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China Pushes Ahead On E-Cars; BYD Shares Soar

Date: 15-Nov-11
Country: BEIJING/HONG KONG
Author: Fang Yan and Alison Leung

China is pushing ahead with efforts to encourage the development of electric vehicles in the world's largest auto market, boosting shares of Chinese green car maker BYD Co Ltd, which is backed by U.S. billionaire Warren Buffett, to their best daily gain in 3 years.

But whether China's green initiatives, including allowing potential buyers in Beijing and Shanghai to get electric cars without going through license plate auctions or lotteries, will boost sales of BYD's e6 electric car remains a big question, industry observers say.

"There is a big gap between stock market reaction or expectation and demand in the real world," said Yale Zhang, president of consultancy Automotive Foresight (Shanghai) Co. Ltd.

"In the stock market, they can push up shares on perception, but you won't see a lot of electric cars on the road unless they are reliable, safe, convenient to use and not too expensive."

Regulators in Beijing, including the National Development and Reform Commission, issued a joint statement late last week, calling for its 25 pilot cities to draw up plans to push EV sales which also include installing charging facilities and charging spots at individual users' neighborhoods, among others.

Strong demand for cars would be released if potential buyers who did not receive a license to buy a car were able to purchase electric cars, said Daiwa Securities analyst Jeff Chung.

SLUGGISH SALES

Hong Kong-listed shares of BYD rose more than 26 percent on Monday.

A tiny green car and auto parts maker Hybrid Kinetic Group Ltd, controlled by exiled Chinese tycoon Yang Rong, also saw it shares jump 29 percent, despite skepticism on the industry's largely untested technology, especially on car batteries.

Still, BYD shares are down about 50 percent from the end of 2010 because of the company's poor auto sales and earnings.

Shares of Hybrid Kinetic, which planned to produce low-cost clean-technology auto parts in China to allow local car makers to sell green vehicles at conventional car prices, has also lost about half of their value this year compared with a 15 percent fall on the broader market.

"The upside for BYD should be limited," said Daiwa's Chung, adding that BYD's e-6 electric car would account for about 2 percent of the company's production capacity next year.

Government policy would favor the development of electric cars, but the real pick-up in sales would not start until late 2012 or 2013, he added.

Beijing has declared the electric vehicle industry a top priority, earmarking $1.5 billion a year for the next 10 years to transform the country into one of the leading producers of clean vehicles.

It also handpicked 25 cities, including Beijing, Shanghai, Shenzhen and Hangzhou, to lead the migration to green vehicles.

But, so far, customers remain unimpressed by the high cost and limited journey range of the vehicles and a lack of charging infrastructure.

In Shanghai, a huge metropolis with more than 20 million people, there are only 10 registered electric cars, while the number in Hangzhou is only slightly higher at 25, according to China Business News.

(Editing by Chris Lewis and Muralikumar Anantharaman)

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