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Industry Review: Progress after 1st year of FCEV Model City-Cluster Project in China
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From August 2021 to August 2022, the FCEV Model City-cluster Demonstration Project, a 4-year nationwide FCEV commercial operation subsidy program led by several industrial clusters, has finally finished its first official year. However, the result of the overall demonstration was quite unsatisfactory. According to the national NEV monitoring platform (新能源汽车国家监测与管理平台) , Beijing-cluster was the only cluster that achieved its targets out of 5 clusters.
Figure: 1st Year FCEV Demonstration Result vs Target
Source: Results collected from 2021.8 to 2022.8, based on the mandatory car insurance data
The demonstration target of Year 1 has been merely met by the 5 Model City-cluster regions.
In addition, the allocation of financial subsidies has been delayed once again this year, which dampened the expectations and confidence of the industry players. For instance, Sinopec has also revised its hydrogen energy strategy from “constructing 1,000 hydrogen refueling stations by 2025” to “constructing the hydrogen infrastructure with the annual refueling capacity of 120,000 tons by 2025”, which can be approximately converted into constructing 600 hydrogen refueling stations. One of the existing major obstacles to promoting FCEV in China is the scarcity of the number of hydrogen refueling stations. Considering the current construction speed of hydrogen refueling stations in China, the revised action plan of Sinopec seems more realistic to achieve by 2025.
Operation Status of FCEV in 2022
Figure: 2022 FCEV Monthly Driving Mileage
Source: 新能源汽车国家大数据联盟
The operation mileage of FC buses is significantly higher than that of FC trucks.
Figure: 2022 Average Daily Driving Mileage of NEV
Source: 新能源汽车国家大数据联盟
No significant difference between the driving mileage of EV and FCEV.
According to the NEV platform, in 2022, the average monthly operation rate of FC buses was 72.24%. In contrast, the average operation rate of FC trucks was only 42% - more than half of the FC trucks were set idle after being purchased. This has been a continuous trend since the early development stage of FCEV due to various reasons such as high hydrogen price, high logistics truck rental price, inconvenience of hydrogen refueling, etc. Within the whole FCEV Model City Demonstration Period, we expect this rate to grow as the operation subsidy of FCEV will greatly stimulate the actual usage of idle vehicles.
As a result, the monthly operation mileage of FC buses was also significantly higher than FC trucks. One of the reasons was that the executed demonstration operation of FCEV in 2022 was mainly on FC buses, and the driving routes of buses are relatively fixed, and the daily driving time is much longer at the current stage. From both economic and operational perspectives, FC buses show a higher potential to replace IC buses than the potential of FC trucks replacing IC trucks at the current stage.
Problems Encountered in the 1st Demonstration Year
Figure: Overview of 5 clusters
Source: Summarized by Integral
In the first 1-2 years, the demonstration in Beijing plans to deploy 1,162 FCEVs in total, while FC buses and FC light-duty trucks have occupied the majority of its target. Beijing urban area doesn’t have many application scenarios in industrial logistics – which results in few heavy-duty truck demonstration projects. However, this sector may be covered in applications based in Hebei and Tianjin. During the first year of the demonstration period, Beijing mainly focuses on public transportation and intracity logistics delivery (82% of the demonstration target). Beijing has a large demand for passenger transportation partially covering the 2022 Beijing Winter Olympics, which is also the largest FCEV demonstration project so far. Since Hebei Province is selected in the 2nd batch, there is a possibility that Beijing-cluster and Hebei-cluster will separate their focused FCEV for demonstration.
As I previously discussed in the FCEV Operators article, FC system integrators usually have the heaviest financial burden as they prepay/bear the cost for both OEMs and FCEV operators for the part of FCEV purchase. Subsequently, many FC integrators are facing severe shortages of cash, and many are relying on external investment to survive. According to the method of subsidy (bonus points) calculation, the amount of vehicle promotion subsidy is dependent on the rated power of the FC system and the payload of the vehicle. As a result, the subsidy for a heavy-duty truck may be 2~3 times higher than the subsidy for a light-duty truck. Especially since the market of heavy-duty FCEV has been rising, having the subsidy support will greatly mitigate the pressure on the system integrator side and further encourage the commercialization of FCEV with higher-rated power (which receives more subsidies).
