Why efficiency technology still matters in China

Posted Monday, 17 September 2018, 18:11

On September 5, 2018, six years after its retreat from the U.S. car market., the Suzuki Motor Corp. officially pulled out of China. As stated by Suzuki’s Chairman, the consumer shift in China towards purchasing sport utility vehicles (SUVs) and away from the smaller cars which the company is known for partly forced this decision.

The market share from 2010 to 2017 of passenger cars by size is shown in the figure below. The sedan segment has decreased significantly from 69% of the market in 2010 to less than half in 2017. The markets for mini and small vehicles in particular are notably diminishing. However, the SUV segment increased dramatically from less than 10% to 42% of the market in 7 years.

Interestingly, data on electric vehicles sold in China tells a different story. In 2017, over 74% of battery electric vehicles (BEVs) fell in the mini or small segment (see figures below). The segment distribution of plug-in hybrid electric vehicles (PHEVs) is more in line with the mainstream market. Because BEVs and PHEVs only accounted for 1.9% and 0.5%, respectively, of total passenger car sales in 2017, the large share of mini and small electric vehicles did not significantly affect the entire fleet trend.

2017 Electric Vehicle market penetration by segment
2017 Electric vehicle market penetration by segment in China

The point is that, although China is expecting fast growth of the electric vehicle fleet, the BEV market currently does not reflect the consumer preference for larger vehicles in China. Therefore, while BEVs are contributing to reduced fleet average fuel consumption, they are not reducing fuel cost for the majority of people. This is particularly true of the fast-growing SUV segment where problems with battery cost and vehicle range are hindering sales.

Until BEVs can become prevalent enough to impact the mainstream market, there is still a need for technology solutions for conventional diesel and petrol vehicles to reduce fuel cost while improving drive experience. And, this is exactly what manufacturers are currently developing in China.

ICCT published a series of reports evaluating technology advancement trends in China and their future potential for reducing emissions. The reports found substantial ongoing efforts to advance efficiency technologies on conventional vehicles, including advanced engine technology, transmissions technology, vehicle technology, and thermal management technology. These efforts not only save consumers money due to better fuel efficiency, but also reduce technology cost as the production scale increases.

For example, the application of turbocharging and downsizing among new passenger cars increased from 7% in 2010 to 32% in 2016. Meanwhile, independent automakers are catching up with joint venture manufacturers (partnerships between domestic and foreign companies) in pairing gasoline direct injection (GDI) with turbocharged engines. Great Wall has applied turbocharging in the Haval H6, the top-selling SUV model in China from 2012 to 2017. Compared to its 2.4L natural aspirated engine predecessor, the 2015 1.5L turbo version reduced fuel consumption by 23% with an 8% drop in power; the addition of GDI and 7-gear wet dual-clutch transmission to the 2018 1.5L turbo reduced fuel consumption by 35% while maintaining same power level compared to its 2.4L predecessor.

We also looked at the development of hybrids and electrification in China, where we found some unique characteristics of the China market. For non-plug-in hybrid vehicles which account for less than 1% of the market, the market is dominated by Japanese brand joint ventures. Domestic automakers are still lagging far behind on hybrid technologies. By the end of 2017, only two hybrid vehicle models (Chang’an Eado and JAC Refine M4, both mild hybrid vehicles) sold in China were produced by independent automakers. As a result, the PHEVs market, which is dominated by independent automakers, mostly consists of modified low-tech gasoline vehicles. This is different from global leading PHEV models, which are developed based on existing full hybrid models. As the hybrid systems in most PHEVs in China are not as advanced as the leading foreign brands, these PHEV models do not perform well in fuel efficiency when they are not operating solely on electricity. Thus, although PHEVs are getting into the mainstream market in China, there is still a long way to go in achieving their full fuel saving potential.

In our summary of this series of technical reports, the cumulative impact on fuel savings of conventional vehicles using technologies at different developmental stages ranges from 31% to 73% (see figure below). This demonstrates that, before electric vehicles are prevalent in all segments, there is still a great potential for increased fuel efficiency with conventional vehicles using technology that manufacturers have already developed.

fuel consumption reduction via different technology paths
Possible fuel consumption reduction via different technology paths

In all, electric vehicles are not reducing everyone’s fuel cost in China—at least not yet. BEVs are primarily being sold in segments that big manufacturers like Suzuki have abandoned due to dropping sales. They are also a harder sell in the growing SUV segment because of battery cost and limited driving range. Until BEVs are able to meet the needs of mainstream vehicle market, manufacturers are continuing to develop advanced efficiency technologies for use in conventional vehicles. Therefore, regulators should take account consumer demand and continue to support technology innovation in conventional vehicles.