02:34.440 --> 0:02:37.720 a very direct picture that the country, the central government 0:02:37.800 --> 0:02:41.440 wants all sectors in the in the country to essentially 0:02:41.440 --> 0:02:44.720 to de carbonized and the passway for different for different 0:02:44.760 --> 0:02:47.160 sectors company as far as a lot. So they want 0:02:47.160 --> 0:02:52.000 to hit their peak of emissions. Would you say, okay, wow, 0:02:52.040 --> 0:02:55.320 and then start coming down to zero by so thirty 0:02:55.360 --> 0:02:58.840 years too to come down the mountain. I guess today 0:02:58.880 --> 0:03:01.200 we're going to focus mostly on e v s or 0:03:01.200 --> 0:03:05.560 electric vehicles and a policy that's come into play to 0:03:05.680 --> 0:03:07.920 try to get those sales up and therefore get the 0:03:07.919 --> 0:03:12.120 emissions down from the transportation sector, can you explain to 0:03:12.240 --> 0:03:15.120 us just the well, start us off with the name 0:03:15.120 --> 0:03:18.400 of the policy and a bit about its objectives. These 0:03:18.480 --> 0:03:22.200 policy tools actually called New Energy Vehicle Mandate, So New 0:03:22.320 --> 0:03:26.080 endin Vehicle is kind of China's definition of the electric vehicle, 0:03:26.160 --> 0:03:30.280 which include battery, electric, plug in hybrid, and fuel cell vehicles. 0:03:30.280 --> 0:03:33.880 So the mandate itself is very similar to California Stereo 0:03:33.960 --> 0:03:39.480 Emission Vehicle or the mandate, and it requires automakers to 0:03:39.760 --> 0:03:45.040 sell electric vehicles in order to produce NAP credit that's 0:03:45.040 --> 0:03:49.600 going to meet a government assigned target. So essentially the 0:03:49.640 --> 0:03:55.600 policy tool is designed to push automakers to sell more 0:03:55.680 --> 0:04:00.280 electric vehicles, which the broader goal of China's push behind 0:04:00.320 --> 0:04:04.440 the autric vehicle is not only to reduce carbon emission, 0:04:04.640 --> 0:04:07.480 but also to reduce all the import and to transform 0:04:07.680 --> 0:04:11.880 is industry towards more advance. Okay, so the idea is 0:04:11.960 --> 0:04:15.120 that to reduce emissions by getting more electric vehicles out 0:04:15.120 --> 0:04:18.000 on the road, and they do that by giving in 0:04:18.040 --> 0:04:21.400 a new Energy Vehicle or an any V credit for 0:04:21.440 --> 0:04:24.080 each electric vehicle sold to the automakers. Is that how 0:04:24.080 --> 0:04:27.040 it works? Yeah, I think the policy itself is kind 0:04:27.040 --> 0:04:30.240 of like just to force automakers, essentially to push automaker 0:04:30.320 --> 0:04:33.280 to sell more evs. I think that's like the one 0:04:33.320 --> 0:04:36.520 I subject for this policy. So the government will sign 0:04:36.640 --> 0:04:41.400 like a target just in proportion to an automaker's domestic 0:04:41.440 --> 0:04:45.080 production and imports of internal combustion and general ice vehicles. 0:04:45.440 --> 0:04:49.040 So the more ice vehicles and automaket selling, the higher 0:04:49.040 --> 0:04:51.600 target they will face. That means they will need to 0:04:51.640 --> 0:04:54.240 sell more credits in order to meet the target, or 0:04:54.320 --> 0:04:57.240 they have to buy credits from their competitors. I think. 