Despite that many parties have submitted their annual operation summary materials for the subsidy evaluation. The progress of evaluation has been greatly delayed due to various reasons such as the COVID-19 epidemic situation and the delay in the implementation of the regional subsidy policy, that aligns with the national subsidy policy. Each cluster region has formed an expert committee to evaluate the demonstration result at the year-end. However, it has been hard to make a consolidated evaluation criteria, as the experts all come from different parties of interests (academician, OEM, system integrator, etc.) and different regions tend to have different rules based on the dynamic operational result. Even among the three first-tier batch clusters, Guangdong cluster finally announced its action plan in August 2022, when the first year of demonstration has already ended.
Overview of Subsidy Scheme
Taking the subsidy policy from Jing-jin-ji Region as an example, if the vehicle receives its license plate in Daxing District, Beijing, it will receive the compounded subsidy from 3 levels - national subsidy + Beijing subsidy + Daxing subsidy. So far, subsidies for model city cluster demonstration at the local level have been released with a significant lag. Local subsidy schemes were released more one year after the national announcement (Beijing, Shanghai) while those in other regions are still to be issued. As national subsidy’s demonstration period lie in 2020-2023, local subsidies seemed to follow up with a prolongation. For example, subsidies of Shanghai-led cluster and Daxing district, Beijing will last until 2025, which is likely to better support local companies after national subsidy ends.
Based on current situation, it is still unclear that if national reward will be extended after 2023. However, on the regional level, for instance in Shanghai-cluster which has already extended the subsidy policy  until 2025, the government has pointed out that after the withdraw of national subsidy, the reward criteria remains unchanged. We may take the subsidy scheme of BEV as a reference that after the national subsidy fades out, the regional subsidy is likely to continue to further promote the commercialization of FCEV.
Figure: Examples of some subsidy schemes and timeline
Source: Summarized by Integral
Situation of Beijing-cluster
Beijing (Jing-jin-ji) so far is the only region that reached over 100% target. However, since Beijing and Hebei Province held 2022 Beijing Winter Olympics, which we may deem as a one-time event that boosted the sales of FCEV for a short period.
The first-year demonstration alliance leaders were: BAIC Foton, FAW Jiefang, Yutong and Higer. Differently from Shanghai-clusters, where the alliance leaders are the local FC system integrators, in Jing-jin-ji Region, automotive OEMs tend to have a stronger regional influence. And Beijing cluster puts no restriction on the place of registration of the OEM, indicating that the Jing-jin-ji region puts a greater emphasis on the actual execution of FCEV demonstration projects. By doing so, Beijing can also attract more system integrators to build local factories in Beijing, such as SinoSynergy, Mingtian Hydrogen Energy, Horizon, HaiDriver, etc. These 4 OEMs have actively participated in the Winter Olympics demonstration (suppose FAW also includes FAW-Toyota, which provided COASTER buses). All 4 OEMs are also experienced in developing FC trucks, with various types across light-duty and heavy-duty applications. They are eligible to fulfill the rest of the truck demonstration targets.
Figure: Demo Targets of Beijing-cluster in 2021-2023
Source: Summarized by Integral
In the first 1-2 years, the demonstration in Beijing plans to deploy 1,162 FCEVs in total, while FC buses and FC light-duty trucks have occupied the majority of its target. Almost half of the demonstration target of Beijing-cluster was for FC medium/large bus (10.5 meters and above) operations. After the Olympics was over, the buses were put into operations such as intercity transportation and intracity sightseeing. After the adaptions, the intercity buses are now operating as the normal express bus in Yanqing District. From the interior, we can tell these buses were originally intercity buses with higher-rated power and longer driving mileage compared to the city buses.
