Sustainable mobility: global challenges and lessons from China

Each country’s transportation sector faces similar challenges to reduce emissions, but countries have taken very different approaches to getting there. In recent years, China has emerged as a laboratory of new mobility ideas in terms of policy, technology, and business models. It is the world’s biggest market for electric vehicles and has a recent history of innovative policy and business collaboration that has created a booming sustainable mobility ecosystem.

Challenge 1: Infrastructure for the green shift

Widespread adoption of electric vehicles (EVs) requires numerous and accessible charging opportunities – something sorely lacking in many countries, including the United States. “Building the charging infrastructure necessary for electric cars is expensive,” says Jeremy Rice, Managing Partner, Mazars, USA. “Unlike gas stations, which were built decades ago by fossil fuel firms, there is no obvious private sector company to do it.”

In China, meanwhile, charging stations are popping up rapidly – in carparks and in residential developments. The market is also experimenting with mobile solutions: BYD, a former manufacturer of mobile phone batteries, provides charging services where car owners can call a customer service hotline for emergency charging services.

Challenge 2: Making clean energy cheaper

A second challenge is the need to provide adequate supply of cheap, clean energy.

At present, China’s electricity grid is powered mainly by fossil fuels, so electric cars simply displace overall emissions. “China uses a third of its total oil consumption to fuel cars,” explains Helena Mao, Partner, Mazars, “so electric cars are not a silver bullet for decarbonisation.” In the coming years, this will change: China is making major investments in nuclear and renewable energy that will make EVs more sustainable.

But it is not enough for the energy to be clean; the clean energy needs to be cheap. “We saw this in the last few years in the US,” says Rice. “When gas prices went up, people started switching from energy-intensive SUVs to more energy efficient smaller cars.” Cars are likely to remain an expensive purchase, so bringing down the cost of clean energy is a sure route to reducing carbon emissions. 

Challenge 3: Encouraging innovation for scale and sustainability

Rice points out that a challenge for sustainable mobility everywhere is fuel efficiency, but that there are many paths to achieving this. “Just a few tier 1 suppliers in the sector are working on sustainability formally, but most are contributing by making vehicles more fuel efficient. That could be an incremental improvement to the seats or windshield wipers, for example, by figuring out how to make components lighter while maintaining strength and safety.”

Chinese automotive firms are fostering domestic and international partnerships to work on innovations in sustainability. Six firms have recently joined forces to develop fuel cell systems and hydrogen fuel cell vehicles. Chinese firms have also received a good deal of interest from major European firms recently, with Volkswagen making a 1.1 billion Euro investment for a 26% stake in lithium battery company Guoxuan High-tech in May 2020, becoming its largest shareholder. In July 2020 Mercedes Benz announced that it would take a 3% stake and a deeper strategic partnership with another, Farasis Energy.

Other firms are developing a consumer market for small and micro electric vehicles. For example, “Liuzhou Wuling makes micro electric vehicles which have become very popular, selling 20,000 units in Liuzhou – a city of more than 3 million people,” says Mao.

Challenge 4: Getting the right incentive mix

“New clean technologies like wind or solar power have always been developed on state subsidies. It has been exactly the same with EVs in China,” explains Jean-François Salzmann, Managing Partner Mazars, Mainland China. “The government decided to develop the electric car and has subsidised the industry by an estimated 100 billion RMB (12.5 billion Euro).”

The government also incentivises consumers to buy electric cars. “In Shanghai and Beijing, you have to buy your own number plate,” says Salzmann. “They can be up to 80,000 RMB (10,000 Euro) for a white one for traditional cars but free for a green one for electric cars. And you see a lot of green number plates here.”

Subsidies can create challenges too. Since these benefits were made less generous in 2018, EV sales have declined, only showing signs of a return to growth in July 2020. The Chinese EV market waxes and wanes according to policy, illustrating the importance of consistency. This is a lesson for other markets – including the US. “When you talk about R&D in automotive, you’re looking at a minimum of three to four years from when you start working on something to when you have a prototype,” explains Rice. “Once policy sets automakers on a more accelerated sustainability path, they don’t want to change course.”

In terms of EV sales, subsidies can help convince a price-sensitive consumer base globally. “Broadly speaking, price remains the determining factor worldwide,” explains Richard Karmel, Managing Partner, Mazars, UK. “When there are high levels of unemployment and falling discretionary spend, consumers are going to be looking for the best value for money goods rather than the most ethically produced items.”

The government in China also stimulates demand by setting targets. Mao explains, “There are targets for OEMs for the average fuel consumption of vehicles and for production and sales volume of new-energy vehicles.” The government combines these with penalties for missing targets, which can include the obligation to stop producing altogether.

Challenge 5: Encouraging competition and innovation in carsharing

There is also a great deal of carsharing innovation in China. “I know of one firm trying to develop an urban rental EV business where advertising is a key revenue stream,” says Salzmann. “They put an advert on the outside of the whole car and even have a small screen playing ads. What you see in Europe with the success of Uber and its competitors, you see here in China multiplied tenfold with Didi and its competitors,” says Salzmann. “Many people don't even buy a car because carsharing is so easy to use.”

Helena Mao also sees a great deal of data innovation, with businesses using auto data to bundle services such as tailored insurance with airport VIP services and other travel perks. “The value of data is much more ingrained in the way the Chinese do business compared to in Europe and the US,” adds Salzmann.

Conclusion: lessons from China

The key lessons for the world to take from China include that state intervention and investment combined with entrepreneurial know-how can help sustainable solutions to scale. The country also offers lessons on infrastructure, incentives, collaboration, and the lasting value of building an innovative culture in terms of business structures and technology. Even though some Chinese entrepreneurial and policy initiatives may fail in the coming years, it is not a waste. “Even though electric car companies and the car sharing companies in China are not massively profitable today,” explains Salzmann, “they are experimenting with new business models and technologies, which will which give them a head start over other markets in time."