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 

Competing in the China Truck Market

Gao Feng Insights Report, February 2015

We are pleased to share with you a report titled: Competing in the China Truck Market.

While global brands have enjoyed success in China’s passenger vehicle market, the same cannot be said for the commercial vehicle market. This segment has been dominated by local Chinese manufacturers who have relied on sales to local buyers seeking low-priced equipment. However, we anticipate that several factors will be reshaping the market and competitive landscape in the commercial truck sector, creating a “window of opportunity” in China for participation in what has historically been a predominantly local market.

We believe that market conditions and regulatory challenges will create a need within China’s truck industry to form alliances with foreign partners to secure capabilities which are lacking in the commercial vehicle sector in China. China’s truck manufacturers will need to upgrade their technology to meet demanding new regulations, and will need to improve their service and distribution business practices as the market matures. The changing mix of products towards a higher concentration of line-haul HT, along with anticipated policy changes brought about from China’s intention to reform its State-Owned Enterprises, are driving forces which will alter the landscape of competition in the commercial truck sector.

We welcome your comments and feedback on our report or in general about our firm.  We would be glad to meet you in person to share our data and perspectives in a fuller manner.  Please let us know if you are interested in meeting and discussing directly how we can help you to operationalize these insights.

Thought leadership is core to what Gao Feng does.  We will, from time to time, share with you our latest thinking on business and management, especially as it relates to China and China’s role in the world.

In this paper, we offer our “deeply rooted in China” perspective to the analysis of the impact of each of these developments.

Best Regards,

Dr. Edward Tse
CEO, Gao Feng Advisory Company
edward.tse@gaofengadv.com

Bill Russo
Managing Director, Gao Feng Advisory Company
bill.russo@gaofengadv.com

Tel: +86 10 8557 0676 (Beijing); +852 2588 3554 (Hong Kong); +86 21 5117 5853 (Shanghai)

Gao Feng website: www.gaofengadv.com

Competing in the China Truck Market from Gao Feng Advisory Company

China green-car makers see hope in subsidy revamp

The Wall Street Journal Market Watch, June 8, 2014

By Joanne Chiu

Despite being based in one of the world's biggest and most polluted car markets, Chinese electric-car maker BYD Co. until recently sold few of its hybrid or battery-powered electric cars outside of its home province of Guangdong, thanks to a system of local subsidies.

Those rules are now changing under a new effort by China's central government to push local authorities to treat equally all Chinese car makers when granting green subsidies. This year for the first time, big cities are relaxing subsidy rules that effectively prevented sales of electric and hybrid cars by local manufacturers that weren't based in their jurisdictions.

Such restrictions had been a drag on green-car sales in China, particularly for BYD, a midsize manufacturer of cars, buses and batteries. In 2008, BYD became the first Chinese auto maker to produce electric cars, a move that helped attract a $232 million investment from Warren Buffett's Berkshire Hathaway Inc.

This year "is an inflection point for China's electric-car industry," Li Yunfei, BYD's domestic sales executive, said in an interview. "We expect China's electric car sales will continue to record strong growth rates in the next few years," he said, without providing details.

BYD in March said it hoped to sell 20,000 electric vehicles in 2014, a big increase from some 2,000 sold last year. Mr. Li said sales in Beijing and Shanghai, one of the first cities to loosen regulations, have already helped push sales of BYD plug-in hybrid passenger cars to 3,294 in the first four months of this year, with 8,000 more on order. Plug-in hybrids are cars that can run on either gasoline or battery-power.

BYD's change of tone reflects a broader policy shift in China, as the country's leaders make a renewed push to stimulate demand for green cars in a bid to combat pollution and curb rising oil dependence. The nation has set for itself the ambitious goal of putting 500,000 plug-in hybrid and electric vehicles on the road by next year, and five million by 2020.

