GREENING TAIWAN, PART II: ELECTRIC VEHICLE

C O N F I D E N T I A L SECTION 01 OF 04 TAIPEI 001383 SIPDIS STATE FOR EAP/TC, OES/EGC, OES/ENV, OES/PCI, OES/STC, EPA FOR KASMAN, TROCHE AND HARRIS, DOE FOR INTERNATIONAL, COMMERCE FOR 4431/ITA/MAC/AP/OPB/TAIWAN E.O. 12958: DECL: 11/19/2019 TAGS: SENV ECON ENRG EINV TRGY TSPL TW XE SUBJECT: GREENING TAIWAN, PART II: ELECTRIC VEHICLE INDUSTRY SHIFTS INTO HIGH GEAR REF: TAIPEI 1243 Classified By: AIT Economic Chief Hanscom Smith for reasons 1.4 (b) and (d) ¶1. (U) Reftel introduced Taiwan's plans to develop a "green technologies" industrial base through a USD 1.5 billion public investment plan, which the authorities hope will attract a further USD 6.25 billion in domestic and foreign investment over the next five years, create 110,000 new jobs, and drive Taiwan's economy in the coming decades. This message focuses on one of the sectors targeted by Taiwan's green industrial development plan: the electric vehicle industry. -------------- SUMMARY -------------- ¶2. (C) Taiwan authorities are promoting the development of an indigenous electric vehicle (EV) industry as a means to forge a "low-carbon society" and bring economic gains to the island. The Ministry of Economic Affairs (MOEA) says Taiwan's goal is to become "the major manufacturing base for electric vehicles in the Asia-Pacific Region." Taiwan's EV industry looks likely to leverage existing comparative advantages in advanced electronics and battery manufacturing to serve as an important original design manufacturer for major global brands, but is unlikely to become a significant full-scale EV production hub. Both the authorities and EV component manufacturers here are moving quickly to forge closer ties with the PRC's automotive industry, and hope to bring Chinese and other foreign investors into the island's proposed Electric Vehicle Science and Technology Innovation Park. Taiwan and PRC business partnerships in EV manufacturing could become major competitors in the global EV marketplace, but some in Taiwan have expressed concerns about the Chinese partners violating Taiwan firms' intellectual property rights. Meanwhile, Taiwan's environmental and economic authorities have proposed small-scale projects to use EVs to reduce transportation sector emissions, as the island tries to meet ambitious greenhouse gas (GHG) reduction goals. Although a successful EV promotion policy could make deep cuts into Taiwan's GHG emissions, 14 percent of which come from the transportation sector, the authorities need to take more aggressive action to promote EVs, and also need to address artificially low gasoline prices if they want EVs to deliver environmental benefits alongside economic gains. -------------- MOTORING TO A LOW-CARBON SOCIETY? -------------- ¶3. (SBU) Taiwan is one of the world's largest per capita greenhouse gas (GHG) emitters, outranking Japan, South Korea, and the OECD average. Taiwan authorities at all levels and from across the political spectrum have said Taiwan should aim at creating a "low-carbon society" through GHG reductions and the development of so-called "green technology" industries. President Ma Ying-jeou has publicly supported a carbon reduction target that would require GHG emissions to fall back to 2000 levels by 2025, and Taiwan's Bureau of Energy (BOE) and Environmental Protection Administration (TEPA) have taken the lead in promoting strategies such as alternative energy development, efficiency gains, and behavioral changes to achieve this GHG reduction goal. At the same time, in the wake of the global financial crisis, Taiwan's Ministry of Economic Affairs (MOEA) has promoted the development of green technology industries, such as TAIPEI 00001383 002 OF 004 photovoltaic cells (PVs) and light-emitting diodes (LEDs),as "trillion dollar industries" with the potential to drive Taiwan's economic development. Supporters of the electric vehicle (EV) sector claim that EVs, like PVs and LEDs, have the potential to contribute to both Taiwan's domestic GHG reduction goals and economic development. -------------- DEVELOPING A DOMESTIC EV INDUSTRY -------------- ¶4. (SBU) MOEA lists the EV sector as one of the island's "Five Potential Growth Industries," along with wind power, biomass, hydrogen technology, and electronic information and communications technologies. MOEA further describes the EV sector as "under incubation to grow," and expects that public and private sector investments over the next five years will position Taiwan as "the major manufacturing base for electric vehicles in the Asia-Pacific region." MOEA, the Taiwan Automotive Research Consortium (TARC),and the Industrial Technology Research Institute (ITRI) believe Taiwan's advanced electronics industry, and particularly its world class battery manufacturing