Doug Young

The BYD gas-powered S6 SUV debuted in Chile last month. Image Credit BYD.

Struggling electric vehicle (EV) maker BYD (HKEx: 1211; Shenzhen: 002594, OTC:BYDDF) got a major boost last week when Beijing announced an innovative new plan to stimulate an anemic industry whose sales have failed to take off despite generous government support. The plan this time around looks much smarter than previous ones by focusing on big customers.

Unlike previous campaigns that focused mostly on consumers, this new campaign takes aim at Chinese cities and mass buyers like taxi fleet operators, whose driving patterns are more suitable to using such vehicles and which have the money and resources to invest in expensive but necessary EV infrastructure. (BYD announcement) The new campaign also takes square aim at pricing, another major obstacle that has kept many cash-strapped cities from taking a more serious look at the technology.

Beijing believes that new energy vehicles are the wave of the future and has actively encouraged its development by domestic car makers despite slow progress for most of the world’s major automakers. BYD has been the most active Chinese firm in the space, and many believe its strong focus on the area was a major reason why billionaire investor Warren Buffett decided to buy 10 percent of the company in 2008.

But BYD has stumbled badly in the last two years, partly due to sputtering sales for its traditional gas powered cars and also because EV sales in China have failed to take off. Beijing rolled out generous incentives for EV purchasing in 2010, including direct cash subsidies and tax rebates, and was reportedly considering additional incentives earlier this year.

Yet EV and hybrid vehicle sales totaled just over 8,000 last year, accounting for a tiny fraction of overall domestic vehicle sales that reached 18.5 million. The program’s failure lies largely in its targeting of consumer buyers, many of whom worry about technological constraints that limit EV driving ranges and their ability to be recharged.

By comparison, this new program targets government buyers of electric taxis and buses by offering similar generous financing packages from China Development Bank and other Beijing-backed policy lenders. BYD has already found a willing buyer for its electric buses and taxis with the government in its hometown of Shenzhen, and has also launched trial programs in overseas markets including Germany and Britain, proving that governments and other mass buyers are interested in the technology.

This new program aimed at the domestic market should remove one of the major concerns voiced by many cash-strapped local governments, namely the relatively high cost of buying and maintaining electric buses and taxis compared with gas-powered vehicles. Many of these governments have said if costs were lower they would seriously consider buying such vehicles, since doing so would not only reduce pollution but help to support one of Beijing’s focus industries.

If this current program proves successful, Beijing should consider using more incentives to target not only domestic mass buyers, but also global customers for EVs from BYD and other Chinese manufacturers. By doing so, it can let these bulk buyers build out the necessary infrastructure and help to boost consumer confidence to eventually make EVs attractive for the mass market.

Bottom line: Beijing's latest incentive program for EVs looks like a smart move by targeting mass vehicle buyers who are more willing than consumers to try the technology but worry about high costs.

Editor Note: This same campaign should also help lesser-known China EV maker Kandi Technologies (NASD:KNDI), which already sells to mostly governement buyers, and just sold 100 EVs to government-owned Hangzhou New Energy Taxi Company last week.

Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters, writing about publicly listed Chinese companies. He currently lives in Shanghai where he teaches financial journalism at a leading local university. He also writes daily on his blog, Young’s China Business Blog, commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also the author of an upcoming book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China .