China Bets Big on Electric Cars

It's rapidly becoming one of the most famous (or infamous) features of China's most developed cities: In places like Beijing and Shanghai, the smog is so thick that it's sometimes hard to see more than a few blocks, visitors say. It's a bad problem that may be getting worse.

While the Chinese government has emphatically encouraged modernization, officials are sensitive about the clearly visible environmental side effects of China's automotive boom. In 2009, the government announced big plans to make China the world's electric-car superpower, allocating billions for research and calling for 1 million electric cars to be on its roads by mid-decade.

That was a lofty goal, and the hope was that China's domestic auto industry would take the lead. But so far, not much progress has been made -- and that may create an opening for Western automakers.

Chinese automakers face tough obstacles
China's domestic electric-vehicle leader is BYD Auto, the battery-and-auto maker that is partially owned by Warren Buffett's Berkshire Hathaway (NYS: BRK.A) . BYD, which has struggled in the last couple of years after a strong start, claims that its E6 electric sedan has a range of about 190 miles -- a bit more than entry-level versions of Tesla Motors' (NAS: TSLA) upcoming Model S sedan.

The E6 has enjoyed some modest success as a taxi in China, but significant sales have so far eluded the company. That hasn't stopped BYD from pressing forward, though. At this week's auto show in Beijing, the company showed an all-new electric car, the Denza, the first product of a joint venture with Mercedes-maker Daimler, along with a new plug-in hybrid car called the Qin (not to be confused with the "Dear Qin" concept car that Toyota (NYS: TM) is presenting at the same show).

But those models are exceptional, not least because they are so far the only home-grown Chinese EVs that look ready for the big time. Chinese automakers have faced the same obstacles to mass-market EVs that have challenged the major global automakers -- the cost and weight of batteries, indifferent consumers -- without the deep pockets and technological resources that Western automakers can bring to bear on the problem.

Meanwhile, those Western automakers are sensing an opportunity.

An opening for the big global automakers
There's definitely an opportunity, but the global automakers with big presences in China have sometimes seemed to be of two minds about the opportunity to make and sell electric cars there. On one hand, the Chinese government has a way of making incentives available to spur movement toward its goals. That seems likely to create a big market for advanced hybrids and electric cars in time.

On the other hand, automakers have understandably seemed reluctant to turn their latest EV and advanced-hybrid technology over to their Chinese joint-venture partners. That has put some at a disadvantage, as they've had to import their latest models -- imported cars are taxed heavily in China.

Still, many are pressing on. General Motors (NYS: GM) has been working on selling the Chevy Volt in China and is developing an all-electric car with its key joint-venture partner, SAIC. The company also has plans to bring its upcoming Cadillac ELR, a sort of upscale cousin to the Volt that is being positioned as the company's green flagship, to China -- though GM hasn't yet said whether it will be imported or made locally.

Nissan, which has won global acclaim for its all-electric Leaf sedan, recently announced that it will make an electric car in China with its joint-venture partner, Dongfeng. The upcoming car, called the Venucia, is expected to be a close mechanical relative of the Leaf. It's due by 2015. And Volkswagen, which trails only GM in the size of its Chinese presence, has said that it will begin making EVs in China by 2014.

Ford (NYS: F) , meanwhile, recently launched its Focus in China, where the acclaimed compact is being positioned as a somewhat upscale car. Ford has an all-electric version of the Focus, but it hasn't said whether it plans to bring it to China -- though CEO Alan Mulally has hinted that Ford plans to make EVs in China. With Ford set to rapidly expand its Chinese presence over the next few years, it's a safe bet that the company's hybrid technology -- and possibly its EVs -- will make an appearance if there's demand.

And given the way the Chinese government tends to work, it's likely that that demand will happen.

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At the time this article was published Fool contributor John Rosevear owns shares of Ford and General Motors. Follow him on Twitter at@jrosevear. The Motley Fool owns shares of Ford and Berkshire Hathaway.Motley Fool newsletter serviceshave recommended buying shares of Ford, Tesla Motors, General Motors, and Berkshire Hathaway and creating a synthetic long position in Ford.Try any of our Foolish newsletter servicesfree for 30 days. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.

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