One example of the shift is the central government's recent push to have provincial governments extend subsidies for electric and hybrid cars to makers based outside, as well as inside, their regions. Such subsidies are vital because they make pricey green-cars affordable. When combined with national subsidies, they can cover around one-third of the cost of a car. BYD's flagship e6 electric car sells for around 380,000 yuan ($60,800) without subsidies. Foreign electric-car makers have limited benefits: Shanghai, for instance, pledged to offer 3,000 license plates free to buyers of imported electric vehicles.      

                                    

The governments of Beijing and Shanghai started offering subsidies for BYD green cars in recent months, and other major cities are expected to follow suit later this year. Other cities plan to build charging stations so electric car owners won't worry about being stranded away from home.

Plenty of hurdles remain. BYD's Qin hybrid car gets 70 kilometers, or 43 miles, on a single charge compared with 121 kilometers, or 75 miles, in a Nissan Leaf. BYD also is still heavily dependent on sales of traditional gasoline cars, and those are declining as more Chinese consumers flee to higher-quality foreign brands. BYD's first-quarter net profit plunged nearly 90% versus the previous period, to 12 million yuan.

At the Chongqing auto show on Friday, hundreds of would-be car buyers milled around the stands of foreign auto makers such as Volkswagen AG, while visitors to BYD's stand were noticeably fewer.

"How do you finance all these new technologies when you're not making money in your core business right now?" wonders Janet Lewis, an analyst at brokerage Macquarie Group who estimates that electric and hybrid cars accounted for only 3% of BYD's car shipments in the first four months this year.

The charging infrastructure for electric cars remains minimal in China, discouraging buyers. Once green-car demand does pick up, the chief beneficiaries may be foreign manufacturers like Nissan Motor Co., which have more-established electric-car businesses. Nissan later this year will produce electric vehicles for the Chinese market through a joint venture with Wuhan-based Dongfeng Motor Group, making it eligible for local subsidies as well. BMW AG and Tesla Motors Inc. also are making a green-car push in China.

"BYD isn't as well established a brand as a manufacturer like Nissan," said Bill Russo, president of Synergistics Ltd., an automotive-focused consultancy. "It will take BYD time to create trust in the marketplace to allow them to sell in significant numbers.

Mr. Li shrugged off potential competition, saying moves by others to ramp up electric-car sales in China will boost interest in green-cars overall. "It isn't a time to compete with each other," he said. "It's a time to develop a bigger market and create economies of scale."

Mike Ramsey contributed to this article.

Write to Joanne Chiu at joanne.chiu@wsj.com and Colum Murphy at colum.murphy@wsj.com

Click here to read the original article at marketwatch.com

China’s indigenous brand policy backfires

The Financial Times, May 5, 2014

Even the most ardent car lovers would struggle to identify some of the vehicles built by major multinational auto companies in China.

A BMW Brilliance Zinoro, an SGMW Baojun and a Dongfeng Nissan Venucia are among the “indigenous” brands that the Chinese government requires foreign-invested joint ventures to develop in return for approvals to expand production capacity in the world’s largest auto market.

SGMW – GM’s joint venture with SAIC Motor and Liuzhou Wuling Motors – embraced the dictat by developing popular Baojun sedans and mini-cars. SGMW sold more than 100,000 Baojuns in 2013, up almost 20 per cent.

Priced at just Rmb50,000 ($8,000) to Rmb70,000, Baojun’s success has come primarily at the expense of China’s struggling domestic automakers, suggesting that the policy has had at least one unintended consequence.

“After several decades in China, the earliest models introduced by the foreign joint ventures are now priced as cheaply as Chinese brands,” Liu Bo, vice-president of Chang’an Auto, said at a seminar held in conjunction with April’s Beijing car show. “Their ability to focus global R&D resources on the China market is putting a lot of pressure on us.”

March sales of Chinese brand sedans fell 12 per cent year-on-year, as local automakers lost their market lead in the segment to their German rivals led by VW. “The indigenous brand policy is really dumb because all it does is cannibalise the local Chinese brands,” said Janet Lewis, head of Macquarie Securities industrials research team in Hong Kong.