0:04:57.279 --> 0:04:59.600 Also the second part of the net credit met or 0:04:59.640 --> 0:05:04.240 the ne credit mandate is that it's linked with China's 0:05:04.680 --> 0:05:08.800 few economy regulations that some of the automakers can use 0:05:08.839 --> 0:05:12.680 the MAP credit to offset there or two as a 0:05:12.720 --> 0:05:15.640 compliance tool to help them meet to the stringent few 0:05:15.640 --> 0:05:20.520 economy regulations. Okay, so the government sets a target. It 0:05:20.680 --> 0:05:24.080 started I think last year at ten of all sales 0:05:24.800 --> 0:05:27.640 having to go to e vs. Is that right? And 0:05:27.640 --> 0:05:30.800 then this year it's yeah, the target set up ten 0:05:30.880 --> 0:05:36.400 percent for so the new energy vehicle credit policy. Can 0:05:36.400 --> 0:05:39.200 you explain just very basically how that works. China's new 0:05:39.320 --> 0:05:42.760 editor vehicle credit system is kind of a policy that 0:05:42.880 --> 0:05:46.599 requires automakers to sell electrical vehicles in order to meet 0:05:46.720 --> 0:05:50.039 and government assigned the target. And when did it start? 0:05:50.080 --> 0:05:52.839 It started last year. So the policy was actually is 0:05:52.839 --> 0:05:56.039 shooting into A seventeen, but it came into effact throughout 0:05:56.080 --> 0:05:59.000 a nineteen national And what does the government target mean? 0:05:59.160 --> 0:06:02.160 How does that work? So the government target is set 0:06:02.160 --> 0:06:06.200 ten percent in twenty nineteen and twelve percent in and 0:06:06.200 --> 0:06:11.080 we'll kind of linearly increase to eighteen percent in. So 0:06:11.120 --> 0:06:17.159 the ten percent is proportional to an automaker's dometics, domestic production, 0:06:17.360 --> 0:06:21.880 imports of internal combustion, and general ice vehicle. But this 0:06:21.960 --> 0:06:24.840 doesn't mean that the e V share of their total 0:06:25.200 --> 0:06:28.560 cells have to be reached ten percent in twenty nineteen. Okay. 0:06:28.960 --> 0:06:33.680 So if I'm an automaker and I sold a hundred vehicles, 0:06:33.839 --> 0:06:36.560 you know, a hundred ice vehicles during I don't know 0:06:36.760 --> 0:06:40.000 during this year, that means I'm on the hook to 0:06:40.560 --> 0:06:43.280 produce ten n V credits, is that right? And then 0:06:43.480 --> 0:06:47.280 twelve in the next year. Ten credits in twenty nineteen. 0:06:47.480 --> 0:06:52.200 First one, you have to have at least like fourteen 0:06:52.279 --> 0:06:55.400 and you BI credits this is fourteen, okay, So how 0:06:55.400 --> 0:06:59.120 do I get those credits? So there's a few different options, right, Yes, 0:06:59.279 --> 0:07:01.360 I think the simple as option is that you just 0:07:01.480 --> 0:07:05.280 produce more evs, which kind of include very large joy 0:07:05.320 --> 0:07:08.159 plug in hybrid or fuel cell vehicles. I think the 0:07:08.200 --> 0:07:11.200 second option is that if you cannot have that enough, 0:07:11.520 --> 0:07:13.720 or if you do not have enough e B cells, 0:07:13.760 --> 0:07:17.320 you can buy credits from your competitors, or you can 0:07:17.480 --> 0:07:20.480 have some of the credit transfer from like your joid 0:07:20.560 --> 0:07:23.840 venture set. Okay, so this is kind of like cap 0:07:23.880 --> 0:07:26.800 and trade in power, right, So you you cap the 0:07:26.840 --> 0:07:30.040 emissions I guess in this this case instead of two 0:07:30.040 --> 0:07:33.360 commune smokestack, it's from a tailpipe. This is kind of 0:07:33.400 --> 0:07:35.920 like cap and trade for for for power plants, right, 0:07:36.360 --> 0:07:39.920 but instead of capping CEO two from the exhaust from smokestack, 0:07:40.040 --> 0:07:43.920 it's from tailpipe. Is that right? Yes? Okay, you know 0:07:43.960 --> 0:07:46.600 you can either switch you know, to renewables or in 0:07:46.600 --> 0:07:49.040 this case e V s and if you don't have 0:07:49.160 --> 0:07:52.480 the the capability of doing that, you can buy credits 0:07:52.480 --> 0:07:55.800 so you can keep selling internal combustion or ice vehicles. 