Walk through the massive Beijing Auto Show 2010 and you know immediately that the race for clean energy cars leadership in China is officially on.

But is the Chinese consumer ready for alternative energy vehicles?

Virtually every global and Chinese car brand is displaying new products that feature some dimension of alternative fuels - from compressed natural gas to hybrids to pure electrics.

Among the global automakers, Nissan

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[NSANY  Loading...      ()   ] stands out as the most ambitious. The main attraction at the Nissan presentation was the Nissan Leaf, the small electric car that the company will make in China starting in 2011.

Other leading global brands are not standing still. GM is displaying its Chevrolet Volt, a hybrid-electric, and Toyota

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[TM  Loading...      ()   ] is presenting both its newest Prius and a hybrid version of its hot-selling Camry.

When it comes to Chinese brands, BYD appears be the front-runner, followed closely by new offerings from Geely and the Shanghai Auto Industry Corporation

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[SAI  Loading...      ()   ] (SAIC). 

BYD introduced an all-electric crossover vehicle designed to penetrate city taxi fleets. Taxis are likely the first market for electric vehicles because taxis circulate within a defined area and, therefore, battery range and re-charging is more manageable. 

Geely, fresh off its announced plans to acquire Volvo, has the largest platform of all automakers at the show. The company's stage backdrop reads: "Technology Geely: Clean Energy Vehicles".

SAIC last year formed a joint venture with A123 Systems and will incorporate lithium-ion batteries into future products under the SAIC Roewe brand.

"There is no question that there is a green theme running through the show this year, said Paul Lienert, president, Global Automotive Systems. "What's surprising is how many of them look like they could be ready for production in the near future. We are not talking about preliminary concept vehicles here."

If the clean energy products are almost ready, there is less clarity when it comes to demand.

Clean energy cars are much more expensive than vehicles powered by gasoline or diesel engines. A battery for an electric car alone can cost up to $10,000 per car.

Chinese consumers are known for their pragmatism; it will not be easy to persuade large numbers of private buyers to pay premiums for electrics. The Toyota Prius sales in China, for example, average just over one thousand cars per year - a tiny spec in this market that will grow to 16 million vehicles in 2010.

For hybrids and electrics to get real traction in China will require a multi-billion dollar, ten-year commitment by the government in the form of price subsidies and investments in charging stations.

In early 2009, China's central government set the target to produce 500,000 hybrid and electric vehicles by 2011. That goal is far too ambitious. In the US, for comparison, hybrids still account for less than 3 percent of sales. 

But over the next five years, as vehicle sales approach 20 million units per year, clean energy vehicle production will certainly grow.

The bold embrace of electric vehicles is driven mostly by China’s worries about energy security and only secondarily by concern for the environment. Today, China relies on foreign oil for more than 50 percent of its annual needs.

• Slideshow: Greenest Cars in 2010

Look for central and local governments to get things rolling by powering their bus and taxi fleets with electric power train, aided by ample price subsidies.  Central government agencies and state enterprises will be the second large group of customers.

For investors, it is important to keep in mind that the conventional gasoline and diesel engine cars will continue to account for 90 percent of production during the next ten years. But electrics, just getting started, do represent a compelling and potentially lucrative new market.

Editor's note: Disclosure - Michael Dunne does not personally own holdings in the below mentioned companies.

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Michael Dunne is president of Dunne & Company, a business advisory company working with clients investing in China’s automotive industry. Prior to that, he was managing director of J.D. Power and Associates in China. He has been a featured guest speaker at the JP Morgan China Investor Conference annually from 2006 to 2009, and also appears regularly as a guest expert on CNBC. Dunne is now writing a book on the future of the Chinese automotive industry, with an aim for publication in 2010.