China is fully transitioning to the era of electric vehicles

In recent decades, China’s rapid economic growth has allowed more people to become car owners. People‘s travel capacity has been greatly improved, and China has developed into the world‘s largest automobile market. However, severe urban air pollution, huge greenhouse gas emissions, and increasing dependence on oil imports also pose new real challenges.

In response to these shocks, China has formulated policies to vigorously encourage the popularization of flashlight electric vehicles (EV). Since the cost of purchasing electric vehicles is higher than that of traditional internal combustion engine (ICE) vehicles, since 2009, China has begun to provide generous subsidies for electric vehicles purchased by the public.

At the end of 2020, China began to phase out subsidies and instead spread the pressure on environmental protection to automakers. In short, the new policy requires each car manufacturer to launch electric vehicle products in a certain proportion. In order to avoid fines, manufacturers need to obtain a certain emission score each year. The specific scores will be calculated through complex formulas based on the product range, energy efficiency, environmentally friendly transportation and other variables. As time goes by, the pressure on automakers will also increase; China hopes that by 2030, electric vehicle sales will account for 40% of total vehicle sales.

William H. Green, professor of chemical engineering at Hoyt C. Hottel, said that this initiative will have a huge impact on the global production of electric vehicles. In his view, “This is the most ambitious electric vehicle promotion plan in the world, and it will have a profound impact on the world’s largest automotive market. The manufacturing of electric vehicles and the demand for supporting batteries will grow rapidly. Greatly reduce the production costs of both."

But what impact will all this have on China? Although the popularization of electric vehicles will bring a lot of environmental protection benefits, how much money will the whole process cost? In 2017, Green and his PhD student I-Yun Lisa Hsieh in the Department of Chemical Engineering at MIT hope to find the answer together. Their goal is to study the impact of this policy on battery prices, manufacturing costs, vehicle prices and sales, and the cost of car ownership and use by consumers. (Please note that due to the sudden outbreak of the new crown epidemic, China has recently decided to extend the subsidy period for electric vehicles by two years. Green‘s analysis and investigation were before this, so the relevant changes were not considered.)

Battery price

Green believes that "currently, the main reason for the high price of electric vehicles is the cost of batteries." But in recent years, the price of batteries has been falling all the way. This is obviously due to the "learning effect": as production increases, manufacturers have found ways to improve efficiency. The new method has continuously reduced production costs. It is generally believed that as the share of electric vehicles in the market continues to increase, battery prices will also keep falling.

Green and Hsieh used a new modeling method and found that the "learning effect" can indeed significantly reduce battery production costs, but it has almost no impact on the mining and manufacturing of key battery materials. The final conclusion of the study is that with the continuous expansion of production, the price of the most widely used lithium-ion nickel-manganese-cobalt battery will decline, but the specific level will remain stable when it approaches the price of raw materials.