0:07:55.880 --> 0:08:00.400 Is that right? Yes? So does this result in twelve 0:08:00.400 --> 0:08:03.920 percent higher e V sales or how does that work? 0:08:04.280 --> 0:08:06.400 So the twelve percent doesn't mean that each other maker 0:08:06.480 --> 0:08:09.120 have to have twelve percent of your total sales to 0:08:09.160 --> 0:08:12.160 be electric. For each electric vehicle they can generate more 0:08:12.160 --> 0:08:15.960 than one credit, and for bettery luxury they can generate 0:08:16.000 --> 0:08:21.400 up to five actually six credits in the period, and 0:08:21.440 --> 0:08:25.160 it's like around like somewhere like nearly four credits starting 0:08:25.160 --> 0:08:28.800 from this year, and for plugging hybrids is normally just 0:08:28.840 --> 0:08:32.040 like two credits. Oh wow. Okay, so that's pretty cool. 0:08:32.080 --> 0:08:34.760 So there's kind of a sliding skill, and I hate 0:08:34.760 --> 0:08:36.600 to keep going back to power, but it's kind of like, 0:08:37.040 --> 0:08:40.000 you know, there's a little bit of credit for gas, 0:08:40.000 --> 0:08:42.199 you know, a little bit fewer emissions, you know, you 0:08:42.240 --> 0:08:44.920 can equate that to a plug in hybrid, but then 0:08:44.960 --> 0:08:47.320 going fully electric you get more credits, kind of like 0:08:47.320 --> 0:08:49.760 going fully renewable in power. I guess you could say 0:08:50.120 --> 0:08:54.719 that's cool. So if I'm a pure play electric vehicle manufacturer, 0:08:54.760 --> 0:08:58.199 I'm producing all kinds of credits exactly. I think pure 0:08:58.559 --> 0:09:02.160 electric vehicle manufact are in a really poor position is 0:09:02.200 --> 0:09:05.280 credit because all they can have or they can generate 0:09:05.960 --> 0:09:09.640 thousands or hundred tons of thousands of credit without having 0:09:09.640 --> 0:09:12.880 any liabilities. Okay, so let's let's get into that in 0:09:12.880 --> 0:09:15.760 a second. But before we do, can we go a 0:09:15.800 --> 0:09:19.520 little bit further with the policy itself. You mentioned it 0:09:19.600 --> 0:09:22.360 started off at ten percent. Now it's at next year 0:09:22.400 --> 0:09:26.080 it's at four percent, and where will it go at 0:09:26.120 --> 0:09:29.560 the end the government sets the target will be fourteen 0:09:29.600 --> 0:09:32.920 percent for one and will kind of increase to eighteen 0:09:32.960 --> 0:09:38.280 percent in three and beyond that the government hasn't specified 0:09:38.440 --> 0:09:40.760 kind of a target. We expect there will be a 0:09:40.760 --> 0:09:44.280 more exponential increase. That's not really going to be linearly 0:09:44.400 --> 0:09:46.599 increased anymore. So the idea is to kind of to 0:09:46.640 --> 0:09:49.720 push automantor will sound more and more evs in by 0:09:49.920 --> 0:09:52.600 setting a higher target. Okay, so you expect they're using 0:09:52.600 --> 0:09:54.880 this is kind of a ramping period to where in 0:09:54.920 --> 0:09:57.040 a few years the target to be much higher and 0:09:57.400 --> 0:09:59.400 hopefully they'll just be producing whole bunch of vs at 0:09:59.440 --> 0:10:01.600 that point. Yeah, just stepping back a little bit. We 0:10:01.679 --> 0:10:05.040 talked in a recent show, I think it was four 0:10:05.120 --> 0:10:10.480 or five weeks ago about GM and Volkswagen taking on 0:10:10.559 --> 0:10:13.320 Tesla in the US and Europe. But we set an 0:10:13.320 --> 0:10:16.319 impediment to growth in those markets was a charging network. 