The development of plug-in hybrid vehicles, or PHEVs, in China has gathered momentum in recent years due to three reasons: generous government subsidies, a growing awareness among consumers of sustainability, and cost advantages compared with conventional combustion engine vehicles. I believe this pace will continue even as government subsidies decline. Indeed, I believe electric vehicles and PHEVs will soon enter the mainstream in China.

The figures speak for themselves. The production capacity of pure electric vehicles and PHEVs is growing at an annual rate of 50 percent. By 2020, and perhaps even earlier, this capacity will reach 2 million units with the cumulative output forecast to exceed 5 million.

When it comes to electrifying transport, the most impressive progress has been made in public transportation. We believe this is an irreversible trend.

In 2016, Taiyuan, the capital of Shanxi province, became the first city in the world to switch its entire taxi fleet to pure electric. Then, last year, came a significant turning point for the sector: New energy buses accounted for more than 90 percent of the estimated 100,000 buses sold across China; more than 32 cities launched plans for electric-powered public transportation; and in December, our home base of Shenzhen in Guangdong province proudly became the first city in the world to use electric-powered buses for its entire operation.

A similar revolution might be brewing among industrial users, too, as logistics operators realize the efficiency and cost savings involved with electric delivery vehicles. With the size of this fleet growing 20 percent a year and more growth expected for the e-commerce sector, it’s not unimaginable to see mass adoption spreading to the likes of garbage trucks and construction vehicles.

Just as encouraging is the adoption of PHEVs among Chinese consumers, a trend that saw a 45 percent year-on-year increase in 2016 and an 87 percent year-on-year increase 2017. What began as a nascent interest in a handful of cities spread to over 200 cities in just a year.

The popularity of PHEVs stems from their excellent performance and functionality, even as a backup power supply.

BYD believes PHEVs qualify for official support as they meet the requirements of the dual-credit policy (average fuel consumption points plus output of new energy vehicles), a plan to be implemented in April that is expected to guide automobile manufacturers toward improving the quality of new energy vehicles and ensuring the entire sector’s sustainability.

The driving range of PHEVs meets market expectations and can potentially mitigate the blow that the new energy vehicle sector may receive as official subsidies decline. Moreover, PHEVs are a boon for power grid companies, engine factories, battery manufacturers and motor plants.

More importantly, PHEVs act as a transition medium as the country builds the charging infrastructure necessary to make electric vehicles the norm. Put simply, PHEVs are needed to fill the market gap.

In Europe, sales of new energy vehicles reached 259,000 last year. The ratio of pure electric to PHEVs was close to 1-to-1, even with small proportions of vehicles in A0 (subcompact) and A00 (smaller) classes. Sales in the United States were 195,200, with 53 percent being pure electric and 47 percent being PHEV, with A class (compact) vehicles accounting for at least 92 percent.

Sales of PHEVs in China were influenced by policies. With China entering the post-subsidy era, as policies are tightened to decrease subsidies, and with the impact of the dual-credit policy, the market demand is expected to play a major role in development of new energy vehicles.

PHEVs account for roughly 18 percent of China’s new energy vehicle market, with pure electric vehicles (including A00 class) making up the rest. If we exclude A00 vehicles from the pure electric segment, however, it leaves only vehicles of A0 class or above, of which PHEVs account for 47 percent. We exclude A00 vehicles as, based on the growth trend of traditional combustion engine vehicles, their proportion will be very small. Therefore we can conclude that PHEVs remain the mainstream of global consumer vehicle development.

The author is chairman and president of Chinese automaker BYD, and contributes exclusively to China Watch. The views do not necessarily reflect those of China Watch.

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