China's EV revolution: What makes it tick?

Markham interviews Anders Hove, a member of the China Energy Research Programme at the Oxford Institute for Energy Studies.

What is Energi Talks?

Journalist Markham Hislop interviews leading energy experts from around the world about the energy transition and climate change.

Markham: 00:04

Welcome to episode 266 of the Energy Talks podcast. I'm energy and climate journalist, Markham Hislop. In episode 261, I interviewed Flavio Volpe, president of the Automotive Parts Manufacturers Association, about the effect China's rising electric vehicle manufacturing would have on the Canadian auto industry. Not surprisingly, he said his 700 plus members were worried about the Chinese competition, but confident they will be able to pivot to EV making and defend their market share. Today my guest will talk about the remarkable growth of China's EV industry.

Markham: 00:42

Anders Hovey is a member of the China Energy Research Program at the Oxford Institute For Energy Studies, and he worked in Beijing from 2010 to 2022, so had the opportunity to watch that growth firsthand. So welcome to the interview, Anders.

Anders: 00:58

Thank you. Glad to be here.

Markham: 01:00

Well, I I'm glad to have you here. I'm doing a lot of work on China these days because I think North America really got caught unprepared. And I go back over and over again to speeches that were given by American policymakers in which they say, you know what? Up until 2020, well, you of course, we were worried about China. We saw its growth in the but it was the pandemic that really exposed them to their vulnerability to Chinese supply chains.

Markham: 01:31

That really was the thing that that woke them up. And, of course, China's, auto industry and its EV makers would be an important part of that revelation, to the Americans. Is that a fair way to look at this from your point of view?

Anders: 01:47

It is. Although I would say that the the competitive threat from China has been building for quite a bit longer than that, and I think that there has been awareness before this in other sectors. And I I'm primarily, I should mention, more of an energy analyst, especially power sector analyst as opposed to automotive analyst. So I've been following the changes in the wind and solar sector, and the those are the reasons that I initially went to China to study energy policy. And, of course, that has been underway for well over a decade.

Anders: 02:17

And I think that, even though those industries are not politically powerful or influential in terms of our image of manufacturing or the economy as a whole as compared to automobiles, which are, for most countries that have any significant auto industry as seen as very important part of the economy. So I think that it's only in the recent years that this, threat on the automotive space and battery space more generally has become apparent. But I think that the the fact that China was dominating the clean energy technology was something we were all aware of anybody in the energy space that is.

Markham: 02:53

Well, let's talk about that for just a moment. I'm fond of saying these days that, China, while its dominance of clean energy technology manufacturing, I don't think it's as well known particularly in North America, amongst policy makers and and decision makers. But I'm fond of saying that China going forward is really gonna be the driver of the energy transition, just the way the Americans after, World War 2 were kind of the drivers of industrialization in many ways, and part of that is because they control so much of the manufacturing of the equipment that goes into clean energy, the solar panels, the wind turbines, the batteries, the battery metals, all of that kind of stuff. And what would be your take on China's oh, I guess on my, my argument that that China is going to be driving, the energy transition from here on out.

Anders: 03:48

We largely agree with that. And, basically, what I perceive is that during the initial decade when China really was scaling up division of labor in the global economy. And I probably fell into this camp a little bit myself that this was a part of the, division of labor in the global economy, that China could scale up manufacturing, but that innovation would remain the core competence of countries like the United States, European countries and other advanced economies. And I think what has really been shocking or surprising to those of us who, held that view is that essentially because the manufacturing largely scaled up and relocated to East Asia, that a lot of the innovation is taking place in China as well. And that's especially true in the solar field where a lot of the core technology is really are now dominated by China, and many of the innovations are taking place in China and other other countries, other companies would really have to play catch up.

Anders: 04:51

But it's also very clearly true in battery technology. And, you know, it's not too many years ago that the Nobel Prize was given out to, the 3 inventors of the lithium ion battery. One of whom was in the United States in Stanford, one of whom was working then at Oxford, later was in Texas, and then the other was, at Sony in Japan. And, you know, now if anybody wants to manufacture batteries anywhere in the world, there has to be some partnership, I believe, with a Chinese company, a Chinese supplier, or probably somebody who's providing some of the technology in the, equipment lines. So that's really a big change in the last few years.

Anders: 05:29

And it shows the importance of not just, let's say purchasing the equipment to put in your vehicles, because then you will always, be behind the technology frontier.

Markham: 05:42

It is in essentially, China is now in the position it seems that the other advanced economies were not that long ago. That China was kind of pilfering, intellectual property and and technology, and western firms are going, well, I don't know if I wanna get into China because they're gonna steal my technology. And then, you know, that's gonna be a problem for me. And now it's flipped and the Western firms are behind the curve, and the innovation is taking place in China. And I think that's a a mental flip, if you will, that North Americans and Europeans are having a little trouble making.