0:10:16.480 --> 0:10:18.160 You know that most people would buy e v s, 0:10:18.240 --> 0:10:22.199 myself included, actually if the charging network were better. So 0:10:22.880 --> 0:10:25.040 how is the charging network in China? Is it an 0:10:25.080 --> 0:10:28.440 impediment to the NTV program or an enabling feature of it. 0:10:28.880 --> 0:10:32.000 So I think having a bar in order to reach 0:10:32.080 --> 0:10:34.080 count and ask if you have the option that trying 0:10:34.120 --> 0:10:38.800 to really need a better charging infrastructure network. By that 0:10:38.920 --> 0:10:42.160 I mean both for for the public chargers that also 0:10:42.400 --> 0:10:46.599 there there should be chargers available for a home or 0:10:46.720 --> 0:10:49.800 at the workplace. So I think China is still account 0:10:49.840 --> 0:10:53.679 for accounts on the half of the global public charger installations. 0:10:53.679 --> 0:10:55.600 So there has been a quick ramp up of public 0:10:55.679 --> 0:11:00.240 charging infrastructure, but all that's mostly because the buildings still 0:11:00.320 --> 0:11:03.320 kind of in China is mostly high high rise buildings 0:11:03.440 --> 0:11:08.360 that limits people's access to the private parking spaces. What 0:11:08.400 --> 0:11:10.559 are you seeing where you live and based in Beiging, 0:11:10.760 --> 0:11:13.200 So since Veiging in such a like a metropolitan city, 0:11:13.320 --> 0:11:17.120 I see public chargers almost everywhere in the hotels and 0:11:17.600 --> 0:11:21.440 the never office, so every almost everywhere. But I think 0:11:22.160 --> 0:11:25.600 what's been challenging for people living in major cities in 0:11:25.679 --> 0:11:29.920 China is to have access to home chargers because now 0:11:29.920 --> 0:11:34.559 all of them can guarantee a a private parking space. Yeah, 0:11:34.640 --> 0:11:37.240 that's the challenge for me here in London as well, 0:11:37.480 --> 0:11:40.120 or access to to charging. Okay, so moving on to 0:11:40.559 --> 0:11:44.840 a different part of the policy, the corporate average fuel 0:11:44.880 --> 0:11:48.480 consumption target sounds captivating. It's the C a f C. 0:11:49.080 --> 0:11:51.560 Can you explain what that is? So essentially it's a 0:11:51.679 --> 0:11:55.120 it does a few economy regulations for passenger cars. So 0:11:55.160 --> 0:11:58.599 many countries actually used for economy regulations to reduce the 0:11:58.679 --> 0:12:01.360 carbon mention as well as the few consumption so the 0:12:01.360 --> 0:12:04.439 average presenter car fleet. And as we also a way 0:12:04.520 --> 0:12:08.400 to to promote EVS by signing a really low few 0:12:08.679 --> 0:12:13.800 consumption or few consumption values for evs. So for China's policies, 0:12:13.920 --> 0:12:16.640 in the kind of the Chinese few economy regulation, it 0:12:16.720 --> 0:12:20.640 sets a target for the average passenger vehicle car fleet 0:12:20.720 --> 0:12:24.680 to ridge for leaders for a hundred kilometers by twenty 0:12:24.920 --> 0:12:28.880 which is very stringent, almost on par with that in Europe, 0:12:29.040 --> 0:12:32.400 and it's also more strangent than that team that's in 0:12:32.480 --> 0:12:35.400 place in Japan and the United States. Okay, so the 0:12:35.440 --> 0:12:39.040 government is setting a target for fuel economy and you 0:12:39.080 --> 0:12:43.720 can get there by having really ridiculously efficient ice vehicles, 0:12:43.840 --> 0:12:46.720 and I guess in evs which bring down the average 0:12:46.720 --> 0:12:49.880 to make