The damage that Baojun and other joint ventures’ indigenous brands, such as Nissan and Dongfeng Motors’ Venucia, are inflicting on Chinese car companies could explain why the government does not appear to be putting much pressure on multinationals who have only done the bare minimum.

BMW’s joint venture with Brilliance Auto “rebadged” the German company’s X1 and electrified it for China’s anaemic new energy vehicle market – thus avoiding confusion with its better selling conventional cars – while Ford has yet to reveal its local contribution to the market.

“Zinoro is a brand of our joint venture here in China,” Karsten Engel, BMW’s country head, said at the Beijing car show. “It’s a brand only for China. It’s based a little bit on the BMW X1.”

BMW chose not to display the Zinoro at the show, instead highlighting its premium i3 electric car. “BMW’s i3 could generate interest in China,” said Bill Russo, founder of industry consultancy Synergistics. “Zinoro doesn’t have the brand panache. Even if it’s an X1 [customers] want to be able to call it what it is.”

The Chinese government’s indigenous brand requirement is particularly challenging for Ford as it runs counter to outgoing chief executive Alan Mulally’s “one Ford” strategy, under which the company jettisoned brands such as Jaguar Land Rover and Volvo Cars to focus on a narrower portfolio.

“We were trying to be world class at so many things,” said Mr Mulally, adding that the strategy was in keeping with the vision of the company’s eponymous founder. “Henry [Ford] wanted to be part of the fabric of economic development in every country in which he operated but he didn’t know that Ford would have a different Ford in every country.”

John Lawler, the head of Ford’s China operations, insisted that the US automaker is in compliance with Chinese government policy mandates, even though it still has not rolled out an indigenous brand.

“We’re satisfying all the requirements from the government but at this point there really isn’t anything for us to announce relative to an indigenous brand or anything along those lines,” said Mr Lawler.

Additional reporting by Wan Li

Click here to read this article at FT.com

China’s carmakers have yet to make their marque

The Financial Times, February 3, 2014

By Tom Mitchell in Wuhan

• 
  Crowded lot: thousands of cars sit outside the Dongfeng-Peugeot Citroen plant in Wuhan awaiting shipment. High production from the joint venture contrasts with Dongfeng’s own plants
• Dongfeng’s Aeolus S30: the Chinese carmaker has four successful joint ventures, but it has struggled with its own branded vehicles. These account for less than 10 per cent of annual sales
  

  
  

Aside from a few Communist Youth League banners and a summary of the reforms unveiled at the Chinese Communist party’s third plenum last November, there is little to distinguish Dongfeng’s wholly-owned Aeolus car plant from its nearby joint venture with Peugeot Citroën and Honda.

Situated in a development zone in Wuhan, an industrial city in central China, the Aeolus factory has borrowed equipment and manufacturing systems from both Peugeot and Nissan, state-owned Dongfeng’s third joint venture partner.

Wheels in motion

Passenger car exports

The parking lots outside each plant, however, tell a different story. While thousands of cars are lined up outside Dongfeng’s Peugeot and Honda factories in Wuhan, awaiting shipment to distributors across the world’s largest car market, its Aeolus factory produces only about 300 vehicles a day, or about 100,000 units annually.

Dongfeng, one of China’s “Big Three” car groups alongside Shanghai Auto and First Auto Works, has more joint ventures with international car groups than any of its domestic peers. Including Korean partner Hyundai, it currently operates four joint ventures and signed a fifth partnership agreement in December with Renault. The Wuhan-based company is also poised to take a 14 per cent stake in Peugeot as part of €3bn capital raising.

Dongfeng’s four joint ventures account for more than 90 per cent of the group’s annual passenger car sales, dwarfing those of its own Aeolus brand. It is an imbalance shared by all of China’s state-owned car companies and helps explain why the country that boasts the world’s biggest car market has, unlike Japan and Korea before it, thus far failed to produce a national champion of its own that can compete globally.