Anders: 06:20

Yes. I I agree with your larger point. I would take a little bit of an issue with the pilfering remark just because although there are some notorious examples, for example, American superconductor in the wind industry, permanent magnet industry. But I would say that in general, the transfer of technology or the innovation of new technology within China was largely done in partnership with, western firms, with the technology leaders, and through academic institutions on a very above the board basis and was very much sought by, those manufacturing firms that wanted to reduce cost and accelerate their scale up. And, that that has been mutually beneficial in many ways even though it is threatening to, I would say, tear the auto industry apart in some respects as well.

Markham: 07:07

That comment is about tearing the auto industry apart is a good lead in to a quote I wanna give you from from Tavares, and I think it sums it up quite nicely. So, what he said was, quote, the magnitude of the Chinese offensive, the competitiveness that they can demonstrate, and the massive arrival of all of their best carmakers is a significant change. If the automotive industry doesn't move, this industry will disappear under the offensive of the Chinese industry. Good Lord. That is an amazing statement from a grizzled veteran of the global auto industry.

Anders: 07:45

Right. It's a great quotation, and I would also just emphasize the words all of the best, because I'd say 10 years ago, if you asked any western automaker executive, what all the best Chinese auto manufacturers, they might be scratching their head a little bit about that. Certainly, there were major Chinese automakers, but they were perceived, similar to way maybe Japanese, automakers were perceived in the 19 fifties, for example, and then that changed quite radically. And, you know, there's just a great article. I believe it was yesterday or today in the New York Times about, the rise of BYD and how, they were kind of a laughing stock of a few auto shows when they made their their first, cars for the international markets and how that's changed them.

Anders: 08:29

These companies are now able to compete internationally, and they're not just also RANS with copycat cars?

Markham: 08:37

Back in when I was in high school in the mid seventies, I, my dad was a mechanic. So I grew up, you know, with the the debate between Ford and Chevy and Chrysler, and, you know, it was very much a a big three kind of focus in those days, and nobody talked about Japanese cars. In fact, there was a fellow in our small town where I grew up who had a a Toyota Corona, and and everybody kind of snickered. You know? The, jack crap as my my father used to say, derogatorily.

Markham: 09:09

But in when I was 16, I went down to to Winnipeg, and, a friend lent me their their Toyota, and I couldn't believe it. You when you closed that door, it was just a little sneek, and it closed. And when you started up, it was like a sewing it was like not a sewing machine. It was a Swiss watch. Everything I mean, you know, as somebody who liked cars and and and worked on them, I appreciated that.

Markham: 09:35

And I have driven, ever since, more Japanese cars than I can shake a stick at. And I our currently, our 2 cars are Japanese, and it feels kind of like that. You know, the Chinese manufacturers have snuck up on us and sneering at quality or sneering at, you know, the the amount of coal in their electricity sector is a big mistake.

Anders: 09:59

Right. And the other thing that is quite analogous to the Japanese case is that, in in the rise of the Japanese vehicle export, that was based on Japanese carmakers really testing out and improving their quality through access to their home market. And China now is not only the world's largest car market, but, thanks to sanctions on Russia, it is now the world's largest vehicle exporting country. That's a new thing. Just after it became the number 2, a year later, it became the number 1.

Anders: 10:33

And the reason why it has succeeded so well in terms of exporting electric vehicles is because it is by far the largest domestic market for electric vehicles. And those vehicles are being made with the Chinese car buyer in mind, not because of subsidies, but because Chinese car buyers perceive electric vehicles, new energy vehicles, which includes hybrids as well, plug in hybrids as well. They the younger car buyers perceive these as advanced technology that they wanna have access to. It's not about acceleration. It's not about necessarily luxury.

Anders: 11:07

It's just about having the best average car. And whereas I think in the United States and Europe, EVs often are either a maybe a small compromised car compliance vehicle or on the other hand, more of an expensive premium vehicle, if not luxury vehicle, but probably a premium price. That's not the case in China. So you just have a completely different market expectations. And in addition, you have very cutthroat competition, which is driving down prices.

Anders: 11:36

You have excess production capacity. When we talk about, you know, potentially the competitive threat, that has to be part of the conversation, which is that the rapid scale up in China often goes hand in hand with excess capacity, which then has to come down in price and potentially be exported somewhere. And that will happen whatever tariffs get imposed by US, Canada, what have you.

Markham: 12:00

I I I'd like to pursue that for a minute because I'm, I've read the OPEC's, world oil outlook 2045 in in which they I mean, that's I hope the OPEC modelers are embarrassed, frankly, because, you know, September, Saudi Aramco and Saudi Arabia were in Calgary for the World petroleum congress bragging about how well demand was going to expand to 116,000,000 barrels a day and a couple months later, OPEC released that report, and it showed all the modeling that supported the narrative. And and a month after that, Sinopec, which was actually at the the congress, said Chinese oil demand could peak as early as 2026, you know, just a couple years down the road. I mean, how did the how did the OPEC modelers miss that? But one of the things that it's one of the other assumptions that doesn't get a lot of attention in that report is that, OPEC assumes that emerging economies, will stick with petroleum. You know?