you more efficient or more fuel economic. Is 0:12:49.880 --> 0:12:52.560 that right? Yes? I think the benefits of selling e 0:12:52.679 --> 0:12:57.280 VS is not only evs are are given basically zero 0:12:57.679 --> 0:13:00.719 few consumption values, but also because there's sometimes it will 0:13:00.760 --> 0:13:04.760 sign a multiplier too, So so producing each electric vehicle 0:13:04.920 --> 0:13:08.360 is counted twice or three times that of the ice car. 0:13:08.600 --> 0:13:12.240 Let's talk about the impact of these two policies, So 0:13:12.559 --> 0:13:15.959 the impact of the NYV credits and the c a 0:13:16.120 --> 0:13:19.480 f C there the corporate average fuel consumption target on 0:13:19.600 --> 0:13:21.920 sales and emissions. Can you can? I just walk us 0:13:21.920 --> 0:13:24.400 through both those for the n e V credit system, 0:13:24.720 --> 0:13:27.640 so it's just kind of push automakers to sell more 0:13:27.720 --> 0:13:31.600 e v s unless you lowered your overall ice production, 0:13:31.640 --> 0:13:34.040 which is something that automate hasn't really wants to lose 0:13:34.040 --> 0:13:37.760 their market share. I think for the few economy regulation, 0:13:38.000 --> 0:13:41.960 as you mentioned earlier, it's about forcing automakers to either 0:13:42.000 --> 0:13:46.640 have really efficient ice vehicles like hybrid or mildhabber, et cetera, 0:13:47.240 --> 0:13:49.640 or you have to sell more evs. So I think 0:13:49.679 --> 0:13:53.959 combining these two policies, the overall objective is just to 0:13:54.920 --> 0:13:58.720 accelerate the cells or the adoption of electric vehicles in China, 0:13:58.960 --> 0:14:01.280 and is it working to some extent, It is hard 0:14:01.280 --> 0:14:04.480 to say that it's working because China also have the 0:14:04.600 --> 0:14:07.480 kind of the some more more direct policy tools in place, 0:14:07.520 --> 0:14:10.040 like the purchase subsidies, which has been very powerful to 0:14:10.200 --> 0:14:13.559 in promoting the V cells. But I think as China 0:14:13.720 --> 0:14:17.160 plans to kind of phase out EV subsidies by the 0:14:17.240 --> 0:14:20.120 end of twenty two, the country will rely more and 0:14:20.200 --> 0:14:23.240 more on this sort of the supply side policies like 0:14:23.280 --> 0:14:26.440 the V credit system as well as a few economy 0:14:26.760 --> 0:14:31.120 or the CFC credit system, so essentially that automakers have 0:14:31.240 --> 0:14:34.920 to fulfill those targets. Okay, So there's kind of a 0:14:34.960 --> 0:14:37.160 carrot and a stick in place, So you have a 0:14:37.200 --> 0:14:40.880 subsidy for the purchasers or the buyers of evs, and 0:14:40.920 --> 0:14:44.080 I think he said in the report that made sales, 0:14:44.600 --> 0:14:49.600 you saw an eleven percent increase on evs. Is that right? Well, 0:14:49.880 --> 0:14:52.720 it's hard to say that it's kind of the subsidies 0:14:52.800 --> 0:14:56.440 is the most important factor or driver in EV cells 0:14:56.600 --> 0:14:58.680 last year, but yeah, I think it's still a very 0:14:58.840 --> 0:15:01.720 very useful to loosing place. Okay, So you have the 0:15:01.720 --> 0:15:04.000 carrot and the sticks, and so the carrot is going 0:15:04.040 --> 0:15:06.600 to be phased out so the e V subsidy, but 0:15:06.680 --> 0:15:11.640 the stick is going to be well more more powerful 0:15:12.320 --> 0:15:14.240 in terms of you know that the targets that will 0:15:14.280 --> 0:15:17.120 go up for the n e V and the c 0:15:17.240 --> 0:15:20.840 A f C. Is that right? Yeah, okay, cool, Let's 0:15:20.840 --> 0:15:23.040 talk about some of the other impacts of the policy. 