“On the plus side, joint ventures spin off a tremendous amount of profit for the state-owned enterprises that they’re affiliated with,” says Bill Russo of Synergistics, an industry consultancy. “On the negative side, those profits are a drug that you become dependent on. Chinese car companies haven’t really been successful at investing them into their own branded vehicles.”

Last month, the China Association of Automobile Manufacturers announced that the country’s car sales grew more than 15 per cent last year to 18m units – almost triple the number sold in 2008. During this period, the market share of Chinese brands peaked at 31 per cent in 2010 and has since fallen to 27 per cent. Meanwhile, China’s 2013 car exports fell almost 10 per cent year on year to just 596,300 units – accounting for only 3.3 per cent of total production.

Imports, meanwhile, nearly tripled to 1.1m vehicles, driven by strong demand for luxury vehicles. While China exports more cars to Algeria than any other country – with its next biggest markets being Russia, Chile and Iran – the largest source of its own automotive imports is Germany.

“The quality of Chinese cars currently can’t compete with multinationals,” says Yao Jie, deputy secretary-general of the association. “We need to work harder to improve domestic brands.” According to CAAM, last year China’s 10 most popular models, led by the Ford Focus, were all manufactured by Sino-foreign joint ventures.

“Most Chinese state car companies know how to bolt a car together,” agrees Max Warburton, car analyst with Bernstein Research. “But replicating a foreign manufacturing system is not a particularly valuable skill set. Real skills lie in product development and in future technology.”

On a tour of Dongfeng’s Aeolus plant, employees are humble but also determined. “I feel that we can catch up but it will take a long time, perhaps 10 years,” says Huang Mingke, a line manager who gave up a job with Dongfeng’s Peugeot joint venture even though the Aeolus plant generally pays lower wages than the joint ventures. “We are investing a lot in critical components, such as engines and transmissions.”

“Although we have borrowed some advanced management techniques from Peugeot and Nissan, it’s only a foundation on which we are building,” adds Tao Haiying, a company official. “We can study and absorb their best practices as we create our own.”

Many analysts believe Dongfeng and its domestic peers will have to sort out their competitive issues at home before they can emerge as a threat overseas. “Maybe China can do something that no one else has, but I haven’t ever seen a car company become a successful exporter without having stable development in their home market first,” says Mr Russo. “You have to achieve a certain size and scale at home before you can compete away.”

The challenge for China’s car companies will be to achieve this in the world’s most competitive automotive industry. When Japanese and Korean carmakers broke out in the 1970s and 1980s, they did so from the shelter of protected home markets.

Dongfeng’s pending deal with Peugeot and Geely’s acquisition of Sweden’s Volvo in 2010 suggest another way forward. What Chinese car companies lack in experience and technical expertise, they can make up for in cash.

Last year Geely established a research centre in Sweden, while Peugeot offers Dongfeng a tempting short-cut in some key areas. “Peugeot has kept spending through the [global financial] crisis,” notes Mr Warburton at Bernstein Research. “So even though its finances are a mess it does have basic platforms, power trains and transmissions that are fully competitive. Dongfeng doesn’t have any of that.”

Additional reporting by Wan Li

Click here to read this article at FT.com

Peugeot agrees main terms of tie-up with China’s Dongfeng

The Financial Times, December 11, 2013

• 1810: The Peugeot family business begins to put down its engineering roots as brothers Jean-Pierre Peugeot II and Jean-Frédéric turn their father’s grain mill into a steel foundry, making everything from coffee grinders to umbrella frames
• 1882: The company turns to transport, making bicycles. The first was Armand Peugeot’s ‘Le Grand Bi’, or penny farthing bike
• 1893: The Peugeot Type 5, which was powered by a two-horsepower engine, was produced from 1893 to 1896
• 1913: The Peugeot 153, whose 2.6-litre, four-cylinder engine produced 12 horsepower, was made in various forms until 1925
• 1929: Peugeot unveils its first mass-produced car, the 201, but sales were are hit by the Depression
• 1934: The top-of-the-range Peugeot 601 rolled off production lines in 1934
• 1940: After the Peugeot 402, produced from 1935 to 1942, the company is forced to build cars and weapons for the German war effort
• 1962: The stylish Peugeot 404 cabriolet became a 1960s icon
• 2010: Peugeot starts production of the fully electric iOn city car
• Today: Robert Peugeot is chairman of FFP, an investment company through which the Peugeot family controls a 25 per cent stake in the car company ©Reuters

