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Toxic Smog in Beijing Fueling Auto Sales for GM, VW

January 24, 2013

Toxic Smog in Beijing Seen Fueling GM to VW Sales in China

A woman wearing a mask walks past the CCTV Building during severe pollution in Beijing on Jan. 23, 2013. The Chinese government contributed to the worsening air quality by encouraging auto sales to boost consumption in the global financial crisis. Photographer: Lintao Zhang/Getty Images

Twice in one day last week, Beijing’s air got so bad that taxi driver Jiao Quanyou almost plowed into the vehicle in front of him.

“I didn’t see the car,” said Jiao, who has driven a cab for 12 years. “I quit four hours early that day even though I made a loss.”

In contrast to Jiao, foreign manufacturers in the world’s biggest auto market are poised to profit from this month’s record-breaking pollution. With toxic smog engulfing Beijing and much of the rest of the country for weeks now, China is considering tighter vehicle curbs and emissions standards that match Europe’s.

That could benefit General Motors Co. (GM:US), Volkswagen AG (VOW), and Hyundai Motor Co. in a market where sales are forecast to top 20 million units this year, according to industry researcher Intelligence Automotive Asia. The new rules are likely to spur many drivers to buy new cars, and unlike most domestic automakers, overseas companies can produce vehicles that comply with stricter global standards for emissions.

“All foreign car and truck makers are capable of meeting very advanced emission standards and will have no problems,” said Ashvin Chotai, managing director of Intelligence Automotive Asia in London. “So it would put Chinese brands at a disadvantage.”

Volkswagen is “well prepared” for stricter vehicle standards and has reduced the fuel consumption and emissions of its fleets by 20 percent since 2005, said Christoph Ludewig, a spokesman for the company in Beijing.

BYD Co., partly owned by Warren Buffett’s Berkshire Hathaway Inc. (A:US), and Beiqi Foton Motor Co. may also win more orders as governments speed up replacement of aging bus fleets with electric models, according to China Minzu Securities Co.

Tailpipe Ads

BYD’s K9 bus is currently in use in the southern city of Shenzhen, and the automaker says it plans to introduce the all- electric vehicle to more Chinese cities with government support. Beiqi Foton, whose biggest shareholder is the government, delivered 160 electric buses for Beijing last month.

BYD would also benefit from possible subsidies for alternative-fuel passenger vehicles. The company is supplying 500 of its E6 electric cars to Shenzhen’s police, adding to 300 E6 taxis already on the city’s streets.

The company took out newspaper advertisements this month claiming that tailpipe emissions would fall by 27 percent in China if the country’s entire taxi and public bus fleets were replaced with BYD’s electric vehicles.

BYD shares have risen 14 percent this year in Hong Kong trading, outpacing the 4.2 percent gain in the benchmark Hang Seng Index. Beiqi Foton surged on Jan. 14 after air pollution hit record levels and is up 1.2 percent since then, versus a 0.4 percent loss for the Shanghai Composite Index.

Health Risk

Official measures of PM2.5, fine airborne particulates that pose the largest health risk, on Jan. 12 rose to 40 times the levels deemed safe by the World Health Organization, sparking public calls for government action.

Four days later, the environmental protection ministry released for public consultation a draft of stricter national vehicle emission guidelines equivalent to the standard applied to passenger and light vehicles in the European Union, though it left open the date for implementation.

Beijing will take the lead and introduce the stricter standards in the capital next month, the official Xinhua News Agency reported, citing the city’s environmental protection bureau. The sale and registration of diesel and gasoline vehicles that don’t meet the new requirements will be banned from Feb. 1 and March 1 respectively, according to the report.

Bike Lanes

To cope with congestion and pollution, the government should develop more mixed-use districts where residents can live and work to reduce the need for commutes, boost public transportation, and encourage the use of bicycles, said Peter Duncan, Shanghai-based chairman of urban planning firm Hassell.

“In China, the level of development is outpacing the level of support infrastructure,” Duncan said. “The past week may be the tipping point for the government to really concentrate on particular areas of change.”

Shanghai and Beijing have rapidly expanded their Metro systems in recent years, and nine other Chinese cities have subway systems, with another 35 under construction or in planning. Nonetheless, it’s not uncommon for new districts with homes for tens of thousands of residents on the outskirts of cities to be built with little access to public transport.

Public Transportation

The State Council, or cabinet, pledged earlier this month to support the development of less polluting urban transport and offer tax breaks and fuel subsidies for mass transit. The council said it wants public transportation to account for 60 percent of motor vehicle use in towns and cities.

The government contributed to the worsening air quality by encouraging auto sales to boost consumption in the global financial crisis. Subsidies were extended for auto purchases and trade-ins by rural residents as part of its 4 trillion yuan stimulus package in 2009, the same year China surpassed the U.S. as the largest vehicle market.

Now, the government is planning similar support to hasten the shift to cleaner cars. Beijing will soon match a 60,000-yuan central government subsidy for electric vehicles and exempt them from license-plate quotas designed to cut the number of autos on the road, according to Chen Guiru, deputy head of the local government arm in charge of alternative -energy vehicle development.

Electric Vehicles

Beijing’s acting mayor Wang Anshun said the city will take 180,000 old vehicles off the road and replace coal-burning heaters in 44,000 homes in a bid to cut air pollutants. The capital will also promote clean-energy vehicles among government departments, Xinhua News Agency reported on Jan. 22.

China may see “increased emphasis on trying to speed up the development of alternative-energy automobiles,” said Thomas Callarman, director of the center for automotive research at China Europe International Business School in Shanghai.

That would help the country get closer to a target of cumulative sales of 500,000 electric vehicles by 2015 and 5 million by 2020. Sales totaled about 13,000 EVs from 2009 to 2011, according to Bloomberg New Energy Finance. A lack of infrastructure and expensive models are behind the slow pace of adoption, the researcher said.

Despite the new initiatives, auto production remains a pillar of the Chinese economy, said Han Weiqi, an analyst at CSC International Holdings in Shanghai. That means any new initiatives are likely to take the form of limits on emissions and pollution rather than restrictions that would hurt automakers across the board.

“If there are measures to slow down car sales, the car companies will be unhappy,” Han said. “And consumers won’t like only taking public transport.”

To contact Bloomberg News staff for this story: Tian Ying in Beijing at ytian@bloomberg.net; Alexandra Ho in Shanghai at aho113@bloomberg.net

To contact the editor responsible for this story: Young-Sam Cho at ycho2@bloomberg.net


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