BYD Gets Greenlight to Sell Electric Vehicles in Beijing and Shanghai

In late February, Chinese automaker BYD won regulatory approval to begin selling electric vehicles in Beijing and Shanghai.

Once the darling of international green-energy advocates and investors–Warren Buffett’s Berkshire Hathaway Inc. owns a 10 percent stake in BYD–the Shenzhen-based company has in recent years seen modest sales in China and shrinking profits. One hurdle has been an insufficient network of nationwide charging stations.

Until now, BYD has only been allowed to sell its all-electric E6 model in limited markets, including its hometown of Shenzhen, where most sales have been for use as taxis. A fatal fire in 2012–an E6 cab burst into flames after colliding with another vehicle in Shenzhen–created a round of negative publicity, although BYD concluded after an investigation that the electric battery was not the source of the fire. “In the accident, the power batteries of such vehicle did not explode,” the company said in a statement. Yet public skepticism lingered. The company has since faced difficulties and delays in securing government approval to expand its sales channels.

Today one of the major obstacles to ramping up electric vehicle sales in China is infrastructure. Electric cars and charging networks present a classic chicken and egg conundrum: Consumers are understandably wary of purchasing electric vehicles while facilities to charge them remain scarce in China. Yet without adequate demand, it’s been hard to justify maintenance of even existing stations. As the financial newsmagazine Caixin recently reported, about half of the electric-vehicle charging stations at the Shenzhen Airport have already been allowed to fall into disrepair because of minimal usage.

China’s electrical grid is controlled by two large state-owned enterprises: State Grid and Southern Grid. After a burst of initial enthusiasm–in 2009 Beijing announced a series of policies and subsidies to encourage electric vehicle development–both State Grid and Southern Grid have curtailed their spending on electric-vehicle infrastructure. In 2010 and in 2011, State Grid spent approximately 3 billion RMB ($490 million) on electric-vehicle projects. But in 2013, it slashed its annual investment to less than 1 billion RMB. “Big charging stations lose several tens of millions of yuan annually, and small ones lose millions,” a State Grid local utility manager told Caixin. Several existing stations have already been turned off.

One sticking point has been a matter of technology. Power companies in China want to push battery-swapping stations, where a driver can exchange a depleted battery for a fully charged one in a matter of minutes. Meanwhile auto companies, including BYD, favor battery-charging stations, where a driver parks a vehicle to power up his or her own battery. Another State Grid official told Caixin, “We know more about power-related safety, including charging interfaces between electric cars and stations that charge them.”

While the future of electric vehicles remains uncertain in China, despite the smog and the dire need to curtail emissions, Palo Alto-based Tesla has recently decided to enter the market. In January, Tesla announced it would begin selling the electric Model S sedan for 734,000 RMB ($121,280), hoping to appeal to luxury car buyers.