PSA Peugeot Citroën and China’s state-owned carmaker Dongfeng Motor have agreed the main terms of an industrial and commercial partnership that will include a large capital injection into the French group in return for technology sharing.

The two carmakers are still hammering out the details but the agreement is expected to involve a €3bn-€4bn capital raising by Peugeot and an agreement for the two groups jointly to develop and produce low-cost small cars for southeast Asian markets.

Peugeot hopes to be able to have the deal announced in the first quarter of next year, according to two people briefed on the discussions.

The French group is desperate to lower its over-dependence on the moribund European car market and is rapidly burning through its capital reserves. Both Peugeot and Dongfeng declined to comment.

Peugeot closed down the first large car factory in France for 30 years this year and reduced its workforce as it seeks to reduce the €3bn cash burn it suffered in the full year 2012. It recently hired a former Renault executive to lead a more globalised push.

The company already has a successful joint venture with Dongfeng building cars in China, but trails rivals such as Fiat and Volkswagen in markets such as South America, and Renault-Nissan in tapping growth in southeast Asian markets.

Carmakers have increasingly turned to alliances and joint ventures to increase their scale and cost efficiencies, but a deal between Peugeot and General Motors to share some products and suppliers has failed to live up to the French carmaker’s hopes.

There are expected to be 5.5m cars and light vehicles sold in southeast Asia this year, roughly half the size of western Europe. But the region’s market is expected to grow by more than half by the end of the decade, versus flat or marginal growth in Europe.

Negotiations are continuing between Dongfeng and Peugeot about exactly how much the Chinese group will pay for what percentage of Peugeot.

The people briefed on the discussions, who declined to be named as the talks were private, added that it could still all fall apart, although this was looking less and less likely.

The French state is contemplating matching any investment made by the Chinese group to maintain French influence over the company.

The most likely investment by Dongfeng and the French state would give the Chinese carmaker and Paris 17.6 per cent each, according to research by Macquarie, with the Peugeot family holding 16.5 per cent and GM 4.5 per cent.

An injection of that size would result in the Peugeot family losing control of the business it founded in 1882.

Based in Wuhan, in central China, Dongfeng is one of China’s largest car manufacturers with annual revenues of $63bn. It already operates a manufacturing joint venture with Peugeot alongside three others – Honda, Kia and Nissan – and last week signed a fifth joint venture agreement with Peugeot’s French rival Renault.

If completed and approved by Beijing, Dongfeng’s tie-up with Peugeot could catapult it on to the global stage – something that no Chinese state-owned carmaker has yet been able to achieve. Hangzhou-based Geely, which purchased Volvo Cars from Ford in 2010, is privately owned.

“Whatever they pay for the shareholding, they’re probably going to get justification in knowhow,” said Bill Russo, a Beijing-based automotive consultant. “Peugeot’s global distribution capacity would also be an advantage for Dongfeng.”

Peugeot accounts for 60 per cent of France’s car production and employs close to 100,000 people locally.

Additional reporting by Tom Mitchell in Beijing

China Looks to Global EVs for Its Local Electric Compliance Cars

PlugInCars.com, November 27, 2013

By Alysha Webb 

It's a Nissan LEAF, but re-badged with the Chinese Venucia brand.

Familiar-looking plug-in electric vehicles may be seen on roads in China in the next few years. Among the vehicles on display at the recent Guangzhou Auto Show in southern China were a Chinese version of the Nissan LEAF and an electric version of the BMW X1. Both were produced via the foreign automakers’ joint ventures in China. Also the latest iteration of the Denza pure electric vehicle, produced at the Daimler-BYD joint venture, was on display.

