Executive Shows China’s First Home-Grown Electric Sports Car

The Wall Street Journal, April 22, 2015

A Chinese company’s new electric sports car is aimed at the luxury end of the market, currently dominated by European brands. The WSJ's Colum Murphy reports.

  

By Colum Murphy

April 22, 2015 5:54 p.m. ET

CH-Auto's electric sports car, the Event!, is seen at Shanghai Auto 2015, China's annual auto show, in Shanghai on April 20, 2015. Photo: Miguel Gonzalez Jr./The Wall Street Journal

BEIJING—In a quiet technology park near the Chinese capital’s airport, a former Beijing Jeep executive is completing a plan to create China’s first homegrown electric sports car.  

Lu Qun’s idea: design and build a battery-powered sports car that is cheaper than imported European gasoline-engine roadsters. If successful, Mr. Lu’s first car would go into production in late 2016 and challenge similar models from much bigger foreign companies.  

His CH-Auto Technology Co. has a track record. It has designed gasoline-powered cars for Chinese manufacturers including Zhejiang Geely Holding Group, Jiangling Motors Corp. and a Dongfeng Motor Group. joint venture.  

British auto maker Aston Martin Lagonda Ltd. also has plans for an electric sports car that it will sell in China and everyone from Tesla Motors Inc. to Toyota Motor Corp. have big plans to expand electric-car sales here. Aston Martin Chief Executive Andy Palmer said he was aware of at least two other companies in addition to CH-Auto looking into similar electric-car projects. 

Electric cars are enticing because the Chinese government has pledged substantial support for their development to address air pollution produced by conventional-engine vehicles. China also hopes adoption of electric cars will bolster energy security by reducing dependency on imported gasoline. 

Sales of electric vehicles in China rose to 18,000 units last year, quadruple the number in 2013, according to the China Association of Automobile Manufacturers.
But success for electric-car makers in China—including Tesla—remains elusive. Shenzhen-based BYD Co. , backed by renowned investor Warren Buffett, has struggled for years to gain traction. Last year BYD sold around 21,000 pure electric and plug-in hybrid vehicles, according to the company. Tesla sold 32,733 vehicles globally last year. It doesn’t disclose sales figures for China, but for the year, Asia as a whole supplied 15% of Tesla’s sales. 

Challenges include the high price of most electric vehicles, as well as difficulty in developing infrastructure such as charging stations for a nation as vast as China.
Mr. Lu says the solution is to give customers a reason to buy an electric vehicle, which is where sports cars—already high-ticket items popular with wealthy Chinese—come in. Mr. Lu plans to first target the high end of the market with Event, the name of the company’s first battery-powered sports car. Once the brand, with its dragonfly logo, is established, CH-Auto would follow with cheaper electric cars made in greater volumes.

This week, CH-Auto displayed three cars, including a high-tech two-seater that it said runs on a 48-kilowatt-hour battery and can go from zero to 100 kilometers an hour in 4.6 seconds. It claims a range of 250 kilometers (155 miles) and can be recharged in six hours using a standard 220-volt power supply. 

The company didn’t reveal the price, saying only that it will be significantly cheaper than imported sports cars. 

Industry analysts expect the Event to be priced around 700,000 yuan, or about $115,000. A Maserati Gran Turismo sports car, by comparison, costs 1.95 million yuan in China. 

Industry watchers say the odds for success are still long, especially for lesser known companies like CH-Auto, which face costly investment in manufacturing facilities and difficulties in creating a brand. 

“I don’t think it’s crazy, but the road ahead is fraught with potential pitfalls,” Mr. Palmer said of his potential competitors, which don’t have Aston Martin’s100-plus-year track record. 

CH-Auto said it recognizes the challenges but is confident its vision is sound and it can adequately address any obstacles that may arise.

‘Can they do what Tesla does? That is a bit of a stretch.’

—Bill Russo, managing director at Gao Feng Advisory

Mr. Lu has selected Suzhou, in eastern China, for CH-Auto’s production base, and hopes to begin building a factory there this year. The company declined to say how much it is investing.  

Eventually, CH-Auto hopes to produce as many as half a million vehicles a year, if it is successful in expanding into mass-market passenger cars, he said.
To finance production of its first vehicle, the company this summer plans to sell shares in the company on Beijing’s over-the-counter stock exchange that is designed for growth enterprises. 

Mr. Lu said CH-Auto plans to go it alone, but he didn’t rule out partnerships with other companies. 

Mr. Lu, who was chief production engineer of the Jeep Cherokee in China until 2003, says his dream is for the Event to become as famous as Chinese smartphone maker Xiaomi, online retailer Alibaba and drone maker DJI, and help China graduate from low-cost car-making to true automotive innovation.

