Since late last year, the Chinese government has issued a series of policies designed to encourage the development of new-energy vehicles, boosting market confidence for the sector.

Many analysts say the industry will soon boom, putting domestic leader BYD Auto Co. in the investor spotlight. Over the past year, BYD's share price on the Shenzhen and Hong Kong bourses has risen nearly 100 percent.

In December, BYD launched a new plug-in hybrid model called the Qin. Over the first half of the year, some 6,600 of the cars were sold in the country, matching the automaker's total electric car sales over the past five years. BYD has also received more orders for its electric buses. Wang Chuanfu, BYD's chief executive officer, said its sales revenue of e-buses is expected to hit 10 billion yuan this year.

BYD's production capacity will have a hard time meeting this surging demand. Its auto battery production lines are running at full capacity, so the company plans to open a new facility in Shenzhen this year.

But it's not all good news for BYD. A recent UBS Securities report says that rapid growth in the new-energy car market will not offset BYD's decline in traditional auto business. Because e-cars will not become popular in the China market in short term, BYD's heavy investment will hinder its future growth, the report says.

Indeed, the company sold only 3,445 units of its popular Surui model in July, down from more than 10,000 in December.

However, Wang said he has confidence in the new-energy auto market and it is offering enough opportunities for his company. In an exclusive interview with Caixin, Wang explained BYD's strategy for new-energy cars and his expectations for the market. Excerpts of his interview follow.

Caixin: Tesla's Elon Musk believes that purely electric cars are the future. You were also a supporter of electric cars in the past, but seem to have made some adjustments recently. Can you talk about this?

Wang Chuanfu: BYD is promoting purely electric buses for public transportation, but plug-in hybrid vehicles for private use since the latter do not rely on charging stations too much. It is a mistake to use hybrid vehicles for public transportation. The plug-in hybrid model is designed to account for purely electric cars' inability to drive long distances. Public buses in cities have no need to drive long distances.

Most private cars drive 40 kilometers every day. Our Qin model can run 70 kilometers on an electric supply and switch to fuel for longer distances. Such a design meets the demand of urbanites and has been accepted by the public.

It is impossible for the government to build as many charging stations as gas stations. What it can do is build enough charging stations within a certain distance and gradually expand the coverage nationwide. Hybrid cars fit the transition period. In the future, plug-in hybrid cars will account for 70 percent of private new-energy vehicles, while purely electric cars take up the other 30 percent. Small batteries with high energy storage for use in automobiles will not be available for around 30 years.

There is lots of interest in the game. The oil and many traditional industries oppose the development of electric cars because it is an evolution of the traditional automobile industry. In China, the inadequacy of charging facilities also hinders the development of electric cars, adding to the public's concerns.

Thus, plug-in hybrid cars are a product of compromise under the current circumstances. It is likely to become the mainstream product in the next 20 years. In their product plan for the next five years, Volkswagen and BMW both put more emphasis on hybrid cars than purely electric cars.

What's the situation for the development of China's new-energy car industry? And what about the future?

In our first three years, we encountered many difficulties, including a lack of policy support, the weak quality of products and low public acceptance. When we launched our first batch of electric taxis in Shenzhen three or four years ago, many drivers were not willing to use them out of safety concerns. Some even said there would be radiation. But now, many Shenzhen residents have gotten used to electric cars. I think it will take a while for the whole country to accept the idea.

Since the beginning of this year, governments have issued lots of policies, indicating their determination to push forward with the development of new-energy vehicles. Now, the question is not whether or not to do it, but how to do it.

The next three years will see a boom in electric vehicles, just like what happened to e-commerce 10 years ago and the Internet 20 years ago. But what's different is that in addition to the commercial drive, the development of new-energy cars relies on more government push.

The development of new-energy cars in China will be driven by three things: energy security, environmental concerns industry transformation.

From traditional automobiles to e-cars, along with BYD's efforts to push for the use of electric buses in public transportation, BYD has turned to closer cooperation with the government. Some have asked whether the company has bound itself to the government. What's your comment on this?

The new leadership has put new-energy development high on its agenda. Pressure over air pollution and local governments' targets to improve people's livelihoods' require a solution. Under such circumstances, BYD proposed a plan to adopt electric buses for public transportation to reduce auto emissions and air pollution. It coincided with the government's desires.

BYD moved early in the development of new-energy cars, so it paid more. What are the costs of your earlier move?

We started to make great efforts on new-energy car development nearly eight years ago. At that time, many people thought we were burning money. Indeed, we spent a lot of money. However, without the investments made in the past eight years, even though the state offers supporting policies, we would have no product to catch the opportunity. Opportunity is always for those who are prepared. Now the market environment is good, and it is time for BYD to launch new models.

What's BYD's anticipation for the future?

I didn't expect that the opportunity would come so fast. The next three to five years will be a golden period for BYD's growth. We must seize it. Production capacity being unable to meet demand will be a temporary problem because we were cautious in the beginning. We only sold several thousand F3DM models in a few years, but now we have sold several thousand Qin models within one month. By the end of this year, we will improve our electric car production capacity.

How does BYD balance the competition between new-energy cars and traditional cars?

For BYD, there is more coordination between our traditional car and new-energy car business, rather than competition. Although new-energy cars are a revolutionary product, they must be developed on the basis of traditional cars.

We have spent more effort on electric car development compared to traditional cars. The development of e-cars is based on the research platform of traditional cars, such as the brake system, chassis system and security standards. It is difficult to divide.

Foreign auto giants have started to enter China's low-end car market and challenged domestic brands. What's your take on this?

In the past, foreign auto brands usually sold for more than 100,000 yuan. But now, along with expanded production capacity, they have reduced the prices of some models to as low as 50,000 yuan, which is closer to domestic brands. It has put great pressure on us and it is partly the reason that sales of domestic auto brands have declined recently.

It is very difficult to compete in the traditional car market. The State Council recently stated it wants to improve industry transformation, meaning it wants to push forward with the transition to new-energy cars in order to improve competitiveness.

It is hard to comment on previous industrial policies, but BYD will not follow the old pattern, which offered foreign companies the market in exchange for technology. We should rely on self-innovation, and take the current sound market environment as an opportunity to surpass foreign competitors.

What is BYD's strategy for new-energy cars?

Sales revenue for BYD's new-energy vehicles reached 1 billion yuan last year, and we expect sales of more than 10 billion yuan this year. Our new-energy cars include sedans, buses and taxis. This year we have received orders for 5,000 buses for city public transportation and have delivered 4,000. Considering the State Council's policy to increase the use of new-energy cars in public transportation, urban sanitation services, the public security system and official vehicles to 30 percent, I think growth in these public sectors will be faster. But eventually we will rely on private consumers.

How do you view the current competition in the new-energy auto market?

There is no other country like China that has issued so many policies to support new-energy vehicles. I think there will be a lot of strong new-energy companies emerging in China. We don't need to introduce technologies from overseas because we are almost on the same level.

In 2013, new-energy car sales in China reached 20,000. It is expected to reach as many as 50,000 this year. If one car model could have sales of more than 100,000 units, its costs will be significantly lower. If costs can be reduced by 30 percent to 40 percent, it is time for the state to withdraw its subsidies. But before that, the subsidies are necessary.

How will BYD participate in the building of charging stations?

We will only participate in some cities, but cannot in many other cities. We are even not included in the discussions. Every city has a new-energy vehicle promotion office. Only with their approval, can we join the meeting and have the opportunity to get involved in the construction. Cities have promised to reduce local protectionism, but it will take time.