Markham: 13:02

So we're talking about, Africa, Latin America, the, India, you know, so the rest of Asia, and and that's what's going to, prop up oil demand going forward. But given your comment, and and I agree with it as this is the, you know, this is what I inferred, is if you have excess capacity, plus you already have the belt and road initiative, that is just a setup for exports. And then the Chinese I would think that China is going to aggressively push into those markets because it has all that other clean energy technology would also like to export. Is that a reasonable hypothesis?

Anders: 13:39

I think that's in completely re a completely reasonable hypothesis, and I think that it's very important. It's not just the overcapacity that I mentioned. It's not just this stupendous growth. It's also that Chinese China's domestic market for EVs has been slowing down. I mean, it's still having, like, 25, 30 percent growth doesn't seem like a slowdown, but it's down from a 100% growth.

Anders: 14:00

So, these but then the manufacturing capacity continues to scale up. And meanwhile, because of the slowdown, the relative slowdown in the growth of the Chinese vehicle market, the minerals that go into batteries have been coming down in price quite dramatically, and then the batteries themselves, the cell level coming down in price by a factor of 40% in a single year. No. Okay. That's because, obviously, they were inflated during the pandemic and because of the inflection point that, vehicle manufacturing had in 2022 in China.

Anders: 14:31

But still, that type of price decline can sustain a very radical change in the pricing environment for let's say the small low cost EVs that might be for the export market. And of course, there will be used EVs coming out of China that will be going to countries in Asia as well. So I definitely think that that's probably correct. Although, again, I'm not I'm not an auto analyst, so I don't know. There is an alternative view on this, by the way, that all of Chinese, new energy vehicles are just, you know, for new car buyers and that old cars simply stay on the road and there's no actual change in the vehicle fleet and whether it's going to electrify.

Anders: 15:09

I don't agree with that. And I think that you see that in the charging statistics, which basically show that people are charging these vehicles a lot. They're driving them a lot. They're not just second vehicles that are sitting in somebody's garage all the time. Not that that would be the case for all second vehicles anyway, but, yeah, people are buying them and they're using them.

Anders: 15:26

And in terms of the overall vehicle stock in China, they are rising rapidly, and they're still at a very low level that will start to change quite quickly as older vehicles go off.

Markham: 15:37

Yeah, I would agree. I interviewed on a, an analyst, an EV analyst who does a lot of work on China and he made your and this goes to your point, earlier about the the what Chinese consumers expect. And he said that, especially for the younger generation, but also true for for older generations, is China has a very different culture. Everything goes through their mobile phones, they do all of their activities through an app, and so they see their their car as an extension of that culture, and it has to fit within that culture. And so the Chinese automakers, that's how they build EVs.

Markham: 16:14

They and this fellow called it, their rolling iPhones is what they are. And that seems to be the trend in the industry anyway. China just seems to be out out in front of it. And so it seems that that the Chinese EV makers, make a a better vehicles in some ways. They certainly know how to make vehicles for the low end and the mid end mid range of the market, which the the OEMs are struggling with, having a real hard time with it.

Markham: 16:43

So maybe that's a good background for my my next question, which is how good are, the China's EV makers at the low end and the mid range of the market? Are they good vehicles?

Anders: 16:58

Well, again, I'm not a vehicle analyst. I've written in a in a few, but, I've mostly been seeing them passing on the street. My perception is that the the volumes are incredibly large and that the vehicles are as good quality as their, their, let's say, fossil fuel competition. Although there are surveys that exist that show that the consumer satisfaction with mid range EVs is higher than the equivalent ICE vehicle, But on the lower end of Chinese EVs, it is a lower consumer satisfaction there. So perhaps there is a possibility that the smaller EVs are more of a compromised car than, than we think.

Anders: 17:35

But, I think the more significant fact is that the growth in EV sales is primarily taking place in that mid range segment and almost, for these very small, city cars, the the kind of cars that, might not even be street legal in the US. These are the vehicles where that had been the focus up until about 2020. There was the Hongguang mini e EV is still one of the leading selling EVs in China, but that segment as a whole is essentially stagnant. And all that growth is basically in the in your very conventional vehicles that are direct replacement for an ICE mid range vehicle.

Markham: 18:15

Well, let's talk about other markets because you have a slide, comparing, China's market share, which is about, I think, 33% last year. And I if I remember correctly, you're looking at 40% in and these are of new sales, this year. I would have said the EU is in 2nd place, but you've broken out the UK, of course, and the UK is higher than the than the European Union. And, of course and then you have the US, lagging way behind it below 10%. Given the the importance of domestic markets, is this going to be a problem for OEMs, the the lower uptake in, in their traditional markets?