Figure: Foton FC intercity bus fleet that was operating in Winter Olympics
Source: Foton
Figure: Passengers on Bus 919 (adapted from the intercity bus)
Source: Foton
Due to the severe air pollution, Beijing was the first city in China to promote BEV in the taxi sector, despite that the cold weather was significantly hurting the driving mileage of BEV. As a result, Beijing also seems to be a perfect location to promote FC passenger vehicles in commercial applications for both taxies and ride-hailing services cars. Although the future FCEV demonstration target has not been announced yet, we deem that after Shanghai, Beijing, Guangdong, and Henan will cover some passenger vehicle demonstration targets. In addition, one Hyundai NEXO FCEV received the NEV plate in Beijing in 2022. There is a possibility that Hyundai will participate in the future passenger vehicle demonstration in Beijing-cluster.
Another focus for Beijing-cluster is to promote FC refrigerator trucks. In Mar 2022, along with the FCEV operator Shunyida (顺亿达), a total of 100 Foton FC refrigerator trucks have been put into operation in Daxing District. These light-duty trucks have been serving the supermarkets for cold-chain groceries.
In the Tianjin region, Rongcheng Group and Tianjin Port Group have a need to deploy FC heavy-duty trucks for steel transportation and port logistics. According to the director of Tianjin Port Trade Free Zone Management Committee, Bohai Chemical Industry Group has abundant by-product hydrogen resources and is currently constructing a hydrogen refueling mother station in Tianjin Port. Air Liquide and Sinopec will also participate in securing the hydrogen supply in the near future. In terms of the applications, since Tianjin port is one of the largest ports in the world, it is one of the key regions to promote FC applications in the sectors such as heavy-duty trucks, forklifts, railway cranes, etc.
Situation of Shanghai-cluster
Figure: Demo Targets of Shanghai-cluster in 2021-2023
Source: Summarized by Integral
Shanghai focuses more on medium to heavy-duty truck demonstrations. Despite that Shanghai also has limited Heavy Duty Truck (HDT) application scenarios, the subsidy policy seems to widely encourage HDT demonstration in the commercial logistics area. In addition, passenger vehicle demonstration is another unique factor, which might be planned under the influence of SAIC and Great Wall Motor (GWM), which is different from the NDRC roadmap direction of promoting commercial FCEVs as the priority. (Guangdong’s draft also includes passenger vehicle demonstration, probably because of Hyundai and Guangdong Automotive Co (GAC).)  
After Shanghai executed the COVID-19 lockdown from April to June 2022, the automotive industry also experienced a hard hit. In order to catch up with the first-year demonstration target, Shanghai held a centralized FCEV operation launch ceremony at the beginning of August while inviting key government officers to show the importance of promoting FCEV in Shanghai.
Figure: Shanghai FCEV Operation Ceremony
Source: SAIC
Policy-wise, the Shanghai government, and the Shanghai District government still hold a highly positive attitude to promote the FCEV. For instance, in the annual work report of Shanghai Municipal Development & Reform Commission 《上海市2022年国民经济和社会发展计划执行情况与2023年国民经济和社会发展计划草案的报告》, among the 25 significant projects, it has mentioned that Shanghai government will support the R&D development of SAIC and FCEV testing. Shanghai Lingang District has also announced to replace all the buses with FC buses in the next 3 ~ 5 years.
By the end of 2022, Shanghai already has about 2200 FCEV in operation, including 80 SAIC FC passenger vehicles equipped with the SHPT FC systems serving as the rail-hailing services car on the Xiangdao platform (享道出行, a rail-hailing services platform developed by SAIC and has been commonly used by Shanghai citizens). This promotional business model of having the subsidiary of the FC passenger vehicle OEM purchase and operate the FCEV as a fleet is likely to become an example for other FC passenger vehicle OEMs. Due to the different operational natures of passenger vehicles and commercial vehicles, the OEM shall be the leading position when it comes to the commercial operation of FC passenger vehicles.