0:15:23.160 --> 0:15:26.360 So what happens to companies in a credit deficit? So 0:15:27.000 --> 0:15:30.800 what is the penalty if an automaker fills to to 0:15:30.920 --> 0:15:33.920 meet the government assigned target, So it will kind of 0:15:34.160 --> 0:15:37.520 in a in a deficit of the a V credits. 0:15:37.560 --> 0:15:40.960 So to offsete those the credit deficit, they have to 0:15:41.040 --> 0:15:44.160 either buy or transfer some of the credits from their 0:15:44.200 --> 0:15:48.880 competitors and joint ventures. And if they still cannot make 0:15:48.960 --> 0:15:52.360 up the deficit. Right now, China doesn't really have a 0:15:52.520 --> 0:15:57.200 financial penalties and like those in California or elsewhere, so 0:15:57.360 --> 0:16:00.760 basically you won't face a like a fine for it. 0:16:00.800 --> 0:16:03.880 But but I think on the other side said the 0:16:03.920 --> 0:16:06.400 government do has a kind of a wet list for 0:16:06.600 --> 0:16:10.120 models that are can be available to solve. So that 0:16:10.200 --> 0:16:13.040 means that if you cannot need that that or if 0:16:13.040 --> 0:16:16.560 you if an automaker has a has a credit deficit 0:16:16.600 --> 0:16:21.680 that it cannot be ballanced out. It cannot sell particularly 0:16:21.720 --> 0:16:26.200 ice vehicles that's not really fuel efficient, So it's just 0:16:26.240 --> 0:16:29.360 that kind of losing market shares, So that's your real risk. 0:16:29.600 --> 0:16:33.040 It's not necessarily a penalty risk, but it's a risk 0:16:33.080 --> 0:16:35.720 of not being able to sell your car, yes, particularly 0:16:35.720 --> 0:16:39.080 like pickups, as you'll be sold those with like more 0:16:39.320 --> 0:16:42.960 higher fuel consumptions. And this means that EV credits have 0:16:43.040 --> 0:16:45.760 been sold and traded right, So if companies are in 0:16:45.800 --> 0:16:48.080 a deficit and they want to to get credits to 0:16:48.120 --> 0:16:52.320 cover their their deficit, they can buy from other manufacturers. 0:16:52.320 --> 0:16:55.840 As you mentioned, do we have an indication of either 0:16:55.880 --> 0:16:58.640 how this works or even the price for buying the credits. 0:16:58.880 --> 0:17:02.320 I think first is that the price is still where 0:17:02.320 --> 0:17:05.760 the preced is still very limited. First because China doesn't 0:17:05.800 --> 0:17:09.640 really have like a fine which always kind of serves 0:17:09.680 --> 0:17:12.560 as a price sailing for for the maximum level of 0:17:12.680 --> 0:17:16.240 the credit or the max level of the value per credit. 0:17:16.640 --> 0:17:19.120 So that means a lot of automakers right now are 0:17:19.119 --> 0:17:24.080 actually negotiating the the price of the table, so rather 0:17:24.119 --> 0:17:27.840 than entering into like a feed or except or an auction. 0:17:28.400 --> 0:17:31.760 We do think because like back in twenty nineteen, there's 0:17:32.040 --> 0:17:36.800 or in there's has been an over supply of a 0:17:36.960 --> 0:17:42.240 V credits in the market, which translated into probably lower 0:17:42.320 --> 0:17:46.760 credits or lower value per per credit. But however, we 0:17:46.840 --> 0:17:50.440 do see that because there's the supply of the n 0:17:50.560 --> 0:17:55.000 V credit has been decreasing because of the strandent target, 0:17:55.480 --> 0:17:57.800 and that will kind of help drop at the price. 