That is a tall order. China’s giant Internet and technology brands have succeeded by the business-model innovations brought to consumers, said Bill Russo, managing director of consulting firm Gao Feng Advisory.

But Mr. Russo said CH-Auto takes a different approach than China’s internet companies. “Their approach is innovation driven by product and technology. It’s not business-model innovation,” he said. “They probably can make a cool sports car and sell a few hundred, or even a few thousand. But can they do what Tesla does? That is a bit of a stretch” for a small, little-known company like CH-Auto, said Mr. Russo. 

“When a technology is disruptive, newcomers have an edge on existing players,” said Oded Shenkar of the Fisher College of Business at Ohio State University. In addition, he said, the Chinese government is eager to nurture national electric car champions by offering assistance ranging from tax breaks to export rebates and preferential status for government procurements. 

But for CH-Auto to benefit from such support, it will have to show first that it is viable as there are multiple contenders for such assistance, Mr. Shenkar added.
—Rose Yu and Lilian Lin contributed to this article. 

Write to Colum Murphy at colum.murphy@wsj.com 

Still Racing Ahead: Cars in China

The Economist, March 9, 2013

China’s luxury car market is a prize—but not for local firms

MAKERS of luxuries are nervous about China. Its economy has cooled. Worse, its new political leaders are threatening to crack down on ostentation and corruption. What should have been a season of festive political “gift giving” has become a nightmare of rectitude for manufacturers of expensive watches, jewellery and the like. Yet firms that sell fancy cars are as ebullient as ever.

China’s market for such cars has grown 36% a year over the past decade. A new report from McKinsey, a consultancy, calculates that China is now the world’s second-largest market for “premium” cars (which include posh brands like BMW and Aston Martin plus the snazziest offerings from mass-market producers like Volkswagen and GM). It estimates that China will surpass America by 2020 to become the world’s biggest consumer (see chart).

Would not a crackdown on official cars hamper this growth? 

In the past it might have. The market for luxury cars was initially fuelled by demand for chauffeur-driven models for officials (black Audis are preferred). Bill Russo of Booz & Company, another consultancy, observes that BMW designed a model just for China with a longer wheelbase, to give back-seat passengers more room; it is so successful that it is now being exported.

But even a slowdown in official purchases won’t curb growth much, insists Sha Sha, a co-author of the McKinsey report. Government customers now account for just a tenth of total sales. The surge is due to private demand, including from women and younger drivers. By 2020 China will have 23m affluent households with a disposable income of at least 450,000 yuan ($72,000) a year. Many are in smaller cities ill served by the foreign firms that control this segment.

Could that create an opening for Chinese firms? It seems unlikely. Most local cars are produced by state-owned enterprises (SOEs) working in joint ventures with foreign firms like GM and Volkswagen, while some are from private firms like Geely. Another report, from Sanford C. Bernstein, an investment bank, argues that the “SOEs are lumbering, lack entrepreneurial spirit” and rely on foreign technology, while private competitors are “small, lack technology and sell low-priced cars”.

Despite decades of trying, China today “cannot build a globally competitive car”, the report bluntly concludes. Chinese drivers do not expect them to succeed soon. Consumers surveyed by McKinsey doubt that Chinese manufacturers will be able to come up with a swooshy car worth buying before 2020.

From the print edition: Business

Click here to read the article at www.economist.com

Used Lamborghinis Linger on H.K. Lots Amid China Lull

Bloomberg Business Week, July 29, 2012

A model poses near luxury Lamborghini SpA sports cars during the Shanghai International Circuit Club Challenge, in Shanghai, China. Photographer: Qilai Shen/Bloomberg

Waiting lists for ultra-luxury cars in Hong Kong are getting shorter and used-car lots are cutting prices on Lamborghinis, Ferraris and Bentleys in the latest sign of China’s slowdown.

At first glance, the numbers are deceiving: Sales of very expensive new autos surged 47 percent in the first six months, according to industry analyst IHS Automotive. Look more deeply, however, and another picture emerges, especially in the city’s used-car lots.

Dealers of such second-hand cars say job cuts and the worsening global economic outlook are creating uncertainty among the finance-industry and expatriate professionals who make up the bulk of their buyers.Morgan Stanley (MS) (MS), Citigroup Inc. (C) (C) and Deutsche Bank AG are among firms with Asian headquarters in Hong Kong that are cutting jobs worldwide.

“The more expensive the car, the more dry the business,” said Tommy Siu at the Causeway Bay showroom of Vin’s Motors Co., the used-car dealership he founded two decades ago. Sales of ultra-luxury cars have halved in the past two or three months, he said. “A lot of bankers don’t want to spend too much money for a car now. At this moment, they don’t know if they’ll have a big bonus.”