On the selection of FCEV Demonstration Alliance Leaders, which are all FC system integrators, the Shanghai government has shown a more open and welcoming attitude. It has selected both start-ups (REFIRE) and traditionally influential enterprises (SAIC-SHPT), not to mention that Cummins was also selected as a new leader in the 2022-2023 demonstration period, marking the first foreign FC company to officially participate in the Model City-cluster Demonstration project. Traditionally in the NEV sector, Yangtze River Delta seizes about 40% of NEV production nationwide, exhibiting a strong synergy in the NEV industry, including having multiple leading domestic and foreign FC suppliers’ manufacturing bases and R&D centers. Having the locally registered system integrators to lead the demonstration projects, indicates that Shanghai values the technological breakthrough of the FC industry as a whole.
Besides Shanghai, the other participating cities such as Ordos, Suzhou, and Jiaxing, have gradually formulated local demonstration action plans and subsidy policies. Especially in Ordos, many SI and OEMs have built manufacturing plants in succession such as Feichi/SinoSynergy, Hongyan/SHPT, and XCMG/Sunrise Power. Ordos has gradually become one of the key regions to run FC heavy-duty truck demonstrations China.
Situation of Guangdong-cluster
Guangdong-cluster originally has had the strongest foundation and history in promoting FCEV. However, in the first year of the demonstration, it only met 20% of its target, which was the lowest among the three 1st-batch clusters, especially given the problem of the scarcity of hydrogen resources has yet to be solved. Even the action plan《 广东省加快建设燃料电池汽车示范城市群行动计划(2022-2025年)》 was officially announced right before the end of the 1st year. In this lately-announced action plan, there was no specific target for the number and type of the FCEV to run the demonstration, nor the route to run the demonstration (like what Beijing and Shanghai announce every year). As a result, the unclear attitude of the local government strongly interfered with the enthusiasm of the local enterprises in Guangdong Province. Besides Foshan/Yunfu, we merely saw other cities in Guangdong Province had much progress in promoting FCEV. As of October 2022, Guangdong has a total of 16 hydrogen production enterprises, with an annual hydrogen production capacity of about 650,000 tons; 46 HRS have been built, including 30 stand-alone stations, 11 combined stations, and 5 on-site hydrogen production and refueling stations. However, most of the HRS are built in Foshan and Guangzhou City, which are far away from the majority of the by-hydrogen resource, which are mostly located in Maoming, Zhanjiang, Jieyang City. At the current stage, there is much difficulty in long-distance hydrogen storage and transportation, thus the by-product hydrogen in these regions is difficult to supply to Guangdong and Foshan regions. Generally speaking, compared with the Yangtze River Delta and Jing-jin-ji regions, the Pearl River Delta region has less by-product hydrogen resources and high cost of hydrogen due to this constrains, which may have become one of the reasons to delay the promotion of FCEV in Guangdong-cluster.
As the pearl-river-delta region is another logistics center in China, we deem that the logistics demonstration target may be similar to the target of Shanghai. On the other hand, Guangdong government seems to batch purchase FC sanitation trucks. Besides Qingdao, Guangzhou is another place where the government has made the deal of 500 FC sanitation trucks all at once. For instance, the local start-up company Xiongchuan Hydrogen Energy was incubated by Huangpu District Government, Guangzhou City. It was one of the top sellers of FC heavy-duty trucks in 2022, due to the large order from Huangpu District government. Surprisingly, Xiongchuan was originally a system integrator, it has also developed its first FCEV in 2022 as the OEM. In addition, it has also received financial leasing credits to further expand its market in Zhuhai City.
In addition, as mentioned in the local action plans in both Guangzhou and Foshan City, cold-chain logistics is becoming another focus and rising market in the next 3~5 years. More and more logistics services companies have signed strategic partnerships with FC system integrators and OEMs, including both the traditional service providers and FCEV-only start-up service providers. In previous years, Guangzhou and Foshan owned the most FC light-duty Zhongtong logistics trucks in China. However, the actual operation results were less than satisfactory with a lot of FC light-duty trucks being idle for a long period. The reasons for this failure include the high price of hydrogen (no subsidy at that time), the inconvenience of hydrogen refueling, the targeted customers having no obvious pain point about driving light-duty electric trucks, etc. This time, we hope the FC refrigerator trucks can better solve the market pain points and indeed penetrate the NEV logistics market this time.