Does this mean foreign automakers believe China will be a hotbed for electric vehicle sales? Probably not. These vehicles are more likely “compliance cars,” produced to please the Chinese government, which is promoting vehicle electrification in China. Producing the cars domestically through a joint venture will qualify the vehicles for government subsidies.

“It seems the strategy in play is to leverage the JV brand mandate to add foreign EV technology to the market,” Bill Russo, president of consultancy Synergistics Ltd. told PluginCars.com. “This helps the Chinese access the foreign EV technology while the foreign player has a way to access the EV subsidies with a local brand.”

China has been pursuing electrification for more than a decade, and has released a series of plans that set target production and sales goals and subsidies for purchase of electric vehicles. The most recent plan, which covers 2013-2015, was released a few months ago.

Only Via Joint Efforts

In that plan, battery electric passenger cars are eligible for incentives of up to 60,000 RMB or $9,848 at current exchange rates. Buyers of plug-in hybrid electric passenger vehicles can receive up to 35,000 RMB or $4,103 in 2013. Those amounts will decrease by 10 percent in 2014, and by 20 percent in 2015. 

To be eligible to receive those subsidies, however, the vehicle must be domestically produced. Imported EVs are subject to high import tariffs.

Foreign automakers who want to produce cars to sell in China must do so through a joint venture with a Chinese automaker anyway. That rule was introduced to allow the Chinese companies to access advanced technology. Now, as Russo pointed out, that has been extended to electric vehicle technology.

So Nissan, after some hesitation, will now produce a Chinese version of the LEAF through the Venucia brand, a local brand produced only in China through its JV with Dongfeng, with whom Nissan also produces regular gas-powered vehicles. BMW is doing the same, producing a EV under a local brand, Zinoro, with its partner Brilliance. Daimler does not produce non-electric passenger vehicles with BYD; the Denza joint venture was formed in 2010 specifically to produce electric vehicles.

A BMW EV, but with the Zinoro brand.

The complication with all these joint venture EV launches, said Russo, “is it will only add more competition for the independent carmakers who are trying to develop their own EV products.” That includes BYD and Geely, as well as SUV maker Zhongtai (aka Zotye). The joint venture models will also compete with electric vehicles launched by the state-owned partners, most of whom have launched their own electric vehicles. For example, Dongfeng has showed its own brand EV at other auto shows in China.

For Appearances Only

Whether the local automakers expect to actually sell any of their EVs to Chinese consumers in the near term is a question, however. Supplier sources in China say that much of the activity is more show than substance. And after enthusiastically introducing electric vehicles of at auto shows in China the past few years, at the Guangzhou show this year “most of the local EV products are no longer front and center at the auto show stands,” said Russo.

To be sure, Chinese consumers are generally more interested in buying cars with a foreign badge, assuming that will mean a higher-quality product. But they haven’t been enthusiastic about buying electric vehicles of any brand.

So just having some foreign automaker DNA won’t make EVs much more alluring to Chinese consumers, Yale Zhang, principal at consultancy Auto Foresight in Shanghai told PluginCars.com. “It does not matter who produces EVs, the sales volume will be limited,” he said.

Click here to read this article at PluginCars.com

Bouncing Ideas on East Lake: The Future of Automobile - Global Intelligence under Multiple Challenges

November 1, 2013

Official summary of the Global Automotive Forum 2013 held in Wuhan, China
Click here to read the original notes posted at www.ga-forum.org

On the afternoon of October 18, 2013 (The Fourth) Global Automobile Forum was successfully closed on the International Conference Center of East Lake, Wuhan, after a busy two-day agenda.

In this Global Automobile Forum, a wonderful dialogue and discussion were developed closely around the theme of "future development road of automobile - objectives • strategy • mode".

