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.

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SUMMARY
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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.

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MOTORING TO A LOW-CARBON SOCIETY?
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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

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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.

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DEVELOPING A DOMESTIC EV INDUSTRY
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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

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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.

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ECONOMIES OF SCALE: THE PRC FACTOR
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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.

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WILL EVs GREEN TAIWAN?
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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

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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.

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COMMENT: SHIFTING INTO HIGH GEAR, WHO BENEFITS?
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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