Anders: 18:56

I you know, broadly, I I would say potentially, although I don't think the market share difference between the EU and China or UK and China is that huge. So I don't I wouldn't pooh pooh the size of the market per se. I would say rather it's our earlier point that you and I both already mentioned about the different expectations of consumers. What sort of expectations do consumers in these markets have? Do they want kind of more just the same experience only an EV, which might be the case in, let's say, Germany or or the UK for an EV buyer, or do they want it to be advanced technology?

Anders: 19:35

Totally, different, totally awesome, very innovative that can really drive the change, drive the new technology, and, drive this sort of frightening perspective, perspective of competition from, really fast moving innovative players from China.

Markham: 19:50

Let's talk about China's, vehicle fleet, because that's again one of the, you know, boosters of the status quo like to say, well, yeah, they may might have a you know, EVs might have a fairly large share of, percentage market share of sales. But the the vehicle fleet is huge. I think it's 1,400,000,000, around the the global fleet. But your calculations are, if I understand this correctly, that the sale EVs, percentage of the new sales by 2027 could be a 100% or close to it. And then by, oh, somewhere around 2040, the entire vehicle fleet could be could be electric.

Markham: 20:37

Is have I read that correctly?

Anders: 20:39

Yes. And I want to just read the label on the tin, which says this is the back of the envelope spreadsheet calculation, not a forecast. However, it just goes to reason that if vehicles last about 15 years and there's no reason to believe that Chinese vehicles last 25 years or just get, exported to other countries and are still on the road decades later. It's basically the similar situation about how long vehicles last in in China versus other countries. And and also they don't get driven after they're old and broken down either, just as in other countries.

Anders: 21:11

So basically, if you think that the market right now is 40% of new vehicle sales are, are NEVs, new energy vehicles, and then, gradually, this is increasing towards, the government target, which is 65% of passenger vehicle sales by 2030. Even then, you get essentially, 50% of the vehicle fleet. The vehicle stock is EVs by around the early thirties. And, you know, you're currently, we're seeing the actually new energy vehicle sales by rising by, 2,000,000 per year. So that if that linear growth in new energy vehicles continued and they continue to eat up market share at the same pace, then they would reach a 100% of new vehicle sales by 2027.

Anders: 21:58

Not that I think that that's gonna happen. I'm just saying thought experiment. If that did happen, then you would reach 50% of the total vehicle stock in the early 20 thirties. And like you said, it would be more like a 100% in 2040.

Markham: 22:12

Well, let's talk about, plug in hybrids, versus EVs because plug in hybrids, are considered NEVs, for for this purpose. And and often when we talk about EV adoption, we're throwing in battery electric vehicles and plug in hybrids. And your numbers suggest that the plug in hybrid percentage of sales is going up quite dramatically and now makes up about, 1 third of all sales in China. And is that because consumers are worried about range?

Anders: 22:47

I think it reflects a number of different factors. The number one factor, I would say, is the convergence of the Chinese market with other vehicle markets around the world where that's a similar proportion of plug in hybrids to, to EVs. And basically that happened as a result of the fact that automakers are starting to produce more of these mid range vehicles with longer ranges, for the mainstream car bear. That is how they are basically expanding their market shares by producing more mainstream vehicles, more choice. Basically, there's just so many different options for consumers to choose among, and that's what's driving this convergence is that those options did not exist a few years ago in China.

Anders: 23:28

So now, you know, plug in hybrids are taking a similar share in China. Will that continue to increase? It certainly has been rising much more rapidly. I think there was 80% growth in plug in hybrid sales versus about 20% growth in, pure EV sales last year. I would say that that that would continue to be the trend, but essentially did to answer your question.

Anders: 23:51

Yes, it does reflect concerns about range about battery price. Of course, that that's a factor in the sales price of a car. And I think that as battery prices come down, and as ranges go up and as charging infrastructure gets better, that that concern about range and that feeling that the plug in hybrid might be a better option for me right now, given the state of the market, I think that that will gradually come off and the pure EVs will sort of fight back, and which are still, you know, clearly the dominant position in the market, including for these mid range EVs too. It's not that plug in hybrids are dominating all the segments except the top end and low end. That's not the case.

Anders: 24:31

The pure EV segment is still dominant for most of the different types of vehicles, possibly with the exception of larger SUVs. But, Yeah, I think that the it's gonna be very interesting year this year because of the battery price decline that we saw. And as you may know, Chinese automakers are also working furiously on breakthrough technologies in batteries. Not that I would say that they will be really a major factor in the market for another couple of years. But if it turns out that there are, let's say sodium ion batteries and solid state batteries that are, maybe they're not in cars, maybe they're taking a significant slice of the battery market, but not for cars that go not for batteries that go into cars that will still drive down the price of batteries worldwide and represent another element of Chinese competition that, you know, threatens the world's ability to compete, in this field that all of these technologies are essentially coming from China, and China is reducing the cost, by pursuing a multi multi pronged portfolio approach.

Anders: 25:33

Right? And, so I think that that battery price coming down will be the key factor that determines whether plug in hybrids continue to rise and share.