sector, position Taiwan as a potential global leader in EV system modules and components production. Contacts at TARC and ITRI have told us that since Taiwan is too small to compete with German, Japanese, and U.S. companies in the production of full-scale electric vehicles, it will instead work to cement its position as a major player in the growing global EV supply chain. This conforms to Taiwan's strategy in numerous traditional electronics/integrated circuit industries, where the island serves as an important original design manufacturer (ODM) for major global brands. ¶5. (SBU) In order to fully realize Taiwan's potential in global EV systems and components manufacturing, various entities are working together to develop and execute Taiwan's EV strategy. The Executive Yuan (EY) has the role of guiding EV development; TARC directs R&D, and ITRI works largely on next generation energy storage systems. TARC Chief Advisor Jet Hsu noted the key to Taiwan's forward movement in EV sector development is the establishment of an EV Science and Technology Innovation Park open to both domestic and foreign investment, which would serve as a global demonstration site for EV engineering, business models, and policy-drafting. The EV cluster idea, which owes to Taiwan's success with science and technology parks in Hsinchu, Taichung, and Tainan, is still in the proposal phase, but is progressing rapidly. Hsu suggested the EV park would be located outside of Taichung because of that city's central location in Taiwan and proximity to port facilities and the PRC. Hsu said the park would be 60 percent funded by the EY and 40 percent by industry, and although there are no anchor companies formally signed up yet, a number of automotive suppliers, as well as China's Chery Automobile Co., have expressed interest in the project. ¶6. (SBU) Taiwan's high-tech industrial base already holds significant global market share in lithium-ion batteries, and TARC and ITRI are spending R&D dollars to leverage this competitive advantage into vehicle applications through the development of safe, high-energy, and fast-charging lithium-ion battery materials and packs. Power management systems are also receiving R&D attention, as is the development of EV verification and validation platforms. Taiwan companies such as Teco, which specializes in electric motors, are already supplying units to EV producers like Tesla and BMW. Taiwan's Chroma ATE Inc, a testing and measurement instruments company, reportedly will receive over TAIPEI 00001383 003 OF 004 USD 55 million in orders from Tesla in 2009-2010. Taiwan is also investing its EV research budget on niche applications such as fuel cell scooters, fuel cell wheel chairs, and small specialty vehicles. -------------- ECONOMIES OF SCALE: THE PRC FACTOR -------------- ¶7. (C) According to a U.S. expert at Sandia National Laboratories who recently spent time in Taiwan, although EV research and development is receiving substantial funding from the authorities here, the amount is "small or insignificant" compared with similar funding activities in the U.S. (through DOE or private companies like GM),in Japan (through the government, Toyota, Honda, and Nissan),and in Germany (through the government and Daimler). However, Taiwan's highly-skilled work force and advanced manufacturing base are excellent complements to the availability of funding and labor in the PRC. In fact, Taiwan's Fuel Cell Center at Yuan Ze University, which was established in 2000 and is a "leading center for excellence" in this field in Taiwan, has begun exploring collaborative projects with counterparts in China. The Fuel Cell Center has already held joint conferences with PRC scientists and plans to expand cooperation in the future. Taiwan's Ministry of Economic Affairs (MOEA) recently announced a cross-Strait automotive conference, which will bring together automobile manufacturers and designers to "exchange opinions and showcase their respective R&D achievements," including in the field of electric vehicles. With active cross-Strait cooperation in EV production, Taiwan's EV industry could see a large boost in financing, manpower, and business opportunities. TARC's Jet Hsu cautioned, however, that although Mainland companies have shown interest in Taiwan's EV science and technology parks idea, Taiwan should proceed carefully because of intellectual property concerns. Hsu claimed Japanese EV producers, for instance, are concerned PRC companies would use investments in Japanese EV R&D centers to steal technology for indigenous production, and said Taiwan would be wise to heed Japanese concerns. -------------- WILL EVs GREEN TAIWAN? -------------- ¶8. (SBU) Taiwan's ambitious plan to reduce GHG emissions to 2000 levels by 2025 would require cutting emissions by