Chinese electric taxis struggle to win mass appeal

Reuters, June 29, 2011

By Fang Yan and Don Durfee

SHENZHEN | Wed Jun 29, 2011 5:44am EDT

BYD E6 electric cars, used as a taxis in Shenzhen, are plugged in to charge at a taxi company's car park in the southern Chinese city of Shenzhen May 24, 2010.

(Reuters) - A pioneering electric taxi project in China's southern economic powerhouse of Shenzhen seems a success by most accounts. Riders are enthusiastic, there have been no accidents and drivers are termed "gracious," not a term usually applied to mainland drivers.

The pilot project, which could be replicated in other cities, underpins China's ambitious plans to put at least half a million electric vehicles (EV) and plug-in hybrids on the road by 2015.

The country is already the world's biggest emitter of greenhouse gases from burning fossil fuels and other human activities that scientists say are causing global warming.

As the world's largest and fastest-growing auto market, China's carbon footprint can only grow.

To bolster China's energy security, Beijing has pronounced the electric vehicle industry a top priority, earmarking $1.5 billion annually for the next 10 years in the hope it can transform the country into one of the leading producers of clean vehicles.

But even with government support and the popular support of e-taxi customers, challenges remain for electric vehicles such as the e-taxis to gain broader acceptance and widespread use.

Charging stations are few and far between, repair shops are hard to find and the cars are costly. Even after generous government support, the Shenzhen e-taxi costs 80 percent more than the Volkswagen Santana that ordinarily cruises the streets of Shenzhen.

"The electric car is still too expensive and we ended up paying a lot more than for a (VW) Santana, even with government subsidies," said Du Jun, general manager of Pengcheng E-taxi, the taxi operator participating in the pilot project.

Local automakers, from SAIC Motor to Dongfeng Motor Group Co, have pledged massive investments in greener vehicles. Global automakers, including BMW and Nissan Motor, are also working with local governments to roll out their E-Mini and Leaf respectively.

The country's investment in the electric vehicle industry has no comparable program in the United States, although the U.S. Congress is considering a bill that would allocate $2.9 billion for a program to help develop the infrastructure for the widespread use of electric cars.

Germany's cabinet agreed on plans in May to boost the country's electric auto sector with billions of euros in subsidies, aiming to have 1 million of the cars on the road by 2020. Berlin's move will double state support for research and development to 2 billion euros through 2013.

For China to hit its EV targets however, will mean quickly winning market acceptance for an untested technology.

"I think it's going to be a very, very long time because the Chinese consumer, at the end of the day, is very pragmatic and wants a reliable car with a gasoline engine. They don't want to be the ones experimenting," said Michael Dunne, president of industry consultancy Dunne & Co. in Hong Kong.

"You're going to see government fleets buying, buses buying, not a mass movement toward electrics, definitely within the five years."

HAPPY RIDERS, WARY OPERATOR

In 2009, the Chinese government picked Shenzhen, along with 12 other cities, to lead the migration to green vehicles. Shenzhen and Hangzhou are the only ones attempting to launch e-taxi fleets.

State-controlled Pengcheng E-Taxi, partly owned by BYD, a major domestic manufacturer of green vehicles, was incorporated in March 2010. Fifty e6 cabs, made by the Warren Buffett-backed automaker, hit the roads in the city three months later.

"People are really interested in the car. Over 90 percent of

customers start asking questions once they get in. And it's not just me. All my colleagues have similar experiences as well," said Zeng Xiweng, one of the company's top drivers.

Shenzhen resident Daniel Li recently took a ride in an electric taxi, one of the red cars with a wavy white band around the body that have been operating around the southern Chinese city for more than a year.

"I like the car. It's big and sturdy, pretty much like an SUV but not as noisy. It also saves me the 3 yuan fuel surcharge," the 32-year old software engineer said as he got out of the taxi. "The problem is there aren't many out there."

BYD is using the pilot project to gather market feedback and make adjustments to the vehicles before rolling out the electric car nationwide.

"We had anticipated a lot of problems early on, but that did not happen and the data we've collected are actually better than what we got in lab tests," Stella Li, senior vice president of BYD, said in an interview.

