China's Electric Revolution – PART 1

Jim Trippon |

China is already the world's biggest auto market. In 2010, car sales in China totaled over 18 million units, compared with 11.6 million in US. Even in the pre-crisis 2007, US car sales were only around 17 million units.

To the newly crowned Chinese auto market, a quiet revolution may be around the corner. That is, the revolution of electric vehicles (EV). The bugle call of the revolution is clear in the guidelines of the twelfth five-year plan (2011-2015), which will be approved by the national congress in the first quarter of 2011.

Compared to traditional internal-combustion-engine cars, electric cars will significantly reduce urban air pollution, as they do not emit tailpipe pollutants. And they are quiet. So quiet, that there may be road hazards for those who are visually impaired. For generating electricity, there are alternative power sources to oil and coal, such as nuclear, water, wind, and solar, all of which are considered clean.

Not only clean, they are also abundant. As a result, China could significantly reduce the dependence on the imported oil, which now constitutes more than half of its oil consumption. This consideration is crucially important for strategic policy making in Beijing.

Another important factor for the promotion of EV is the comparative advantage of Chinese technology. In the research and development of electric cars, China is at least on the same starting line with other major powers. Chinese auto makers, in general, are weak in the technology of engine and transmission, two crucial components of traditional internal-combustion-engine vehicles. For electric cars, however, the engine is extremely simple and there is no need for transmission at all.

The most important technology for EV is high-powered, rechargeable, and low-cost battery. In this, China is the world leader. Thus the Chinese government has every incentive to expedite the electric revolution.

Indeed, the ministry of science and technology of China has drafted a special guideline for promoting electric vehicles. Although it has yet to be officially published, some glimpses are already in the news. According to the guideline, battery, motor, and control system will be the key areas of government support. The objectives for the EV industry are 1 million EV's on roads by 2015 and 10 billion WH production capacity of high-powered batteries for EV's. And the costs of such batteries are projected to decline by half by 2015.

In the next column, I will discuss stocks that may profit from the upcoming electric revolution in the gigantic Chinese auto market.

Committed To Your Global Profits,

Jim Trippon

Chief Investment Analyst

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
AIY Apollo Investment Corporation 6.875% Senior Notes 25.22 0.05 0.18 3,118

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