Situation of Hebei-cluster
Hebei Province is rich in renewable energy resources and has had multiple green hydrogen production demonstration projects in operation. Zhangjiakou City is already participating in 2022 Winter Olympics demonstration with intercity buses and other participating cities have wide application scenarios of industrial heavy-duty trucks (mostly steel). Some cities are overlapped with Beijing-cluster.
Figure: Demonstration overview of Hebei-cluster
Source: Summarized by Integral
In the first-year, Hebei-cluster has yielded a low FCEV registration rate. There are several ambiguous points that we have observed. From the first-year target of Beijing-cluster, we can see that some FCEV driving route has already covered some regions in Hebei province. The participating cities in Hebei-cluster is somewhat overlapped with Beijing-cluster. The difference is that in Beijing-cluster, the cities in Hebei province focus more on providing hydrogen resources, while in Hebei-cluster, the cities in Hebei are supposedly focused more on vehicle operation. However, we haven’t seen many application scenarios of the FCEV in Hebei Province. In addition, one of the leading domestic OEM Great Wall Motor is headquartered in Baoding, Hebei. Considering the regional influence of the OEM in the process of promoting FCEV in China, GWM, and its FC subsidiary FTXT are supposed to lead the overall development of FCEV industry in Hebei. However, the actual commercialization process of FTXT FC system nor GWM vehicles are relatively slow compared to other major SI and domestic OEM. The current demonstrations in Hebei are actually led by other newer SI such as SinoHytec, REFIRE, Nowogen and Sinohytec-Toyota.
After the Olympics was over, if Hebei-cluster could take independent responsibility in FCEV demonstration (in contrast to assisting Jing-jin-ji cluster), we deem that Hebei will still be a high-potential market. To prepare for the Winter Olympics, Zhangjiakou City has built several 35/75MPa hydrogen stations to secure the hydrogen supply. In addition, Hebei Province has been one of the key regions to promoting green hydrogen production – with several large scaled renewable power generation hydrogen production demonstration projects in Zhangjiakou City.
On the other hand, the economy of Hebei province is heavily dependent on its heavy industry. Namely, Handan City, Baoding City and Tangshan City can produce a large amount of by-product hydrogen and they have a high demand in 49T tractor type of FCEV. Not to mention that HBIS is one of the Fortune 500 companies in China, with a large and urgent demand to transform its traditional business.
Participating Cities in Hebei Province
Zhangjiakou City 张家口 is the only national Renewable Energy Demonstration Zone that was granted by the State Council. It is one of the regions with the most abundant renewable energy resources in China. As a result, Zhangjiakou is also one of the most active regions to demonstrate green hydrogen production in China. The Zhangjiakou Renewable Energy Base has invested in multiple green hydrogen projects such as Hebei Construction Investment’s wind power hydrogen production, HyPower wind power hydrogen production, and Zhongzhi Tiangong wind power hydrogen production.
In the 2022 Winter Olympics, while Beijing held the snow events, Zhangjiakou City held the ice events. Zhangjiakou has already built 9 HRS, including the first 70MPa HRS in China, with an overall daily refueling capacity of 7.9 tons/12 hours. Beijing Competition Venue was mostly deploying BEV and NGV, Yanqing Competition Venue and Zhangjiakou Competition Venue were mostly deploying FCEV. During the Winter Olympics, about 1200 FCEV were put into operation, with a total of 710 FC buses were in operation transporting athletes and audiences from Yanqing to Zhangjiakou.
Baoding City 保定is closely involved in the hydrogen ecology in the Jing-jin-ji region. Beijing-Tianjin-Baoding-Zibo and Beijing-Baoding-Binzhou. As mentioned above, Great Wall Motor is headquartered in Baoding City and has signed some 5-year demonstration plans of FC HDT with strategic partners in Baoding.