But for Du Jun of Pengcheng, the project's hurdles are apparent. The company is still sitting on a big loss that Du blames on hefty upfront investments, insufficient charging spots and the limited distance that an EV can travel per charge.

And then there's the cost. Though cheaper to operate, BYD's e6 taxi costs 179,800 yuan ($28,000) after deducting 120,000 billion yuan in subsidies, compared with less than 100,000 yuan for Volkswagen's Santana.

In Hangzhou, a similar green pilot program stumbled when all the 30 of the city's electric taxis, which appeared on the streets in late January, were pulled from service in April after one cab's engine compartment caught fire. The fleet resumed operations in June.

"Taxis are definitely a smart way for people to gain the kind of practical hands-on, in-the-field experience, but it will be very closely watched," said William Russo, an industry veteran who runs the Synergistics consulting firm in Beijing.

LONG-TERM BET

For their part, automakers have decided that China's green-car drive is a good bet, but BYD has more at stake than others.

The company, 10 percent-owned by Buffett's Berkshire Hathaway, has been pushing more aggressively into clean technologies, from plug-in hybrids to energy storage facilities. The company recently raised $219 million in an IPO in Shenzhen to help fund battery research.

It has sold several hundred of the F3DM plug-in hybrid in China so far, more than any other domestic automakers, and its e6 will be available in showrooms in Beijing and Shenzhen in the second half.

BYD plans to deliver 250 more e6 cabs to Pengcheng by August. It will also provide 200 of its electric buses in coming months to the city's public transportation system.

An electric sedan, jointly developed BYD and Daimler, will also be launched by 2013, Li said.

Green cars have yet to take off with ordinary consumers, though, despite consumer subsidies that Beijing started offering last year in some cities.

In Shanghai for example, a metropolitan area with a population of more than 20 million, there are only 10 registered electric cars, while the number in Hangzhou is only slightly higher at 25, according to China Business News.

"Consumers are less concerned about government interests. They are more concerned about the economics and the real practical side of what it means to own an electric vehicle," said Synergistics' Russo. "They are not going to buy an EV to save the planet. They will buy it only when it saves them money."

($1 = 6.47 yuan)

(Additional reporting by Chyen Yee Lee and Alsion Leung in Hong Kong; Editing by Matt Driskill)

Click here to read the original article at reuters.com

Country's SUV sales to set global pace soon

China Daily, June 24, 2011

BEIJING - China overtook the United States as the world's largest car market on sales of sedans. Future growth lies with sport utility vehicles (SUVs).

SUV deliveries rose 30 percent this year through May, compared with a 6 percent gain for total passenger car sales, according to the China Association of Automobile Manufacturers.

Sales of SUVs in the world's second-largest economy will increase 33 percent in the two years through 2012, almost twice the pace in the US and four times that of Western Europe, according to Lexington, Massachusetts-based IHS Automotive, an industry consultant. Porsche SE already sells more Cayennes in China than anywhere else in the world.

"It's the next great wave of consumer demand in China," said Bill Russo, Beijing-based senior adviser at consulting company Booz & Co. "First-time buyers buy sedans, second-time buyers look for more variety."

Chinese consumers will buy 4.3 million SUVs by 2018, or 86 percent of projected US sales, up from 47 percent last year, according to Westlake Village, California-based JD Power & Associates. SUVs accounted for 9.7 percent of China's total passenger car sales last year, from 4.4 percent in 2006, data from the nation's automakers group show.

"Historically, China is a sedan market because it is socially accepted and practical," said Klaus Paur, Shanghai-based managing director for Greater China at Synovate Motoresearch, an industry consultant. SUVs are "extremely attractive to those who are affluent and want to demonstrate they are successful, modern and dynamic."

China's economy will expand 9.6 percent in 2011 and 9.5 percent next year, the fastest rate among major emerging markets, according to International Monetary Fund projections. Private wealth has grown with the economy, with the number of Chinese millionaire households jumping 31 percent to 1.11 million in 2010, according to the Boston Consulting Group.

Profit margins for SUVs are typically wider than sedans as automakers can charge higher prices for additional features, according to Russo.