Unlike Rolex watches, Gucci handbags and other luxury goods, Hong Kong’s car market hasn’t been distorted by the more than 28 million mainland Chinese who flocked to the city last year. Mainland shoppers spend 44 billion euros ($54 billion) on luxury goods while traveling overseas to locations such as Hong Kong and Europe, according to CLSA Asia-Pacific Markets.

‘True Look’

“In the car market, it’s not buying like watches,” said Booz & Co.’s Russo. “Here you are getting a true look at a category of product bought by Hong Kong buyers. It’s a pulse check on how Hong Kong residents view the stability of the financial system.”

The new-car figures look better because of some short-term developments. The release of the latest models from Ferrari and Lamborghini and the opening of the first Hong Kong showroom by McLaren -- maker of the 592-horsepower MP4-12C carbon-fiber coupe -- have given sales a bump. Meantime, depressed demand in Europe means a bigger allocation of new cars for Hong Kong dealers.

With the highest proportion of billionaires in the world, according to a Boston Consulting Group report released in May, Hong Kong has enough buyers unaffected by market conditions to keep new sales going, said Bill Russo, a Beijing-based senior adviser at Booz & Co.

‘Saying Something’

There were 273 new Bentleys, Lamborghinis, Rolls Royces, Ferraris, Aston Martins and McLarens sold in the six months to June 30, up from 186 in the first half of last year, according to Englewood, Colorado-based IHS. This outpaced the 23 percent gain in the U.S., the world’s richest nation, and the 40 percent jump in mainland China, the world’s biggest car market, IHS data show.

For these buyers, price isn’t an issue and settling for second-hand is not an option, Russo said.

“It’s the brand image and it says something about you,” said Russo, who was formerly Chrysler Group LLC’s China head. “Used-car buyers are more price sensitive and economic cycles will affect these shoppers more. They are paying for the cars with their income as opposed to their savings.”

The European debt crisis is slowing expansion in emerging markets including China, the International Monetary Fund said this month, when cutting its global economic growth forecast for next year to 3.9 percent from 4.1 percent.

Aspirational Buyers

Hong Kong’s economy eked out 0.4 percent growth in the first quarter, the slowest since escaping the recession caused by the 2008 global credit crisis. Average daily turnover on the city’s stock exchange, the world’s fourth biggest, was 22 percent lower in the first half than the corresponding period of 2011. Asia-Pacific takeovers have dropped 22 percent to $306 billion, according to data compiled by Bloomberg.

People shopping in the second-hand market are typically aspirational buyers who are more likely to sit it out rather than trade down when they can’t afford the brand they want.

“An uncertain economic outlook encourages consumers, particularly those without a buffer provided by sizeable financial assets, to pause on big-ticket purchases,” said Tom Rafferty, a London-based Economist Intelligence Unit analyst.

Vin’s Siu said the drop in high-end customers who typically account for 30 percent of turnover at his 300-lot business was the most important factor behind a 20 percent drop in total sales. Expatriates made up about 70 percent of customers, he said. “A lot of expats are leaving Hong Kong,” he said. “For every 10 who are leaving, two are coming.”

Mercedes Discount

To spur demand, dealers in pre-owned cars are slashing their prices -- together with how much they’re willing to pay sellers.

A yellow, 2011 Lamborghini Gallardo 550 recently listed for HK$2.88 million ($371,000) on second-hand car website 28car.com is about $830,000 cheaper than a new model -- chump change that would buy a new Mercedes E-Class Coupe to run the kids to school. A silver-gray 2011 Ferrari California with 980 kilometers (613 miles) on the clock is available for HK$2.68 million. That’s a 19 percent discount to a brand new 2012 vehicle, and HK$400,000 cheaper than a 2011 version sold by Ferrari’s official in-house used-car dealer.

“We started cutting prices at the beginning of the year to stimulate sales because the market was slow,” said Tony Chan, a director at GP Motors a short walk up the hill from Vin’s, adding that second-hand Ferraris and Bentleys are leaving the 30-lot dealership at half the speed of last year.

Someone looking to sell a 2009 Bentley Continental will have to accept HK$1.7 million, a third less than they would have received at the start of the year, Chan said.

In the basement automall beside Hong Kong’s Grand Hyatt hotel, trader Samuel Chui said he has stopped buying more cars.

“People want cash now, they don’t want the commodity,” said Chui, who reduced the number of car lots he rents from 15 to nine at the end of last year as business began to slow. “We’ve got plenty of stock and it’s not moving.”

To contact Bloomberg News staff for this story: Liza Lin in Shanghai at llin15@bloomberg.net

To contact the editor responsible for this story: Young-Sam Cho at ycho2@bloomberg.net