Will China Transform the Global Powertrain Strategy?

In this market of significant disruption, developing a well-defined vision of the future and a clearly executed strategy will be critical for long-term success.  

The internal combustion engine (ICE)—in which fuel is ignited, drives pistons and propels a vehicle—has proven to be hard to beat. Legislation, however, recently announced by countries like Norway, India, France and the UK, will force a technology shift and a significant disruption to the structure of the industry.

Other countries may have led the way with this type of bold legislation, but no single player will have a greater impact on the global supplier industry than China. 

In early September 2017, Xin Guobin, China’s vice-minister of industry and information technology, told a forum of automakers in Tianjin that the government would ban the production and sale of fossil fuel cars. Although no timetable has been formally announced, most Chinese automotive insiders, including BYD Chairman Wang Chuanfu, believe this ban will take place starting in 2030. BAIC Group Chairman Xu Heyi recently stated, “Our goal is to stop sales of self-developed conventional fuel-powered cars in Beijing by 2020 and stop their production and sales nationwide by 2025.”   

China is the largest auto market in the world, with more new vehicle sales per year than any other country. Most forecasts estimate that China will produce 36 million vehicles a year by 2030. This is the equivalent of a third of global vehicle production. Thus, the government’s pending announcement will cause a significant turning point in the electrification of passenger vehicles around the world. 

By focusing their efforts on alternative propulsion systems like battery electric vehicles (BEVs), China is positioned to establish the country as a hub for the development of critical electric vehicle systems and components like battery cells, electric motors/generators and power electronics.

To position the country as a leading car-making giant in the future, China has announced it will work to improve levels of standardization in its electric vehicle industry, focusing on recharging, battery design and fuel consumption. It also plans to promote its own standards and benchmarks for electric and plug-in electric vehicles overseas, taking advantage of economies of scale to become a global leader in standardization. It comes at this from a position of strength as it currently sells more BEVs than any other country and is aiming for 2 million units in annual sales by 2020—in Beijing alone.

The shift to BEVs ultimately leverages China’s greatest strengths: volume and scale. Electronic systems scale differently than mechanical components. Automakers and suppliers will use this concept to drive competitiveness through large-scale electrification strategies, which leverage common architectures. 

It is clear China’s intent is to drive the global automotive industry toward BEVs in order to create a dominant position. Expect it to attempt similar strategies with autonomous vehicles, also.

Once China formalizes its policy, we expect Germany to quickly follow with its own ban of the ICE. A recently completed German VDA study concludes that the ban of the ICE would cost Germany more than 1-million industrial jobs. This became a major issue in last year’s election. Maintaining technological leadership in the German automotive industry will be critical to the German industrial policy, just as it is to China’s.

Still, the ICE continues to be the dominant form of vehicle propulsion, and while disruption is on the horizon because of industrial policies and regulations, such shifts don’t happen overnight. 

However, considering this dramatic, evolving scenario, suppliers should be prepared to adapt and refocus their product portfolios and business strategies accordingly. In this market of significant disruption, developing a well-defined vision of the future and a clearly executed strategy will be critical for long-term success.