For Jane Zhao, 38, trading her Volkswagen Jetta for a Jeep Compass has made all the difference in Beijing, the city voted by motorists in an International Business Machines Corp survey last year as having the most "onerous" commute.

"It adds a bit of fun," said Zhao, works for a consulting firm in Beijing and spends three hours a day on the road. "Driving it gives me a better view, which is very important when stuck in endless traffic jams or trapped by vehicles, cyclists and pedestrians on smaller roads".

Click here to read the article at chinadaily.com

Porsche Cayenne Surging in China as Deliveries of SUVs Increase 30%

Bloomberg News, June 23, 2011

The 2011 Porsche Cayenne S Hybrid. Source: Porsche via Bloomberg

Porsche SE's Cayenne is displayed at the Beijing Auto Show.

Photographer: Feng Li/Getty Images

China surpassed the U.S. as the world’s largest car market on sales of sedans. Future growth lies with sport-utility vehicles.

SUV deliveries rose 30 percent this year through May, compared with a 6 percent gain for total passenger-car sales, according to the China Association of Automobile Manufacturers.

Sales of SUVs in the world’s second-largest economy will increase 33 percent in the two years through 2012, almost twice the pace in the U.S. and four times that of Western Europe, according to Lexington, Massachusetts-based IHS Automotive, an industry consultant. Porsche SE already sells more Cayennes in China than anywhere else in the world.

“It’s the next great wave of consumer demand in China,” said Bill Russo, Beijing-based senior adviser at consulting company Booz & Co. “First-time buyers buy sedans, second-time buyers look for more variety.”

Chinese consumers will buy 4.3 million SUVs by 2018, or 86 percent of projected U.S. sales, up from 47 percent last year, according toWestlake Village, California-based J.D. Power & Associates. SUVs accounted for 9.7 percent of China’s total passenger-car sales last year, from 4.4 percent in 2006, data from the nation’s automakers group show.

Practical Choice

“Historically China is a sedan market because it is socially accepted and practical,” said Klaus Paur, Shanghai- based managing director for Greater China at Synovate Motoresearch, an industry consultant. SUVs are “extremely attractive to those who are affluent and want to demonstrate they are successful, modern and dynamic.”

China’s economy will expand 9.6 percent in 2011 and 9.5 percent next year, the fastest rate among major emerging markets, according to International Monetary Fund projections. Private wealth has grown with the economy, with the number of Chinese millionaire households jumping 31 percent to 1.11 million in 2010, according to the Boston Consulting Group.

Profit margins for SUVs are typically wider than sedans as automakers can charge higher prices for additional features, according to Russo.

‘Bit of Fun’

For Jane Zhao, 38, trading her Volkswagen Jetta for a Jeep Compass has made all the difference in Beijing, the city voted by motorists in an International Business Machines Corp. survey last year as having the most “onerous” commute.

“It adds a bit of fun,” said Zhao, works for a consulting firm in the Chinese capital and spends three hours a day on the road. “Driving it gives me a better view, which is very important when stuck in endless traffic jams or trapped by vehicles, cyclists and pedestrians on smaller roads.”

Sales of SUVs fell 4.1 percent in May, the first monthly decline this year, after Japan’s record earthquake in March caused automakers to halt production.

Honda Motor Co.’s CR-V sales fell by more than half last month from a year earlier to 5,003 units, as the Tokyo-based automaker suspended production for two weeks at its venture with Dongfeng Motor Group Co. that month, said Zhu Linjie, Honda’s Beijing-based spokesman.

“The May sales declines for SUVs was a short-term fluctuation” due to the quake, said Zhang Guo, an analyst with KGI Securities Co. in Shanghai. “It shouldn’t be taken as a turning point that indicates a change in the market trend.”

Super-Luxury Sales

China’s super-luxury SUV market, defined by J.D. Power as those costing more than 1 million yuan ($154,700), will expand at a 17 percent annual rate over the next four years, according to a report this month.

Stuttgart, Germany-based Porsche delivered 8,612 Cayennes in 2010, 14 percent more than the previous year, according to data from the company. Prices start at 893,000 yuan in China.

