1. On last year's Global Automotive Forum, you share with us Deloitte’s research on new energy vehicles, which is still in my memory. A year later, can you share with us your company’s new progress in this field?

　　Joe Vitale：At GAF in 2011, we had not investigated interest in other alternative powertrain vehicles. Since then, however, we have also released our annual survey of Gen Y automotive consumers (ages 19-31), which for the first time included respondents from China. Other markets surveyed were Germany, France, the UK and the United States.

　　According to our 2012 Gen Y research, young Chinese automotive consumers are interested in alternative powertrains, but prefer hybrids far more than new energy vehicles. Of the 50% that would prefer an alternative powertrain vehicle for their next purchase, only 4% would be interested in a new energy vehicle. The remaining 46% would prefer a hybrid. When asked what kind of vehicle they believe they will be driving in five years, only 7% indicated a new energy vehicle; 42% indicated a hybrid.

　　Given the size of the Gen Y consumer segment and their long-term interest in alternative powertrains, this generation could be the “tipping point” in the broad acceptance of new energy vehicles.

　　Despite this interest, challenges clearly remain for new energy vehicles, specifically. While consumers show interested, they are equally concerned with range, price, and a number of other factors that impact the cost and convenience of owning a new energy vehicle. Hybrids certainly lead the way in terms of interest and adoption, but many consumers view hybrid technologies as both proven and convenient. New energy vehicles, however, will continue to face challenges as these technologies continue to evolve over the next decade.

　　Also exacerbating the mass adoption of new energy vehicles is continued improvements in the fuel efficiency of traditional internal combustion engines. Our research shows that consumer interest in alternative powertrains wanes as internal combustion engine vehicles evolve to run cleaner and farther on less fuel.

　　In the end, scarcity of fuel and rising fuel prices will require the continued advancement and adoption of new energy vehicles. However, it will likely take another decade for automakers and their partners to evolve the technologies and establish infrastructures that support convenient adoption of new energy vehicles.

　　2.I have been impressed with one sentence in your report last year, that is, among the worldwide potential consumers and consumers willing to buy, the minimum is 48 percent of Japan, while the maximum is 93 percent of China. But as far as we know, in terms of sales data of Nissan LEAF, infrastructure construction as well as public acceptance and usage, Japan makes the best performance in new energy vehicles. In contrast, China is currently still in the preliminary stage, and most consumers are on the sidelines of pure electric cars and plug-in hybrid vehicles. How do you think about this?

　　Joe Vitale：We believe there are a number of factors that will drive the evolution and mass adoption of new energy vehicle markets. They include:

　　– Fluctuating fuel prices and changing consumer behavior in reaction to price volatility.

　　– Technology innovations that increase range, reduce charge time, and reduce costs to purchase and own a new energy vehicle.

　　– The size of automotive consumer segments that would be considered “early adopters” of new technologies.

　　– The convenience of owning a new energy vehicle with respect to driving behaviors/habits, as well as access to charging infrastructure.

　　– Government policies that provide incentives to manufacturers and consumers.

　　Each of these factors differs from country to country, and as such, the evolution of the new energy vehicle market will occur at varying rates in markets around the world. As noted, Japan may reach mass adoption sooner than other markets. The country has good infrastructure and driving patterns are generally comprised of short distances. Japanese consumers are also considered early adopters of new technologies.

　　With respect to China, the country’s ability to make quick policy decisions is certainly favorable to growing its domestic new energy vehicle market. In addition, China’s focus on building new infrastructure (vs. replacing existing infrastructure) and the country’s large population of first time buyers also provides opportunity to positively impact the rate of adoption in the market. However, because most new energy vehicle R&D still occurs outside of the country, China will need to continue making significant investments to advance new energy vehicle technology. Much like the Japanese OEMs and the evolution of hybrid technologies, however, there is opportunity for those investments to drive the development of advanced new energy vehicle technologies domestically – which can then be introduced in other markets around the world.

　　3. The State Council of China recently officially released the Energy-Saving and New Energy Automotive Industry Development Plan. The Plan confirmed the main strategic direction of new energy vehicles will be pure electric drive, so now China is focusing on promoting the industrialization of pure electric vehicles and plug-in hybrid vehicles. Besides, according to the Plan, China will aim to sell and produce 500,000 new energy vehicles by 2015. Moreover, by 2020 pure electric cars and plug-in hybrid vehicles should have production capacity of 2 million and cumulative production with sales of over 5 million. Many people think this goal is set too high, can you share with us your opinions?

　　Joe Vitale：Achieving these objectives will be a challenge, but feasible provided advancements in new energy vehicle technologies reduce ownership costs and infrastructure investments improve convenience. According to IHS, global automotive sales are forecast to reach more than 105 million units by 2019. Of that, 30.4 million will come from China. And, based on our Electric Vehicles study, we believe new energy vehicles will only comprise 2-4% of this growth. As a result, sales of new energy vehicles could range from 608,000 to 1.2 million units by 2019.

　　4.This year, China's auto industry still continues the trend of slowdown, and not long ago Guangzhou introduced a policy of restriction, which puts increasing pressure on other cities. Under the unfavorable policies, most carmakers couldn’t reach their sales target, especially China’s own brands. What is your forecast for Chinese car market this year and the future development trend?

　　Joe Vitale：For Chinese automakers, which are better positioned to deliver small, low cost vehicles, Tier 2-4 cities offer significant advantage and opportunity for growth. Most growth in China is forecasted to come from these cities, where consumers need products that fill their needs at a price point consistent with the household salaries in those markets – typically small, low cost vehicles. As a result, Chinese automakers have a cost advantage in developing vehicles that meet the needs of local consumers, and an opportunity gain market share from foreign competitors. Value will be the highest and most important criteria, and the ability of Chinese manufacturers’ to capture growth will be dependent on vehicle quality, price and availability. In fact, given a choice between global and indigenous brands, most Chinese consumers will choose vehicles with the best quality brand.

　　The challenge for Chinese automakers, however, is excess capacity of foreign brands and the perceived quality gap between Chinese and global brands. Despite JD Power reports that show the quality gap between Chinese and foreign brands closed 34% between 2010 and 2011, parity with foreign brands is not expected until sometime between 2015 and 2018. As a result, Chinese manufacturers will need to close the quality gap with foreign automakers to take full advantage of this opportunity.