China is set to encourage domestic electric car battery manufacturers to expand their production scale, following the introduction of a new action plan for the industry in Beijing on Thursday.
The plan could lead to technological innovations that might ultimately benefit manufacturers of new energy vehicles in the form of lower production costs, which would also benefit customers.
The Vehicle Traction Battery Industrial Development Action Plan set out an industry-wide target of 100 GWh capacity batteries by 2020, with the emphasis on higher quality and lower cost.
The plan also calls for more fundamental research efforts and technological developments in order for the industry to achieve more breakthroughs in the next eight years, and turn it into a world leader by 2025.
Its aims might also be accomplished by the major market leaders' acquisitions of a batch of smaller and low-end manufacturers, according to Suzhou-based financial services firm Soochow Securities.
The plan was in part motivated by observations from industry analysts who identified China's electric car battery makers as being adrift of the technological and quality standards set by the world's industry leaders.
Soochow Securities wrote in its research report on the electric car battery sector that the larger players in the industry would consolidate their market position through rapid growth in production capacity over the next few years.
It also predicted that the supply of electric vehicle batteries could end up exceeding demand.
Zhang Junyi, partner of Nio Capital, the Wuhan-based investment firm co-established by electric vehicle company NextEV, Sequoia Capital and Hillhouse Capital, said: "The country is looking to promote the production of electric cars that will be comparable in cost to gasoline cars.
Traditionally, electric cars have been more expensive, both to manufacture and to buy, and such a cost reduction will only be possible after battery manufacturers have increased production."
China's new energy vehicle makers will likely pass on the savings they make due to lower production costs, which would result in lower retail prices of electric vehicles, according to Zhang.
"As soon as the cost of usage and ownership (of electric vehicles) drops, the wider driving public will be much more likely to accept them as a viable option," he added.
China overtook the United States in 2015 to become the world's largest market for new energy vehicles, and its sales in 2016 contributed more than 40 percent of the total volume of the global market.
Zhang said that in order to achieve breakthroughs in battery technology, heavy investment would be needed in research and development, as well as growth in production.
He said: "Domestic battery makers should bring in advanced technologies and techniques, and cooperate with carmakers to ensure that they become more internationally competitive."
Fujian province-based Contemporary Amperex Technology, one of the major industry players by volume, serves as a perfect example of what Zhang is calling for.
The company is now working with BMW Brilliance Automotive on localized new energy vehicles, after the carmaker shared its
know-how and helped the battery maker become a qualified supplier, according to Johann Wieland, president and CEO of BMW Brilliance Automotive.
CATL is now viewed by Soochow Securities as one of two possible future market leaders, along with Shenzhen-based BYD.
The two companies are the only domestic battery makers to have sold more than 6 GWh worth of products.
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