over 50 percent from the business-as-usual trajectory. Achieving this goal requires a multi-pronged strategy encompassing improvements in energy efficiency, developing alternative energy resources, promoting behavioral changes, and expanding the use of green technologies, including EVs. Taiwan's transportation sector accounts for roughly 14 percent of the island's GHG emissions, and an effective EV promotion policy could significantly reduce the island's overall GHG emissions. ¶9. (SBU) TEPA and MOEA have both formulated plans to address transportation sector emissions, but these plans are limited in scope and reach. TEPA, for instance, is promoting "green roadway networks," bike paths and dedicated lanes to encourage use of bicycles, offering public bicycle rental services, encouraging public use of mass transit, and promoting low-carbon transportation zones. TEPA has supported Penghu County's plan to turn Hujing Island into Taiwan's first low-carbon island by promoting electric motorcycles and free battery-charging services, but no timetable for implementation has been offered. The Ministry of Economic Affairs (MOEA),meanwhile, is offering incentive TAIPEI 00001383 004 OF 004 payments of USD 250-350 per electric scooter, with the goal of 160,000 electric scooters on the road by 2012. MOEA also recently announced it estimates there will be 30,000 domestically-produced EVs on Taiwan roads by 2015. Taipei city has promoted a plan to add 75 hybrid electric diesel buses to the city's fleet over the next year, and there is also a plan to refit 90,000 taxis island-wide for liquid propane (LPG) use. However, a lack of LPG refueling facilities appears to have stymied that plan for now. Members of the Legislative Yuan have suggested extending commodity tax cuts for hybrid and electric vehicles, but have run into opposition from the Ministry of Finance, which argues commodity tax cuts should merely be the last in a "well-rounded" package of policies encouraging the purchase of hybrid and electric vehicles. -------------- -- COMMENT: SHIFTING INTO HIGH GEAR, WHO BENEFITS? -------------- -- ¶10. (C) Taiwan is taking the development of an indigenous EV industry seriously, and is focusing its efforts on becoming a major global player in the EV supply chain. The island is well-positioned for this role thanks to its strong research and development platforms and manufacturing base, particularly in batteries and power electronics. A series of cross-Strait EV partnerships would go a long way towards cementing Taiwan's position as a global EV leader, and the combination of Taiwan technology with Chinese scale could pose a challenge to U.S. and other EV manufacturers. Taiwan decision-makers and businessmen are well aware of this, and are moving quickly to secure cross-Strait partnerships. U.S. commercial investment into Taiwan's proposed EV science and technology park is welcome by the authorities here, and considering the success that U.S. companies like Corning have had in Taiwan's science parks, this is an investment opportunity that U.S. EV companies should examine closely. ¶11. (C) Although an indigenous EV industry would likely provide economic benefits to Taiwan, EVs themselves are unlikely to make much of a dent in Taiwan's GHG emissions under the current policy regime. TEPA and others must act more aggressively to expand electric scooters (the planned 160,000 is less than a drop in the bucket of 13 million gasoline-powered scooters on the island) and mandate EV and other alternative energy vehicles for all public and official transportation. Taiwan is only 234 miles long and 89 miles wide, distances between cities are short, and there is a dense distribution of power grids. In many ways, the island is an ideal location for the use of EVs. While TEPA and MOEA's proposals to expand EVs in Taiwan can be criticized as overly timid, the real barrier to effective EV promotion here is artificially low gasoline prices. In 2008, the average price of gasoline in Taiwan was USD 3.59 per gallon, among the lowest in the world. Only crude oil producers like Mexico and the U.S. had cheaper gasoline. In recent weeks, the Legislative Yuan has proposed a freeze on gasoline prices, and has also decimated a proposed "green tax" that would have raised gasoline prices in Taiwan by USD 2.89 per gallon over the next ten years. Until Taiwan brings gasoline prices in line with market forces, or, better yet, according to EV supporters, taxes gasoline to a level commensurate with its external costs, local demand for EVs and the commensurate reduction in GHGs from the transportation sector will remain very low. Under the present situation, it appears the economy, and not the local environment, will far and away be the main beneficiary of Taiwan's EV industry. STANTON