Tangshan City 唐山and Qinhuangdao City 秦皇岛are the two port cities in Hebei. Both have a large demand for port HDT transportation.
Handan City 邯郸is most famous for CSIC No.718. As early as the 1960s and 1970s, the No. 718 Research Institute of China Shipbuilding Industry Corporation located in Handan City carried out research on hydrogen production and related technologies. 
Tangshan, Handan, Shijiazhuang, Xingtai, Dingzhou and other places rely on HBIS, Huafeng Energy, Jinshi Chemical, Risun Coking and other enterprises have focused on a number of high-efficiency and low-cost industrial by-product hydrogen projects.
Situations of Henan-cluster
Figure: Demonstration overview of Henan-cluster
Source: Summarized by Integral
The overall situation of Henan Province is similar to Hebei Province. It is rich in by-product hydrogen from the coal industry, while the RE market (especially the wind power market) also seizes the leading market share in China. The overall FCEV demonstration shall be led by the Henan OEM Yutong Group. Due to the investment attraction plans from the government side, a few rising SI have already planned to build factories in Henan, such as Yuqing Power, Nowogen, G-power, and Jichong Hydrogen Energy. These local system integrators would assist in the transformation of the fuel cell industry in Henan Province.
(Note: despite that both Henan and Hebei Province lack behind the demonstration targets, from the recent activities in 2023, we have observed that Yutong is much more active compared to GWM, in terms of putting FCEV into operations.)
Participating Cities in Henan Province
Zhengzhou City is the capital city of Henan province which leads the demonstration of the whole cluster. Centered on Yutong Group, Zhengzhou has been promoting 200+ FCEV since the demonstration began. Different from GWM which is known as a passenger vehicle OEM, Yutong Group is already the leading New Energy commercial vehicle OEM in China. It has the largest market share of EV bus in China, and the most profound NEV operation and maintenance experience. In the future, Yutong Group will still act as the leading NEV OEM facilitates the promotion of both FC buses (by宇通客车) and FC heavy-duty trucks (by宇通重工) in the whole Henan region.
Puyang City 濮阳is located at the northeast of Henan Province, which is connected to Hebei and Shandong Province. Due to its geographical location, Puyang plays a key role in connecting the transportation corridor between Henan and Shandong Province. In July 2022, Puyang has signed 7 hydrogen industry investment projects with a total investment amount of 29.3 billion RMB. Puyang generates the most wind power in Henan Province, with an installed renewable electricity capacity of 2 MW.
Anyang City 安阳 
seizes the most by-product hydrogen resources in Henan Province. It has already had the capability to externally provide hydrogen resources for the FCEV applications in and around Henan region.
Xinxiang City 新乡 
has invested 2.5 billion RMB to initiate 10 key hydrogen industry projects and create an industrial ecological cluster. The government investment has attracted multiple FC companies such as Yuqing Power, Suzhou Qingdong, Shanghai Qingchu, Fenergy to build branches in Xinxiang.
Jiaozuo City 焦作 
has the advantage of promoting hydrogen fuel vehicles in multiple application scenarios such as mines, muck, sanitation, cement mixing, and public transportation, which create a large demand for FC heavy-duty trucks.
Kaifeng City 开封and Luoyang City 洛阳
focus on FC key components supply. For example, Jichong Hydrogen Energy is constructing a factory in Luoyang to manufacture metal bipolar plates and FC systems.
Although there were various obstacles encountered in the first year of demonstration, more and more players having been entering the industry from the upstream green hydrogen production to downstream start-up FCEV OEM. Benefiting from the continuous introduction of various economic stimulus subsidy policies, in the second year of the demonstration period, the execution of FCEV-related projects will be accelerated, and with the help of the capital market, the industry will still maintain a relatively rapid growth momentum. For instance, after the COVID-19 epidemic ended in 2022, the number of HDT promoted has greatly increased, especially in Hebei and Henan province which shows a fast speed to catch up with the demonstration target.
Figure: Number of FC HDT promoted by Feb 2023
Source: official car insurance sales data
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