ORNL is managed by UT-Battelle, LLC for the US Department of Energy

Dual-credit policy: Impact on PEV sales and industry profits in China

Zhenhong LinShiqi(Shawn) Ou

TE3 - University of Michigan Energy InstituteOctober 18, 2019

2

PEV sales in China exploding until recent months

199,620

1,069,563

362,868

361,315

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18YEAR

Electr i f ied L ight-duty Vehic le Sales

HEV in China

PEV in China

HEV in US

PEV in US

1999 2005 2009 2010 0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Monthly PEV (Passenger vehicle) Sales in China

2017 2018 2019Data source: https://www.d1ev.com/news/shuju(Ou et al., 2019)

Current 2019 context: Phasing-out PEV subsidies. Falling auto sales.

3

Corporate Average Fuel Consumption (CAFC Credit)

New Energy Vehicle Quota (NEV Credit)

Meet CAFC Target?

Positive CAFC credits

Carry forward to next years

Negative CAFC credits

Offset by own PEV Credits in current year

Offset by CAFC credits transferred from related companies

Offset by purchasing PEV Credits

Yes

No

Meet NEV Production

Target?

Positive NEV credits

Sell PEV Credits

Offset negative CAFC credits

Negative NEV credits

Offset by purchasing PEV Credits

Yes

No

1 CAFC Credit = 1 NEV Credit

September 2017: “Passenger Cars Corporate Average Fuel Consumption and New Energy Vehicle Credit Regulation” (Dual-credit Policy)

Dual-credit combines CAFE and ZEV rules and is replacing purchase subsidies as policy stimulator for PEV sales

Note: NEV = new energy vehicles, including plug-in electric vehicles and fuel cell vehicles

4

Vehicle technologies

Prices

Sales

Policy complianc

e?

Profit

Max (Profit) ?

Done

Resources reallocation

No

Yes

Resource reallocation

No

Yes

Objective function: profit maximization𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑(𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣) = 0,

Or, marginal revenue = marginal cost

Discrete choice model

Approach: New Energy and Oil Consumption Credits Model (NEOCC)• Features

• A consumer choice model with industry profit optimization constrained by the Dual-credit policy• Calibrated with 2017 Chinese vehicle market (and later to 2018 market data)• Market share projection from 2018 to 2050• Policy compliance as constraints, powertrain cross-subsidy as decision variables, gross profit

maximization as the objective function• Key dynamics: battery cost, ICEV efficiency cost curve, subsidy phase-out, PEV multiplier, PEV credit

by range, charging infrastructure• Algorithm

5

Source: Ou, Lin*, Qi, Li, He, Przesmitzki. 2018. Energy Policy 121, 597-610.

530,244

705,942

1,603,416

2,132,996

-

500,000

1,000,000

1,500,000

2,000,000

2,500,000

2017 2018 2019 2020

PEV

Sa

les

Year

SUV-BEVSUV-PHEVSed-BEV400kmSed-BEV350kmSed-BEV250kmSed-BEV200kmSed-BEV150kmSed-BEV100kmSed-PHEV80kmSed-PHEV50km

Actual sales830,000

Calibration year

Annual sales by vehicle types Cumulative sales by vehicle types in 2017-2020

NEOCC results: strong PEV sales growth in China

Several institutions projected 1.6 million PEV sales (LDV and commercial) at the beginning of 2019, but have now down-adjusted their projections to about 1.4 million PEVs and 1.1 million passenger PEVs.

66

NEOCC results: PEV multiplier and credit conversion lead to efficiency leakage

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2018

2019

2020

2021

2022

2023

2024

2025

2026

2027

2028

2029

2030

2031

2032

2033

2034

2035

2036

2037

2038

2039

2040

CAFC Only

ICE-Hig%of LDV ICE-Avg% of LDV ICE-Low% of LDV

PHEV%of LDV BEV% of LDV

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2018

2019

2020

2021

2022

2023

2024

2025

2026

2027

2028

2029

2030

2031

2032

2033

2034

2035

2036

2037

2038

2039

2040

Dual-Credit Policy

ICE-Hig%of LDV ICE-Avg% of LDV ICE-Low% of LDV

PHEV%of LDV BEV% of LDV

Fewer efficient ICEVs (ICE-Low) if PEV CAFC multiplier and conversion from NEV credits to CAFC credits are allowed.

