China leads the trend towards electrification in the auto industry
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China leads the trend towards electrification in the auto industry

China is the world’s biggest market for electric vehicles, and new legislation from Beijing will ensure that the market grows substantially in the near-future. Chinese officials are issuing what amounts to an ultimatum to all carmakers in the country – whether they’re home-grown Chinese manufacturers or international giants with a presence there – ramp up the electrification, or get out. Manufacturers operating in China will now have to meet minimum quotas of new energy vehicles (NEVs – plug-in hybrids, pure-battery electrics, and fuel-cell autos) annually.

electric v sales 191118

Source: Bloomberg

New legislation requires that a significant portion of carmakers production or imports into the country are green in 2019. Furthermore, the size of that portion will increase annually. Given the sheer size of the Chinese market for electric vehicles, it’s likely to be adhered to. There is some wiggle room: if you exceed the quotas, you will be rewarded with tokens – those tokens can then be sold on to other carmakers who fail to meet quotas. In this way, Beijing will keep a tight hold on carbon emissions. Failure to comply with this scheme will result in heavy fines, and – for the most serious offenders – closure of their assembly lines.

Yunshi Wang, director of the China Centre for Energy and Transportation at the University of California, thinks that Beijing could be instituting a new model for other countries to follow in the fight against climate change. He said: “The pressure is mounting. This could be a model for other countries. It’s a game changer globally.”

The equation Beijing is using to determine what percentage of vehicles must be electric is complex, but we know the bottom line: by 2025, 7 million cars per year (about 20% of all Chinese car sales), must be electric. That’s a huge target, and it could pave the way for a clean up of China’s notoriously polluted cities. Not only that, as the world’s largest producer of greenhouse gasses, it’s great news for the world. It is also, of course, great news for companies involved in the trend towards electrification – and the people who invest in them.

Dominion holds Aptiv, a company leading the way in the manufacture of components for electrification, connectivity, and automation in the auto industry, in its Global Trends Managed Fund.

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