0:17:59.000 --> 0:18:02.280 So some of the report or some of the articles 0:18:02.280 --> 0:18:06.960 suggested that back in nineteen the price per AV credits 0:18:07.040 --> 0:18:11.760 around like seventy dollars per credit, but now it had 0:18:11.760 --> 0:18:14.800 an increased to over two hundred dollars, which is still 0:18:15.480 --> 0:18:20.440 relatively low compared to other markets, etcetera. Relatively low, it 0:18:20.480 --> 0:18:23.520 seems high to me. Well, we we do expect that 0:18:23.720 --> 0:18:28.520 as the supplies of the credits decreases, the price of 0:18:29.240 --> 0:18:32.240 per any credit will definitely be going up in the 0:18:32.280 --> 0:18:36.120 next few years and even probably even double the current level. 0:18:36.359 --> 0:18:39.159 So that could be an expensive prospect for manufacturers that 0:18:39.320 --> 0:18:42.439 are in a deficit. So once again pushing for more 0:18:42.480 --> 0:18:45.480 actual evs to be sold in the market. Okay, so 0:18:45.480 --> 0:18:47.080 we're gonna take a quick break, and when we come back, 0:18:47.119 --> 0:18:49.640 we're going to talk about what this all means for manufacturers, 0:18:49.640 --> 0:18:52.160 both for and domestic in China, what this means for 0:18:52.240 --> 0:19:06.000 their sales in that market. Stay with us, Okay, let's 0:19:06.040 --> 0:19:08.960 talk about who's active in China and who's actually having 0:19:08.960 --> 0:19:12.399 to be concerned about these ny V credits and the 0:19:12.480 --> 0:19:14.560 c A f C. Can you tell us a bit 0:19:14.560 --> 0:19:17.840 about who the foreign and domestic players are in the 0:19:17.920 --> 0:19:20.879 Chinese auto market. So I think it really has to 0:19:20.880 --> 0:19:24.080 look down to bost the ice vehicle market, but also 0:19:24.119 --> 0:19:27.159 the EV market. I think for ice vehicle markets that 0:19:27.359 --> 0:19:30.080 a lot of the foreign manufacturers are still dominating trying 0:19:30.080 --> 0:19:34.440 to see your market Lexposkwagan General Motors and they sell 0:19:34.600 --> 0:19:38.440 through their Chinese story adventures. But for EV market it's 0:19:38.480 --> 0:19:42.480 mostly local brand particularly like b y D or b 0:19:42.640 --> 0:19:46.480 a Isa, etcetera. But there's also an increasing number of 0:19:46.640 --> 0:19:50.399 either the foreign companies as well as kind of pure 0:19:50.440 --> 0:19:53.960 e V players like Tessa being actively selling e V 0:19:54.119 --> 0:19:59.520 s in China for both credits and the few consumption 0:20:00.040 --> 0:20:03.640 CFC credit positions. So because a lot of the four 0:20:04.280 --> 0:20:08.040 international automakers, as just say like Bothwaga and they sell 0:20:08.080 --> 0:20:10.560 a lot of ice vehicles in China, that means they 0:20:10.640 --> 0:20:14.119 have a huge credits epicite in terms of both an 0:20:14.119 --> 0:20:17.119 EV credits but also the CFC credits. So on the 0:20:17.160 --> 0:20:21.399 other side, small domestic manufacturers like b y D and 0:20:21.600 --> 0:20:24.280 because they have a large portfolio or evs in their 0:20:24.400 --> 0:20:29.040 total stills and they get both surplus for an EV 0:20:29.160 --> 0:20:33.200 credits and CFC credits. Domestic automakers tend to have more 0:20:33.240 --> 0:20:35.639 an EV credits or the time to have a surplus 0:20:35.640 --> 0:20:38.879 of any credits. So my initial thought on that was that, okay, 0:20:39.000 --> 0:20:41.320 so it sounds like VW might want to rush to 0:20:41.320 --> 0:20:43.880 get it with I D three or electric vehicle into 0:20:43.880 --> 0:20:46.919 that market to kind of offset its ICE sales. Is 0:20:46.960 --> 0:20:49.400 that kind of what we're seeing happen or are they 0:20:49.440 --> 0:20:52.960 buying credits