7

With same subsidy, consumers prefer shorter ranges

0

50,000

100,000

150,000

200,000

250,000

subs

idy-

elig

ible

BEV

pro

duct

ion,

201

7

Electric range (km)

Subsidies: 36K CNY, 71% Subsidies: 44K CNY, 29% Subsidies: 20K CNY

96.5%

84.8%

Amount per vehicle, based on 2017 policies

8

Strong PEV sales growth will likely continue, especially BEVs

• Driving factors– technology improvement– policies– consumer familiarity– expansion of license restriction to 2nd

and 3rd tier cities– BYD and Tesla effects– investments of foreign major OEMs– charging infrastructure

• Potential uncertainties– overall vehicle market– battery safety– range reduction and disappointment– Relaxation of license restriction

• Soon-to-be-finalized Dual-credit policy 2021-2023– Slightly de-emphasize long e-ranges– More credits for efficient ICEVs

9

Questions for more discussions

• Can de-emphasis of long e-ranges accelerate PEV penetration?

• How will OEMs play differently in the China EV market and what is the implication?

• Are fuel cells a distraction to vehicle electrification in China?

• How to address policy leakage on emissions and efficiency?

• Is the China EV industry technologically progressing (truly and substantially) or still policy dependent?

10

Thank you!

Work sponsored by:– Aramco Service Company

Please contact:Zhenhong LinOak Ridge National Laboratory(865) 341-1308linz@ornl.govFor model downloads and publications, please visit http://teem.ornl.gov

ORNL is managed by UT-Battelle, LLC for the US Department of Energy

Backup

12

Adjustment of vehicle market policy

Dual-credit policy Phase 2 (2021-2023): released on Sept 2019• Adjust calculation methods of credits on every vehicle, weaken the impacts of electric

range on vehicle credits

• Increase incentives for more fuel economy conventional vehicles.

Source: GAST Strategy Consulting

1313

129115

75

020406080

100120140160180200

2015 2020 2025 2030 2035 2040 2045 2050

PEV battery pack cost ($/kWh) in China

$12,000

$14,000

$16,000

$18,000

$20,000

$22,000

$24,000

$26,000

20 30 40 50 60 70 80Prod

uctio

n co

sts (

$201

7)

MPG

Estimated Sedan production cost in China by year

2017

2050

0%

5%

10%

15%

20%

25%

30%

35%

2015 2020 2025 2030 2035 2040 2045 2050

Public charging availability (%)

Major Assumptions – Reference Case

Analyzing technology market penetration under various cost of ownership and policy scenarios

012345678

2015 2020 2025 2030 2035 2040 2045 2050

(L/1

00km

)

CAFC Target

14

Vehicle policy impacts on China’s market – simulated by NEOCC modelSensitivity analysis – Battery costs (Market in 2020 and battery pack cost is assumed to be $146 /kWh)

-200%

0%

200%

400%

600%

800%

1000%

50 100 150 200 250 300

Sale

s cha

nges

com

pa

red

to

curre

nt le

vel

Battery pack costs ($/kWh)

PHEV sales changes%BEV sales change%

Current battery cost

(1,139)

(422)

261

624

($1,400)($1,200)($1,000)

($800)($600)($400)($200)

$0$200$400$600$800

50% 20% 0% -20% -50%

Battery costs change level

Industry profit impacted by policy ($/vehicle)

Benchmark: 2020 market level.

15

What is the role of public charging infrastructure in market?

Vehicle policy impacts on China’s market – simulated by NEOCC model

Public charging opportunity

Batt

ery

cost

s

PEV sales growth (benchmark: 2020 market level)

0%

10%

20%

30%

40%

50%

60%

0% 10% 20% 30% 40%PE

V sa

les g

row

thPublic charging opportunity

Battery costs = $70/kWh

Battery costs = $290/kWh (emerging market)

Benchmark: public charging opportunity is 1% in market.

1. Battery costs are much more important on increasing the growth of PEV sales than the public charging infrastructure;

2. However, the public charging infrastructure is an effective role to contribute the PEV sales growth in the emerging market.