Ask a Chinese driver if ten years ago they would have expected fuel prices to break the 8RMB per liter barrier. Most will say no. The 8rmb barrier became an important pyschological barrier for Chinese drivers, would more of them say no to car ownership or car use in the wake up fuel falling over 8rmb for the first time?

On March 20th the NDRC (National Development and Reform Council) announced that fuel costs at the forecourt would exceed 8rmb for the first time, the NDRC is responsible for setting the cost of fuel at the forecourts across China and creates pricing based on a two week window of opportunity where if the global oil price rises or goes down by 4% over a two week window then the Chinese fuel price will be adjusted accordingly. In the past 9 years fuel has jumped from 1rmb to 8rmb per liter, and the difference between 7rmb fuel and 8rmb fuel is just 454 days. China imports 55% of its oil meaning that 9RMB per liter fuel is realistically not that far away.

The night before the NDRC raised fuel prices gas stations found themselves packed out with drivers eager to fill up on cheaper fuel and many online commentators realizing that they could afford to buy a car, but not afford to keep it on the road, others commented that they would drive less in the future.

High fuel prices are not only bad news for car owners, it’s bad news for car sellers as well, car dealerships are already struggling with the slow season in a slowing market, the added effect of fuel price rises have been noted: “People coming to look at cars are noticeably fewer, making cars harder and harder to sell.” according to one dealership manager who was quoted by Chinese media.

The major problem for new energy vehicle sales in China is that for the longest period the cars were there, but the buyers were not. Buyers were scared off by unusual designs, high prices and a lack of charging facilities, nothing much has changed in the past 12 months with the above symptoms being the major prognosis behind a lack of take up, but with fuel prices breaching 8rmb Chinese consumers are starting to look at the new energy market.

The financial maths is generally in favor of the electric car in the running costs segment. Take for example Dongfeng’s two seat EJ022 car, still at a concept stage but will hit production lines soon, on a full charge it can travel 100-140km and has a top speed of 100kph. Over a 100km journey it use 14-16kw of energy, and with each kw priced at 0.6rmb in China that works out at little less than 10rmb. A traditional 0.8 to 1.0L powered car will need around 4 liters of fuel to travel 100km, and with each liter priced at 8rmb that trip comes to 32rmb. The only problem being, the Dongfeng is likely to be north of 100,000rmb when launched, where as an 800CC to 1.0L car can be head for as little as 30,000RMB and made road legal for around 35,000rmb with license plates and insurance tacked on.

EV’s still remain out of reach for money, which is why for the most part EV and New Energy vehicles remain a long term goal for the Chinese government. The short term goal has been a major focus on small displacement, high power engines. BYD has been at the forefront of both electric vehicle, hybrid and energy efficient engines with the introduction of its own 1.5T engine which features direct injection making more power than a 2.4L naturally aspirated engine whilst sipping fuel. Great Wall have also made similar leaps in technology with their own 1.5T which features similar technologies, Chery have also inked deals with Easton to develop 1.3 supercharged engines.