(Bloomberg Opinion) -- Somewhere in Shanghai, a camera caught what looks like a Model S manufactured by Tesla Inc. bursting into flames in a parking garage. On Sunday night, the video began circulating on social media. Hours later, NIO Inc., a Shanghai-based NASDAQ-listed electric vehicle maker, announced that one of its ES8 models had burst into flames during a repair in Xi’an.
Elsewhere in the world, either of these accidents would be major public relations challenges for their manufacturers. But in China, where the quality and safety of electric vehicles and their batteries have been increasingly called into question, the scandals only underscored longstanding issues with China's electric-vehicle push. According to one recent survey ricocheting across the Web, nearly 70 percent of Chinese respondents said they regretted buying a new-energy vehicle (NEV).
For China, which is hoping to dominate the NEV industry globally, that's a warning. The government’s focus on quantity over quality isn’t sustainable. If China wants to win the electric-car race, it needs to ensure that manufacturers of electric cars refocus on the needs of drivers.
While Beijing has supported the industry for more than a decade, its efforts took on new momentum with the introduction of the now-notorious “Made in China 2025” industrial strategy in 2015. Since then, the government has pursued a range of policies to boost electric cars — funneling R&D funding and subsidies to carmakers and battery makers (batteries are the most expensive components of electric cars), imposing tariffs on imported cars, squeezing technology out of foreign joint-venture partners, and issuing incentives and mandates to produce electric cars regardless of demand.
To spur demand, the government has offered a range of subsidies that it’s only recently begun to rein in (the price of NEVs in China is lower than the global average) and eliminated the sales tax on NEVs. Importantly, several cities have also restricted the number of license plates issued for traditional cars; in Beijing, less than 1 percent of applicants aiming to get one succeed. That virtually forces drivers there to buy electric.
The results have been predictable. Last year, Chinese manufacturers sold 1.256 million NEVs, mostly electric cars — nearly 62 percent more than 2017, putting the country on track to meet its goal of 2 million NEVs sold in 2020. Currently, China accounts for more than half of all electric-car sales in the world.
But quantity can’t obscure what one Chinese energy journal last month referred to as the industry’s “Quality-Gate” scandal. The numbers are damning. In 2018, Chinese manufacturers recalled 135,700 NEVs for a crushing 10.8 percent industrywide recall rate. Already this year, another 23,458 electric vehicles have been recalled.
Batteries are the most common source of problems. Some don’t perform as advertised. Others drain unusually fast. Still others run dangerously hot. More than 40 NEVs spontaneously combusted in China in 2018.
Other issues include faulty motors, faulty transmissions, faulty odometers and bad odors (a problem to which Chinese consumers are particularly sensitive). Most notably, according to market research firm J.D. Power, problems are far more common in Chinese NEVs than in traditional Chinese-made cars.
True, as with any new technology, teething problems are to be expected. But China’s government-sponsored largesse and highly protected market have clearly exacerbated the problem. By one estimate, there are “as many as 500” NEV startups in China, most of which have little to no experience in making or marketing automobiles.
Often this fuels a race to the bottom, as companies see cutting corners and costs as the only way to stay afloat. Restrictions on imported cars, which might otherwise offer some competition, leave the low-end market to cutthroat Chinese rivals. The possibility that Tesla might now be implicated in quality scandals will cause some Chinese consumers to doubt whether even foreign manufacturers — a group that tends to be given a benefit of the doubt that local producers aren’t — are capable of making safe, quality electric vehicles.
The good news is that the government has recently taken steps to eliminate subsidies on the shorter-range NEVs that tend to be sold at the low end, and imposed restrictions on additional manufacturing capacity that should ensure most production takes place in experienced factories.
To restore the confidence of Chinese consumers, however, will require entirely new policies and standards. For example, the most common Chinese complaint about NEVs is that battery performance on the road doesn’t meet what’s advertised. New standards for certifying, testing and marketing batteries — and new resources devoted to enforcement — would help. Likewise, new industrial standards for key components such as fire-prone wiring harnesses would assuage fears that one’s new car might, you know, suddenly burst into flames.
Above all, the government should seek to reduce its role in supporting the industry, allowing carmakers to compete on quality just as they do elsewhere in the world. The best way to get Chinese to buy electric cars is to give them electric cars worth buying. Tesla should be a leader in that cause.
(Updates with reports of Tesla and NIO car fires in first paragraph.)
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Adam Minter is a Bloomberg Opinion columnist. He is the author of “Junkyard Planet: Travels in the Billion-Dollar Trash Trade.”
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