from other manufacturers? Yeah, I mean totally. I 0:20:53.000 --> 0:20:55.760 think what's fun is exactly in the position of they 0:20:55.760 --> 0:20:59.080 have to sell more evast in order to to meet 0:20:59.320 --> 0:21:03.359 the target. But unfortunately for probably the past few years, 0:21:03.400 --> 0:21:06.680 because there's such a huge amount of like ice be 0:21:06.760 --> 0:21:10.280 a coast with sol each year. So I think it's 0:21:10.280 --> 0:21:13.440 reported that VOT, one of the joint venture, is about 0:21:13.480 --> 0:21:16.399 to buy credits from Tesla in China out of price 0:21:16.400 --> 0:21:21.760 about like four four or four hundred sixty dollars per credit. Overall, 0:21:21.800 --> 0:21:24.600 I think the strategy for companies that Volts Wagening is 0:21:24.640 --> 0:21:28.320 skilled to ramp up their BB productions in China and 0:21:28.400 --> 0:21:31.600 to increase their EB lineup as like I D three, 0:21:31.640 --> 0:21:34.280 I D four at least six, So essentially they want 0:21:34.280 --> 0:21:38.040 to so increase the evselves by themselves. Wow. Okay, So 0:21:38.080 --> 0:21:40.800 it seems, going back to guess big picture, that you 0:21:40.880 --> 0:21:45.560 have Chinese peer play EV manufacturers and well, I guess 0:21:45.600 --> 0:21:49.200 Tesla and other foreign peer play EV manufacturers that are 0:21:49.400 --> 0:21:52.399 selling as much as they can in China to bank 0:21:52.400 --> 0:21:54.240 as many of these credits as they can to be 0:21:54.280 --> 0:21:56.160 able to use them in the future or sell them 0:21:56.160 --> 0:21:58.920 on to companies and deficits. That kind of how it's 0:21:58.920 --> 0:22:02.040 playing out. I think for for incumbent manufacturers like volt 0:22:02.080 --> 0:22:05.560 Swamen as well as their joint ventures with domestic players 0:22:05.600 --> 0:22:08.679 like w or I C I S, they're in a 0:22:08.760 --> 0:22:12.399 rough position this year. But therefore pew EV manufacturers like 0:22:12.520 --> 0:22:16.880 Testa or even domestic ones like Neal or x Poon, 0:22:17.440 --> 0:22:20.840 they're in a poll position because all the conset get 0:22:20.840 --> 0:22:23.040 is the pure credits and they can bank them and 0:22:23.520 --> 0:22:26.399 probably when the price reads of in futures they can 0:22:26.400 --> 0:22:31.040 sell them to or establish modermakers got a new revenue 0:22:31.080 --> 0:22:33.920 scream somehow, But it seems it seems like a short 0:22:34.000 --> 0:22:36.879 term game, right, It's short term pain for maybe v 0:22:37.040 --> 0:22:39.400 W I keep you know, VW is kind of an example, 0:22:39.440 --> 0:22:42.520 but it can mean any you know, ice dominant manufacturer. 0:22:42.560 --> 0:22:45.879 I guess that they're using this time, you know, to 0:22:46.359 --> 0:22:49.680 I guess pay other manufacturers for the credits while they 0:22:49.720 --> 0:22:53.160 bring in their evs into the market. Is that right, Yeah, 0:22:53.160 --> 0:22:55.800 it's that kind of the time they buy into become 0:22:56.000 --> 0:22:59.840 or when they try to ramp up BV production. Yeah. 0:23:00.280 --> 0:23:04.359 And so once I'm just trying to make sure I 0:23:04.400 --> 0:23:08.360 get this is that it would seem that as more 0:23:08.480 --> 0:23:11.240 evs enter the market, it's a revenue stream for nobody. 0:23:11.680 --> 0:23:14.919 That the the ultimate result of the policy is simply 0:23:14.960 --> 0:23:17.119 that you know, there's just more evs in the market 0:23:17.160 --> 0:23:20.800 and nobody's making money from this scheme through selling credits. 0:23:20.840 --> 0:23:23.800