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Why China’s electric car goal is turning into a boon for SUV makers

The Chinese government’s plan to replace
gasoline-powered cars with a new generation of electric
vehicles has hit an unexpected bump: Chinese consumers’ love
affair with gas-guzzling sport-utility vehicles.

In a country where 700 people are killed in road accidents
every day, according to the World Health Organization, and
where most drivers are inexperienced, hefty SUVs have grown
wildly popular because they provide a sense of security, says
Yale Zhang, managing director of research company Automotive

A shortage of charging stations also is helping to persuade
many Chinese buyers to choose SUVs over electric alternatives.

Official targets call for 40% of cars bought in China in 2030
to be pure electric vehicles or plug-in hybrids. The country
already is the world’s largest electric-vehicle market. Roughly
half the 700,000 electric cars sold world-wide last year were
sold in China.

In all, China will have 30 million electric cars on the road,
9% of the country’s total passenger-car fleet, by 2025,
Bernstein Research forecasts. While that’s likely to eclipse
the number of electric cars operating in any other country,
China’s appetite for electric cars still looks modest alongside
the craze for SUVs.

From four million SUVs in 2010, China will have 150 million —
45% of its entire passenger-car fleet — by 2025, Bernstein
estimates. The sedan has long been king in China, but SUVs will
start outselling sedans next year, says Bernstein auto analyst
Robin Zhu, and by 2023 SUVs will outnumber sedans nationwide.

SUVs are so popular that one of China’s biggest auto firms,
Great Wall Motors Co., makes nothing else. Foreign car makers
are also joining the frenzy. In April, Volkswagen’s

VW, -2.58%

China chief executive, Jochem Heizmann, said his company was
launching an “SUV offensive,” with several new models being
readied for the China market.

China’s newfound taste for outsize cars that gulp gasoline may
mark a temporary reprieve for a domestic petroleum industry
that has struggled with the decline in crude-oil prices in
recent years. Surging SUV demand will help propel oil
consumption in China upward for at least the next decade,
according to energy experts and estimates from state-owned
China National Petroleum Corp., more than offsetting the impact
of the rise of electric vehicles and hybrids.

“We don’t think [electric cars] will be any risk to the
gasoline demand in the next five to 10 years,” says Nelson
Wang, a China oil analyst at Hong Kong-based investment firm

The popularity of inefficient cars helps account for China’s
recent growth in oil imports. In March the country imported a
record average of 9.2 million barrels of crude a day. Imports
for the first quarter were up 15% from a year earlier, and that
trend looks set to continue.

Transportation in China required 2.5 million barrels of
gasoline a day last year, and that will keep rising until it
hits 3.6 million in 2024, according to Bernstein.

For petroleum companies, that may be as good as it’s going to
get. Electric cars are getting steadily cheaper, and by the
early 2020s they are expected by many auto analysts to reach a
tipping point where they will become more economical than
traditional cars. Meanwhile, gasoline cars will grow more
efficient, and many journeys in China will get shorter, thanks
to new roads.

For now, the fossil-fuel industry will look to Chinese drivers
like Shanghai resident Wang Yong for breathing room. The
45-year-old, who runs a company trading in consumer goods, says
he didn’t think much about fuel costs or emissions when he went
shopping for a new car at the end of 2016.

Wang says he considered an electric car from Tesla Inc.


  — the only electric-car brand he says he
would ever consider purchasing—but worried about the
availability of charging stations in Shanghai. In the end, he
chose an SUV, a BMW

BMW, +0.01%


“It’s tall, big, spacious and comfortable,” says Wang.

The SUV goes about half as far on a gallon of gas as the
Volkswagen Jetta, one of the best-selling sedans in China last
year. But fuel efficiency doesn’t make his list of features he
wants in a car. “In terms of design, power, connectivity and
high technology, most electric cars can’t satisfy my needs,” he

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