Markham: 25:43

Well, let's talk about batteries. This is fascinating because, in North America, we still equate, EV batteries with lithium ion NMC, so nickel, manganese, cobalt, they've got a higher energy density, than other chemistries, But China has been switching over to LFP, lithium phosphate lithium iron phosphate, beginning probably in 20 20 ish. And now if I'm looking at your numbers, makes up 61%. LFP makes up 61% of all the batteries that go into passenger cars. Almost a 100% in buses, and almost a 100% in medium duty vehicles, like goods delivery vans, those sorts of things.

Markham: 26:27

That's a very rapid shift and it suggests that when new, you know, sodium ion comes out, which we're already seeing some of the manufacturers bring that to market, and we assume that later this decade solid state with the ceramic electrolyte, will come out. It looks like the Chinese are very quick at picking up these these new chemistries, the the improved batteries, and then integrating them into their into their vehicles, which would suggest that, you know, another aspect of their their greater competitiveness.

Anders: 27:03

I think that's right. And and the fact that many of the leading players either in the battery space or the vehicle space have this portfolio approach to these new technologies is really critically important as well. Whereas I think that there are a few foreign automakers, as I say, non Chinese automakers that are kind of going for a hail Mary pass and betting it all on one of those technologies. I think that by by having all of those in the portfolio, there's a greater likelihood that one of them will succeed. And then the fact that there is a mix in the portfolio of Chinese, supply chain of all these batteries And the fact that the supply, the whole supply chain is there in a relatively, defined geography where they can interact, test, and experiment together, both between battery makers and carmakers, between the the research, houses and the battery firms, all of that ecosystem being located together, able to scale up manufacturing very quickly when something pans out, that is also critically important.

Markham: 28:02

Let's talk about policy because there's still a perception, in North America. I mean, I hear it all the time that EVs are only competitive because they're supported by subsidies or they're supported by other other policy. But it looks like in China, the, EV market share is actually running ahead of government, targets. And I've seen, I saw a graphic here not that long ago that suggested that the the government's governments in China had started to pull back, their policy support, and they felt that the the, EVs were competitive. They were ready to, they could compete without, without support.

Markham: 28:47

Is that the case?

Anders: 28:49

I I definitely agree with the view you just expressed, which is that people do tend to exaggerate the amount of subsidy support that the industry as a whole is receiving, that the battery manufacturers are receiving and exaggerate the element of that in the success of China's manufacturing rise. A lot of these industries such as solar batteries, EVs, they initially took off in China due to heavy subsidies, but the sub the subsidy level probably was not even close to the subsidy level that we would, expect those technologies to earn in the United States or Europe. So for example, the 7,000 US dollar, tax credit for or, for EVs in the United States, there is nothing even remotely close to that still in China. The EV subsidies that were in place have largely come off. There's still a little bit of a tax break, but it's pretty small by comparison to that sub.

Anders: 29:41

I think I calculated around $1,000. And basically, the those subsidies that still exist at this point are more around how easy is it to set up manufacturing? What electricity price are you getting? How much does it cost to get a loan if you're a state owned manufacturer in a province that supports your your company. It might be easier to get access to capital to set up a factory, but that's about it in terms of the direct subsidies.

Anders: 30:08

The bigger factor is the fact that there is a strong and consistent government policy, and I don't wanna exaggerate here either. Government policy is not always the driver of everything that takes place. And certainly for the the targets that exist, the, the requirements, the mandates on automakers, a lot of times those are actually lagging what the industry is doing, but the industry perceives that it will have support. And if they exceed the targets, the government will not back off. The government will raise the targets to match what the industry has already done because the government supports the E V market, partly because they perceive it as an advanced technology that the government that the the country can use to leapfrog other countries technologically, which I think is accurate.

Anders: 30:52

And that was a perception going back more than 10 years that this was a field where other countries, other automakers were lagging. It was a major industry that China would seek to localize and potentially use for exports. And I believe that that strategy, even though this is not a grand design with interlocking parts that are were all carefully thought out, I think the Chinese policymakers were just as surprised as I have been by the extremely rapid rise in manufacturing, but still it's the general consistency of policy that has played a very major role. Plus those supply chain advantages I mentioned earlier.

Markham: 31:28

China's industrial policy around new, new energy period, I think reminds me a little bit of the, the American approach in the in the fifties sixties, you know, where it was was Alfred Sloan of GM that said what's good for for GM is good for America, you know, and it's kind of you you know, that's

Anders: 31:46

the point.

Markham: 31:47

Yeah. And then the point he was trying to get at I guess is the fact that the American national objectives, American policy, geopolitical policy, and strategy were intertwined with manufacturing, with industry. They go hand in hand and China's now got its own spin on it but seems to be taking that same kind of, approach because you can see by the tension between China and the US and the sometimes fraught conversations that that Xi and and Biden have when they when they do get together to negotiate trade or and what have you. You can see it there. And and I think the US has finally twigged, you know, to the fact that China's a major, national security threat, to the US and it's all bound up in this industry and and exports.