This year, China's automobile industry has seen 60 years of development, and China's auto production and sales are expected to exceed 20 million, continuously ranking the as the largest auto market in the world. It will provide a unique strategic opportunity for China's auto industry.

However, the global auto industry encounters many challenges, such as the environment, fuel consumption, energy, safety and traffic management, etc. Consequently, the issue of whether a feasible and innovative solution can be proposed and put into place has become a key factor related to the development of auto industry and the survival of auto enterprises. Therefore, the cooperation among policy makers, significant industry organizations, auto manufacturers, suppliers, vendors and all related parties is becoming more and more important.

As the world's largest automobile market in terms of production and sales, the future development of the Chinese auto industry has attracted the attention of international auto industry. Wang Ruixiang, the president of China Machinery Industry Federation, also expressed in his speech that the realization of dream of strong auto country was depending on the abundant resources and global automotive industry, as well as the sincere cooperation among international auto enterprises.

At the opening ceremony, Wang Xia, the executive chairman of Organizing Committee of Global Automobile Forum and the president of China Council for the Promotion of International Trade Auto Industry Branch said in his speech: "As the world's most populous country with the largest demand for new cars and fastest growing auto industry, the great challenges and deep-seated problems faced by China as its auto industry becomes the  development engine of global auto industry should also attract the global attention, because the solving of these issues involves not only the development of China's auto industry but also the development of global auto industry."

The development of the auto industry is based on the wisdom of China and world. This is also the original intention that brought auto industry elites from the whole world to this forum in Wuhan.

Chi Shiyan, the president of Honda Motor Co., Ltd., also held high expectations for the development of China's auto industry. He believed that in the face of challenges from energy and environmental concerns, it was important that China should lead the direction of the global auto industry. While such a right direction and pace could better benefit the world, and what was important was not just the increase of sales but the quality, safety and environmental protection issues, so as to better achieve a greater global competitiveness and support the global market whilst being more accepting of Chinese automotive products.

But in fact, there are many problems to be solved if China intends to lead the development direction of global automobile industry. Wang Ruixiang, the president of China Machinery Industry Federation, noted that compared to developed countries in the world, China stills lagged behind in the independent innovation, core components and brand building; "To build a truly strong auto country, we still have a long way to go." Wang Rui xiang said.

Bill Russo, (formerly) from Booz & Company and (presently) the founder and president of Synergistics Company also pointed out that now China's auto market was still very fragmented and the self-owned brand competition was fierce. Therefore, China's auto industry was in a divide-and-rule pattern, without any cohesion, and the local competition in the internal market was very intense. The level of competition needed to be improved.

Then, as the world's largest auto market and producing country, can China lead the development direction of global auto industry in the future?

Zhu Fushou, the general manager of Dongfeng Automobile Co., Ltd. also proposed that: facing the strategic opportunities, China must solve three contradictions to achieve the sustainable and healthy development of auto industry, i.e. the contradiction of competition and long-term confrontation between joint-venture brand and self-owned brands in the China's market; the contradiction between firm determination of China's enterprises entering international market and international trade barriers; the contradiction between rigid demand for auto and energy, transportation and environmental protection.

Zeng Qinghong, the general manager of GAC Group advised that: firstly, to accelerate the promotion of independent innovation capability, especially the breakthrough of key parts and core technologies; secondly, to speed up the integration and restructuring; thirdly, to quicken the economic restructuring, especially the industrial layout adjustment. And the four leaps include: the transformation & upgrading from manufacturing to creation, the leap from production base to industrial base, the leap from asset management to capital management, and the leap from business products to brands.

Wang Xigao, the chairman of JMC Group, held that to improve the independent R&D capabilities of China's self-owned brand automobile enterprises, it should gradually realize the maturity of technology research and development, and finally achieve the purpose of independent innovation by absorption, imitation and improvement when introducing the foreign advanced production technology. In this step, the improvement was the key. Anyone can not blindly imitate the foreign technology, but find a suitable road meeting the actual needs of China's market and international market during the learning process.

