China’s Electric Vehicle Promises Are Just That—PromisesSource: Forbes
Despite the warning signs, the George W. Bush Administration made China’s “most favored nation” trade status permanent under pressure from a broad swath of multinationals and global political elites in late 2001.
With 20-20 hindsight—pardon the pun—that decision appears dubious at best, as many working Americans now deeply resent the deliberate outsourcing of much of our nation’s manufacturing supply chain. Along with millions of lost jobs, they know it has also made the country less secure.
It’s not hard to see that, in the wake of Covid-19, the military buildup in the South China Sea, and the international charm offensive exemplified by the Belt and Road Initiative, the Middle Kingdom’s ambitions for global dominance are not in America’s best interests.
The same multinational and global political elites that sold out America’s middle class at the beginning of the century are now fixated on mitigating climate change. China is posturing to win them over by setting a 2025 goal to make 20 percent of its auto sales plug-in hybrids or battery-powered electric vehicles (EVs). While an admirable goal—especially since China has the world’s dirtiest air—we should heed the lessons from the recent past.
Naturally, rushing to mine China’s EV prospective gold rush are hundreds of car manufacturers. That includes big international names like GM, Ford, and Nissan and domestics such as BYD—an acronym for Build Your Dreams.
With more choices becoming available, sales of EVs are on the rise in China. In 2018, total EV sales exceeded 1 million, an increase of 68 percent from the previous year. A Chinese buyer purchased one in every two EVs sold in the world in 2018. There were more EVs sold in China than in all other countries combined.
Of course, China is pursuing its goals through command-and-control measures typical of authoritarian regimes. It relies on a full slate of interventionist policies that remove consumer choice from the buying equation and force the hand of manufacturers who want to compete in the world’s largest passenger car market.
So, does the West believe the ends once again justify the means?
If so, it must also consider that there’s quite a big catch, as it seems there always is when it comes to China. Rice University’s Baker Institute calculated that for every one million plug-in electric passenger cars that the country puts on the road, it would create an additional 740,000 tons per year of coal demand. In terms of carbon dioxide emissions, the added coal burden is like operating 1 million BYD F0 gasoline-powered passenger sedans.
In other words, China is merely shifting its “pollution problems from a semi-dirty tailpipe to a potentially much more emissions-intensive power plant smokestack,” according to the Baker Institute working paper on China.
“In this sense, a pure plug-in electric car running on grid power in many parts of China (aside from areas where grid supply comes primarily from hydro or nuclear plants) is effectively still as carbon-intensive as a fully gasoline-powered compact car, virtually negating the environmental benefits of going full electric,” the Baker Institute paper found.
Despite the scientific data to the contrary, China is standing pat on its EV evangelism. And with its outsized impact on just about everything it touches, it’s reasonable to wonder what kind of effect China’s plan will have on the global economy.
As a global citizen, I am encouraged by the progress that's been made in the development of electric vehicles. But as an oilman, I am not too concerned about my own bottom line in the foreseeable future. To date, the impact of EVs on the oil market remains relatively small: Bloomberg says 1,000 electric vehicles remove just 15 barrels of oil demand per day. By 2040, worldwide, EVs could displace as many as 6.4 million barrels a day of oil demand—less than the effect of fuel efficiency improvements to gasoline-powered cars.
And as an American, I believe our nation must lead once again—not China. While Tesla TSLA -2.7% tends to get the most attention, it is far from the only domestic company manufacturing EVs. One of the most dramatic announcements took place at the 2018 North American International Auto Show in Detroit, when Ford Motor Co. said it would spend $11 billion on EVs in the next five years to release 24 hybrid and 16 fully electric vehicles by 2022.
Investors should know by now to resist going all-in on China’s promises, especially with such innovative talent here in the United States. As the old saying goes, “Fool me once, shame on you, fool me twice, shame on me.”