Markham: 32:36

But one of the I wanted next my next question deals with charging. You've you've mentioned that a couple times, but, I was reading an an IEA report that I spent I had a a chapter on on charging investment around the world, and China's investment in charging infrastructure was huge. It was off the charts compared. EU was next, and the US was was lagging, we'll say, and and certainly we see that in in Canada. I think we mirror what the the lagging that's going on in the US, and the point here is that now we're seeing American consumers say hang on a second, last year I might have been interested in an EV, this year I'm worried about range, I'm worried about getting stuck somewhere because I don't have access to chargers or it's broken or it's too expensive or whatever the case is.

Markham: 33:27

Charging infrastructure has now become an impediment to EV adoption, was perceived that way and it whereas China seems to have overcome that to some extent by investing furiously in building out its Chinese or it's charging infrastructure. What would you make of that argument?

Anders: 33:45

I would softly agree. Certainly, the numbers are stupendous as always with China. You know, something like 3,000,000 public charging points just puts everybody else to shame. The utilization of those charging points is very low on average, maybe 5%, maybe 10% for some of these networks. So it seems to be, if you build it, eventually they might come.

Anders: 34:05

Let's have the infrastructure in place. But I would caution that the numbers can be very deceiving. And that's true in all of these markets where you talk about how many chargers are there, or are they also, governments for, like, the United States and the EU, UK are all now putting requirements about the uptime percentage. So the chargers have to not only exist. They have to be working.

Anders: 34:27

Yeah. That might be important. And in my 1,000 mile road trips that I'd taken in China, Europe and the United States, I basically had a very similar experience where chargers just either they might work, but they work so poorly that it's a bad experience anyway, and it leaves you in and let's not, you know, take this as a generalization for the EV ownership experience because most people charge at home. Even in China, 40% of new car buyers are installing a home charger when they purchase the vehicle. So infrastructure is more important to those Chinese buyers than it is in other markets.

Anders: 35:02

But I would say it's not like China has cracked it in terms of the quality of the charging infrastructure. And to this date, the only place that I have ever run out of juice while driving an electric vehicle was in China. So I've that I've had some very bad charging experiences in the United States, in Europe, UK, but, yeah, I would say that it's a problem. All three regions have similar problems. I think that China, where it's, much easier, and I think other markets are now catching up, is on just the ease of payment.

Anders: 35:34

So, you know, it's a rager issue that in different markets, you might have to have all these different RFID cards. Or nowadays, most charging networks, you have to log in and you might have to put in your phone number. Check your phone number. Put in your credit card. We run a credit card check.

Anders: 35:49

You know, and if you're, like, traveling in another country, this can be a major issue, especially if your phone battery is out of power and it takes you 15 minutes to set up the charging experience. In China. Everything is just like scan and pay. It's done. You know, it's, I, I actually clocked it one time arriving at a new place that I never used before, less than 30 seconds to complete the process of making payments.

Anders: 36:10

So the interoperability is better, but in terms of maintenance, in terms of the overall charging experience, the charging speed, and then, you know, how conveniently located are the chargers? Are they are they, open and working when they say they will be? All those things can be just as bad. So I I do pooh pooh a little bit this, 3,000,000 charger statistic is not totally representative of the charging experience.

Markham: 36:36

That that's really good to know, because I while I'm not an EV owner myself, I hang out in a lot of social media EV groups because I wanna know what consumers are saying. And I would have to say, there are a lot of complaints. Lots of plenty of, kudos. People love their EVs, but there are some complaints, and I would say the number one complaint is around charging, the charging experience. It's, you know, adapters and broken chargers and and chargers.

Markham: 37:07

You know, the the the charging rate is much lower than it should be and on and on and on. So that's that's not surprising. What are the chances what what's required to fix this? Is it just the government steps in and mandates better quality? The private sector realizes that adoption and sales are tied to the quality of the infrastructure.

Markham: 37:31

What what what's your take?

Anders: 37:34

I think it's something where the government could help. I would sort of be surprised, and I know that JD Power is doing a little bit of the evaluation of different charging networks. But to really have statistics, public statistics on chargers and charging networks, not just what's their uptime, but what's the charging experience. You know, if I plug into a charging point and then it doesn't accept my payment and then I can't unplug because it's still waiting for me to, activate the charger, According to that charger, it's working. The charging company has no idea it's not working, but it's not working for me.

Anders: 38:08

And everybody's experience every single time they pull up to a charger is different and having some sort of independent evaluation of whether each charger and the charging networks as a whole are working to design and interoperable across vehicles. You know, there's a great, YouTube, that you can watch of, the cannonball run that somebody made in Porsche Taycan just using Electrify America charging post. And he he had cooperation from the CEO of Electrify America and, Porsche as a company going ahead of him charging and telling him which chargers to plug into. And even with this type of support hand, you know, golden glove type support from Volkswagen, basically, He still had a a bad experience connecting his Porsche to the Volkswagen invested Electrify America. So that shows you how how complicated it is and how these companies themselves don't know how poorly their infrastructure is performing.

