INSIGHTS | We’ve seen the future of mobility. It’s golf carts.

As electric car brands struggle, the government has released a 15 year plan for the industry’s development. Since subsidies were withdrawn in June, industry darlings like Nio and SAIC have seen sales flatten out, as Chris Udemans wrote in July. Some analysts expected this plan to be more targeted in upgrading the industry—so when I saw it was out, I dropped everything to ask experts what it meant.

I thought I was going to write about cars. But after a week of reporting, I’m convinced the real story is tuktuks. Low speed electric vehicles (LSEVs) are taking over rural China without subsidies—in fact, experts are not even asking if they can be saved, but if they can be stopped.

They are “so underrated,” says David Li, Executive Director of the Shenzhen Open Innovation Lab. Li helps international entrepreneurs interested in mobility access resources in China. While people talk of an EV downturn, he said, “go to an LSEV company—they say they are still growing 30 percent per year.” 

Bottom line: No rescue line for Nio is in sight. While some new energy vehicle (NEV) brands scramble to keep profit margins, other segments of the supply chain see opportunity from the disappearance of subsidies. The most interesting story in the market may be what Beijing decides to do about golf cart-like low speed electrics on rural China’s roads. 

What’s new: The 2021-2035 New Energy Vehicle Industry Development Plan draft doesn’t mention subsidies, but does promise support for the industry.

• Insiders all commented on the hard, higher sales target of 25% market share by 2025 (which analysts estimate would mean hitting 6 million in sales) and the scrapping of the 2030 target. 
• State-owned enterprises in China have KPIs, and for the first time, the plan explicitly requires R&D investment into NEVs to be part of them. An employee from state-owned NEV-bus manufacturer Shenlong Keche told TechNode he expected R&D money to go towards battery endurance and storage. China’s state-owned mining, refinery and chemicals enterprises are likely to focus efforts on lithium extraction and refining. 
• The plan aims to speed up building charging infrastructure.
• Analysts flagged a link between EVs and the carbon trading market. While it’s not yet clear what form such a mechanism would take, it could have implications for every part of the supply chain. 
• Hydrogen fuel cells get more attention.
• All of the above is vague on details—like most national plans, implementation is left to local government. 

Life after subsidies: Electric car brands have been relying on subsidies to make their cars cheaper. Without subsides, cars are more expensive to the average consumer who was already hesitant about limited range. But remember, these car brands assemble cars—they don’t make them. Other parts of the supply chain don’t think the future looks all bad. 

• Swappable battery companies expect to see more adoption of their technology. They have been “waiting for subsidies to end,” Li told TechNode. Fixed battery NEVs have no viable used car market. Buying one forces owners to bear the battery cost (the most expensive and short-lived part of the car). Swappable battery make NEVs cheaper to buy and also mean they retain value as other car parts live longer than batteries. 
• More companies have introduced models around the size of a Smart car, to target cost-conscious consumers.
• Startups are providing services around NEVs like swappable battery stations, ride hailing (see Xpeng’s Pengster), parking, and charging space. Problems that will need solutions are edging closer into view. Once this round of electric cars are on scrap heaps, who’s going to dispose of the batteries?
• If car brands can’t make themselves profitable, the state is happy to see some die. There are over 500 standard-size NEV companies and over 1000 low-speed electric vehicle (LSEV) companies. The state can afford to cull a few. China already makes half the world’s NEVs.

Forget about cars—think small: While Tesla-likes suffer, there are other EV companies that are doing just fine without subsidies: makers of low-speed electric vehicles, a category that includes everything from a one-person pod on three wheels up to four-seaters only slightly smaller than a standard electric car. Their speeds generally top out around 45km/hr. 

• Think tank GGII says (in Chinese) by 2018, LSEV inventory exceeded 3 million. GGII predicts that the total number of low-speed electric vehicles in China will reach 4-5 million by end 2020. 
• Growth slowed in 2018 but mainly due to bans and policy uncertainty.
• “Even companies with small market share are making hundreds of thousands of cars,” says Li. 
• Large LSEV brands are getting out of the grey area and moving in on standard-size EV companies. Last year, Levdeo bought Yema Auto, obtaining permits to produce fuel and “real” NEVs as well as plants in Chengdu and Mianyang. Rumours say it plans to go into car sharing. 
• Shandong Automobile Industry Association says that (in Chinese) Shandong province produced 695,900 low-speed electric vehicles in 2018, up 2.23% year on year. Exact numbers are hard to pin down (Liaocheng city in Shandong, for instance, has said that most of the LSEVs on their roads are illegally produced). Low technical thresholds mean it’s really the kind of car you can make in your backyard.
• The industry is not concentrated, but leading players include Levdeo, Yogomo, Shifeng, and Lichi.

Winning in Pinduoduo territory: Go down to China’s third and fourth-tier cities in provinces like Shandong and Hebei, or rural towns. There’s no buses, let alone EV charging poles. “Rural China is not going to spend RMB 200,000 (about $28,000) on an electric car,” says Li. “Elon totally missed the market.” While Tesla and other high-end EV brands fight over China’s well-heeled urbanites, LSEVs are catering to a huge market who are not swapping out their old cars, but keen to buy their first. 

Moving violation: Central government wanted China to create Teslas. Instead, they find themselves confronting golf carts, and a terrifying phenomenon—China’s elderly who’ve never taken a driving lesson, on wheels. 

• Since you don’t need a license to drive them, they’ve been crashing all over China’s small towns. 
• With no technical standards to limit size or control quality, some LSEVs are as big as standard vehicles and aren’t that much slower. 
• Some of them are bad for the environment due to poor-quality lead-acid batteries.
• They cause headaches for police, who have no way to punish traffic rulebreakers. 
• For all those reasons, Beijing has been trying to regulate the industry since 2015, and there have been efforts to ban vehicles locally (both preceding links in Chinese). 

But rural China loves them, as do local governments: LSEVs are still “sneaking around,” a father-of-one from Hebei’s provincial capital Shijiazhuang told TechNode. He bought an LSEV for his parents three years ago for RMB 7,000. This consumer segment doesn’t have range anxiety. They just want to be able to pick up their grandkids from school and do some grocery shopping. Also, LSEVs don’t need charging poles: they can be charged on 220V at home. 

Local governments are not encouraging LSEVs just because they are anti-carbon crusaders. Their primary concerns are money and jobs. Under the pretext of developing NEVs, some local governments have built industrial parks which are really for LSEVs. They know they aren’t going to get domestic NEVs to set up shop in their jurisdiction and see LSEVs as a development shortcut. It’s no surprise that bans are not enforced harshly as Beijing is asking local governments to kill off a profitable industry, and sometimes their largest taxpayers and employers.

Legitimizing contraband: Industry insiders say the policy they’re watching is not the top-line EV plan, but LSEV technical standards slated for release in 2021. Set too stringent, they could cut away at an industry built on low price points; set too low could mean perpetuating low quality and safety. Reports say some producers are putting off further production until their release. 

Overtaking on non-Chinese roads: As John Artman pointed out in this space a few weeks ago, global doesn’t mean US. Li, who works with international entrepreneurs who are looking at sourcing vehicles in China, told TechNode he gets more interest from places like Kenya and India than the global North: “It’s much easier for me to talk to someone from Ghana than London.” The latter, he finds, see EV markets exclusively through the prism of Tesla. 

China wants to sell NEVs to the world. LSEVs could find huge, hitherto untapped markets, especially where there is little besides roads in terms of transport infrastructure. If China’s EV tech is to go global, LSEVs may be what really go far along the Belt and Road. 

Additional research by Coco Gao.