Guo Qian, Chairman and CEO of Qoros expressed that the automobile development of China has gone through several stages: firstly, the grasp of some key technologies or a car body or a gearbox; secondly, the grasp of system integration; thirdly, product platformization and modularization and fourthly, the establishment of brand features. In this respect, Qoros has created a kind of automobile with high starting point, which has become a new model of Qoros.

As the representative of commercial vehicle enterprises, Yuan Hongming, Deputy Party Secretary and General Manager of Shaanxi Automobile Group Co., Ltd. thought that autonomous vehicle enterprises should make breakthrough by focusing on post-market, accelerate the promotion of new energy and intelligent technology, pay attention to the mutual development of automobile and parts. Chinese enterprises should also unite closely to reduce internal consumption.

Alan Mulally, President and CEO of Ford Motor Company gave a sustainable technology roadmap: improvement of traditional internal combustion engines and materials, including diesel and gasoline, improvement of aerodynamics and electronic equipment, etc., integration of system and interconnectivity of technologies; automobiles will become a mobile equipment in the future to be connected to internet by people; development from hybrid power to full electric vehicle." Cooperation is required during the whole process. Governments and enterprises in the global world should work together so as to bring the proven technologies to consumers", Alan Mulally said.

Prof · Dr · Jochem Heizmann, President and CEO of Volkswagen (China) thought that the future development of auto industry relies on three key factors: production with energy conservation, high-efficiency mobility and intelligent system. He believed that to achieve these goals, the auto industry of China should be cooperative, including cooperation with suppliers, have a clear and stable legal framework and environment and establish a stable relation with core participants and large number of partners. At the same time, a strong team-work spirit should be built among employees.

In terms of the international cooperation of Chinese automobile enterprises, Geely has come to the forefront by acquiring Volvo and some other international companies. Li Shufu, Chairman of Volvo Car Corporation, founder and chairman of Geely Holding Group expressed that the localization projects of Geely-Volvo in Chengdu and Daqing have been approved this August. This is also an event with far-reaching significance in the development of Chinese auto industry. Currently, Geely has determined to build China to the second home market of Volvo to promote the revival process of Volvo in the global world.

In the two-day meeting, 2013 (Fourth) Global Automobile Forum arranged 16 open sections and launched a range of wonderful discussions on issues of strategic opportunities, multination development, future automobile, post-market, financial innovation, new energy strategy, automobile consumption and international talents, etc.

As what is hoped by Wang Xia, the Executive Chairman of the organizing committee of Global Automobile Forum, the automobile dream of China is an important part of world automobile dream. The mutual dream of global automobile people is: to make the society better with automobiles. This forum which integrated global wisdoms to offer advices and suggestions to the development of auto industry is to guide another new development of auto industry with the creative, constructive and proactive thoughts of everyone.

This session of forum is hosted by Auto industry Committee of China Council for the Promotion of International Trade and Wuhan People's Government, cosponsored by CCTV and firstly held in "City with Auto industry Dream and Solid Foundations"--Wuhan. It attracted more than 900 professionals from 20 countries of the world, including over 200 foreign guests or overseas personnel. The nature of the "Global" Forum is further intensified.

This forum totally organized 16 open sections, 1 closed-door meeting, 6 press conferences, 2 off-field activities and 1 concert held in the same period. 82 authoritative speakers participated in the sectional discussion. USA Michigan and Georgia States specially sent governments and business delegation to participate in the forum.

This forum surpasses the previous three Global Automobile Forums in the scale of meeting, coverage of participants, degree of internationalization and diversity of forum activities, especially in the height, depth and range of issues under discussion, and reaches a new realm and new height in global professional meetings. What is particularly worth mentioning is that this forum broke through the scope of multilateral exchanges, increased bilateral exchange activities, held a number of talks between enterprises, press conferences and communications between enterprises and medias, meetings between government leaders and corporate executives and so on, which makes the platform role of Global Forum more prominent.