Anders: 39:03

That's interesting.

Markham: 39:05

One of another topic I want to talk to you about is vehicle to grid integration that the Chinese, you say are jumping into that and I wonder because you're an energy policy analyst or an energy analyst, and we know the extent to which China is all in now on renewables and the huge solar farms that they're building out in the Mongolian desert and and so on. And and another one thing that was, really surprising to me is the role of of, distributed solar in China. I did not expect it to be in that 45 to 50% range. I I thought it would be much lower. So that's very It all leads to the question of the role of storage in the in China's power sector, and and I don't know how long we've been talking about, you know, using EV batteries as part of, you know, storage to to to help the grid, but it's been a long time.

Markham: 40:04

And is what's the experience in China, and is China ahead in in v 2g?

Anders: 40:12

Yeah. I mean, when I first moved to China in 2010, I was surprised to see, roadside people who had a donkey cart selling, selling, vegetables or or, snacks on the street, but we're charging their phones with solar. Similarly, I I've been very surprised to see the success of what's called the whole county PV program, which has seen an incredible rollout of rural distributed solar rooftop solar on people's homes and businesses, government offices, and schools. And that's really been responsible for China's boom in solar in the last year when China installed more solar in a single year than the United States has in total, and that China doubled its own rate of solar installations in a single year largely based on this rural distributed solar. And that's those are the places, these rural villages where basically the distribution grid is not up to the task of taking the excess solar energy and putting it back into the whole provincial grid.

Anders: 41:10

So that does face the problem of potentially curtailing that solar energy, not using it by the grid. And so the government has been putting on various time of use, incentives to incentivize people to use that midday solar energy and to use more electricity generally in the middle of the day. That is certainly going to change the charging behavior. And I believe that is one major factor leading carmakers in China to just voluntarily start programs to say, hey, we're going to have v 2g capable of vehicles. Now the actual cost of making a vehicle b 2g capable, it's it's so small.

Anders: 41:45

It almost doesn't matter. What probably matters more is whether there's actually a policy and some equipment available to consumers to actually do that. In China, it's still not actually technically allowed for somebody to do vehicle to home, even if their home is off the grid, but I'm sure it could happen, but it's not technically allowed. And, so, basically, if this happens, it probably would be a part of some sort of pilot program, but there are new policies just in the last couple of months to launch, I think, something like 20 different pilots on vehicle to grid. And certainly because of this rush, I would say mad rush of distributed solar in the eastern provinces.

Anders: 42:23

We always hear about the big energy basis in the desert. We always see the photos of the hillsides covered in solar, but the real problem right now is with these distributed installations in the heavily populated Eastern provinces that have a surplus of solar in the middle of the day. I think you're going to see something happening there. The economics are not great because the bidirectional charging equipment is still quite a cost premium compared to, a regular charger, which is, you know, the tenth of the cost or something. So, yeah, it's, it's gonna be interesting to watch.

Anders: 42:55

I'm not 100% confident it will become a major factor, but it could become a major alternative to battery energy storage, which China is also leading on as you expect.

Markham: 43:08

Indeed. I wanna close out our our interview, Anders, with a little bit of a discussion about the Chinese power grid, because over and over again I'll back up a little bit. My journalism at, Energy Media is kind of split between the global energy transition, which of course includes China, and the Canadian oil and gas industry or North American oil and gas industry. But I focus a lot on Alberta because that's, you know, it's going to be affected by the global energy transition very shortly and there's such a huge debate in Canada. It's kind of inside baseball stuff so I won't go into I'll we'll leave I'll leave the the details for another for another podcast.

Markham: 43:48

But my point here is that just this morning, I was watching one of the oil bros as I call them, talk about China. Oh, yeah. It's all about coal, and they'll sneer at it. You know? As if the Chinese are somehow back in the fifties and they're all burning a 100%.

Markham: 44:03

It's burning a 100% coal, and it's behind the times. And my perception is that the particularly in the last 3 or 4 years and and their Shuangtang, policy from 2020 is that China has said, okay. Look. We're gonna use the the the coal, we're gonna transition off coal eventually, but we we'll keep the plants around to use as backup while we you know, because sometimes the wind doesn't blow and the sun doesn't shine. So we'll have backup, but we are gonna go to to clean electricity over time, and we're gonna do it as quickly as we can.

Markham: 44:37

And again using that that market, and they're going to adopt solar panels primarily with some wind and nuclear and hydro. Does that sound like a reasonable explanation of where China's going with its power sector?

Anders: 44:50

I think that's approximately correct. I think that, just as you see debate and dueling headlines about what is China's energy transition up to in Western media, you see just, many different perspectives on what China will look like, what energy transition will look like in China itself. I think that there's the same skepticism about renewable energy, clean energy in China, definitely as exists outside of China. There are voices saying, well, you know, now that wind and solar are reaching 16%, it's it just can't go any higher. Well, you know, is the solar industry in China just gonna shut down or something?

