China: automakers could have problems meeting tougher fuel economy goals image

Beijing’s ongoing battle against pollution also includes measures to align fuel economy standards in the world’s largest auto market to the ones enforced in Europe or the United States.

Now, carmakers from state-owned FAW to Zhejiang Geely (owner of Volvo Cars) are in a race against time to lift eco-friendly car sales to new heights in order to meet the tough goals outlined for 2015. Large domestic carmakers and the foreign automakers should have no trouble meeting the standards, as they have access to cash and technology to do it. The issue is far more critical for China’s smaller indigenous producers – who would definitely struggle to raise the needed cash to push vehicles that comply. The government’s aim is to have more efficient autos each year and the fuel economy targets are expected to be updated each year through 2020.

The domestic Chinese auto industry is highly fragmented, and the cost of developing or acquiring the needed technology is expected to drive a strong move towards consolidation, with many acquisitions, mergers and even bankruptcies.

From 2015, all carmakers operating in China need to achieve a fleet-wide average fuel economy of 6.9 L/100 km (34.1 mpg) and until 2020 the target is expected to go down to 5L/100 km (47 mpg). According to James Chao, regional director at IHS Automotive, the move to meet the regulations by the end of the decade is expected to cost “billions and billions of dollars”, as the industry needs to improve fleet average fuel economy by more than a third.

Via Reuters