Anders: 45:28

No. Currently, wind and solar as combined share are rising about 2 percentage points per year. And that's an unsexy linear way to get to 0 carbon eventually. And, of course, you will not be able to get 100% to wind and solar. It will be 50% wind plus solar and then 50% other low or zero carbon, energy sources to get to that carbon neutrality.

Anders: 45:57

And as for the idea that the massive coal build out is mostly to backup wind and solar, I think this is probably on balance. I would disagree with that. This just represents my opinion, but observing that the coal capacity of many of the provinces building coal power already vastly exceeds their peak load. And a big part of the construction of new coal plants is due to political economy factors and incentives within the power sector that largely favor those incumbent generators and the coal power industry, which is politically very influential and definitely is a part of the economic development strategy of even large eastern provinces that you would think would be not resource based economies. They still seek to be totally self sufficient in electricity as much as possible and to invest in as much coal infrastructure now before potentially coal infrastructure has to start shrinking under the dual carbon policy in the years after 2025.

Anders: 46:56

It's definitely perceived universally as an energy security measure, but as to whether or not it will lead to just a slower energy transition overall than would be the case if China had really a national power market where provinces were able to freely and flexibly, trade power amongst themselves and in some sort of spot market that currently only exists in a pilot scale. I think that basically it will probably slow the energy transition somewhat versus the alternative. But I do believe in general that China is firmly committed at a policy level and at an industrial level. I think it's almost irreversible even if there are industry doubts, even if there are concerns about whether it's technically feasible. I think that it will be shown to be technically feasible over time.

Markham: 47:44

Last question, I promise. The it seems to me that the consensus in the power sector is that small amounts of renewables, wind and solar, intermittent sources are relatively easy to integrate into an existing power grid. That's not a problem. Problem when is when you can't get up around 8%, 10%, 14%, and you're seeing that in Alberta now. It the the as I understand it, when you get to that level of penetration of intermittent sources, you have to begin reengineering your grid.

Markham: 48:18

You have to build in storage, you have to build it, make, you know, change you have to reform your market structure, you have to have demand response, you have all all of these things that you have to do, and then you have to scale that up over time as your, as your penetration rate increases. So more wind and solar, you need more a different type of grid that you're that you're building and reengineering. And is that a a correct way to look at it? And if it is, is that what China is doing?

Anders: 48:51

It is. I would not say that it is what China is doing. I would say that Chinese policy makers clearly recognize what you just said is the case and have called for a new type power system, a Chinese phrase, and which includes all the elements that you mentioned. And for me personally, I would say that the energy transition, the power sector energy transition is going to be clearly and obviously technically and economically suboptimal in every country because of the role of incumbents, because of the core competence of the power sector and many other factors that lead to very slow adoption of all the things you mentioned, especially demand response, where we're just not used to thinking of demand as needing to be responsive. We think of reliability as being, like, you know, 9 nines.

Anders: 49:36

Power should always just be on. And, yeah, we have a power market, but we wouldn't wanna actually pay people if there's a supply crisis. That would be that would be too expensive, maybe. And, you know, better just build more stuff. And, it's interesting in China, how the vast majority of electricity, the vast majority of energy is used by industry.

Anders: 49:57

So when we think about electric reliability, we're mostly concerned about, okay, residential, hospitals, schools, streetlights, stuff like that. If we had in it's, let's just say Alberta, if if 75% of the electricity was being used by heavy industry, demand response would be pretty politically popular at that point even if we hey. We wanna keep industries lights on, obviously. But if if we if we can, have a power market with power prices that incentivize some a little additional savings at certain hours a day, let's say, 1% of the hours of the year, that might be better than having 9 nines reliability as our top objective.

Markham: 50:39

Little factoid for you and we'll close on this. And that is in Alberta, 86% of electricity is consumed by non residential customers. So we're talking about industry, heavy industry like the oil sands and refineries and we're talking about business and commercial and so on on. That setup seems to be ripe in my opinion for a couple of things. 1 is demand response and 2 is self generation.

Markham: 51:04

I know there are a lot of grid users in Alberta who are really worried that some of these big operations are going to self generate and basically unplug from the grid or just, you know, demand a lot less, and then that would change the structure of payments, and and it would it would be a little bit disruptive to say to say the least. Anders, this has been a fascinating conversation. We could go on, but I think our list my listeners probably are ready to to take a break. So, but we will have you back because this is I'm very interested in exploring the complexity of this issue and the complexity of power system, power sector in China, the complexity of the clean energy industry in China. I don't think that we here in North America understand it enough, and I think we need to.

Markham: 51:50

If we're going to respond to this competition, from from China, we need to understand it. You need to understand if we would learn anything from the failure of incumbents, like Blockbuster and Kodak, you know, your case studies like that, it's that you need to know what's coming for you. And so we'll I'll be definitely getting back in touch so that we can continue this conversation, and thank you very much for this one.

Anders: 52:13

Thank you.