Daimler AG (DAI)’s Mercedes-Benz SUV sales more than doubled in the first five months to 21,275 vehicles, the company said June 9. Mercedes may start assembling the GLK SUV in China as early as this year, Daimler Chief Executive Officer Dieter Zetsche said in Shanghai in April.

Great Wall Motor Co.’s Hover, whose basic 1.3-liter model starts at 43,900 yuan, was the best-selling SUV model in the first five months, according to the automakers group. The Baoding, China-based carmaker plans to add larger SUVs cater to demand for more spacious models, said Shang Yugui, deputy general manager of sales.

New Models

SAIC Motor Corp., China’s biggest automaker, aims to add their first self-developed SUV model, the W5, this year. Geely Automobile Holdings Ltd. (175) plans to introduce the EX7, its debut SUV, in the third quarter. General Motors Co. (GM) said in April it will introduce an updated version of its Chevrolet Captiva compact SUV on the mainland this year.

“Surging SUV demand is a result of consumption upgrading,” said Zhang at KGI Securities, who expects sales to rise more than 20 percent annually over the next five years. “In a big market like China, there’s still huge room for demand.”

--Tian Ying in Beijing with assistance from Liza Lin in Shanghai. Editor: Chua Kong Ho, Kae Inoue.

To contact the reporter on this story: Tian Ying in Beijing at ytian@bloomberg.net

To contact the editor responsible for this story: Kae Inoue at kinoue@bloomberg.net

Presentation: General Motors in China

Analyst Presentation, June 21, 2011

General Motors in China

View more presentations from Synergistics Limited

Saab-Pang Da deal has to win the blessing of the Chinese government

4WheelsNews, June 7, 2011

Pang Da, a China-based auto dealer, may have come to the rescue of Saab by signing a 110 million euro ($157 million) deal with its parent Spyker but their agreement has yet to get the approval of the Chinese government. Its outcome is of primary importance as it could signal how similar scenarios in the auto industry will proceed. According to analysts, the deal may go against Beijing’s philosophy of anointing only a few local companies that are able to compete globally.

William Russo, who operates a Beijing-based consultancy called Synergistics, said that the deal demonstrates just how much Chinese companies value European brands but it’s “highly unlikely” that the alliance will get the approval of the government as it goes against China's policies to get “fewer, stronger national brands.”

Nevertheless, Spyker CEO Victor Muller and Pang Da's chief Pang Qinghua remain optimistic as Pang Da completes its review of Saab, according to Autonews. Operations at Saab's plant in Trollhatten stopped for six weeks when unpaid bills caused suppliers to stop the delivery of parts. But this plant has recently reopened after receiving 30 million euros from Pang Da for the purchase of its products. Regulatory approval was not required for this straight product-purchase portion of the deal.

Click here to read article at 4WheelsNews.com

Saab Firmly Under Chinese Control (If All Goes Well)

The Truth About Cars, June 13, 2011

The assembly lines in Trollhättan are still down and will be down for a while. With Spyker & Saab gasping for money, another Chinese party threw them a life line today. The price: Saab will be in Chinese control if and when all is approved.

Today, Saab, Chinese distributor Pangda Automobile and car manufacturer Zhejiang Youngman Lotus “signed a non-binding memorandum of understanding (MOU). The MOU includes an equity participation in the total aggregate amount of about EUR 245 million as well as a strategic alliance consisting of a three partite distribution joint venture and a tripartite manufacturing joint venture for Saab-branded and child brand vehicles in China,” Spyker says in a statement. The statement continues:

“The equity stake of Pang Da in Spyker will remain at 24 % raising its investment to EUR 109 million. The share price remains at EUR 4.19 per share and Pang Da will have the right to nominate up to two members of the Supervisory Board of Spyker.

Youngman will take a 29.9 % interest in Spyker on a fully diluted basis investing EUR 136 million at EUR 4.19 per share. Youngman will have the right to nominate up to two members of the Supervisory Board of Spyker.”

29.9 plus 24 percent equals 53.9 percent, says my calculator. Bingo. Saab is Chinese.

Then, there will be several Chinese joint ventures.

• There will be a manufacturing JV that makes “Saab branded and child branded vehicles for the China market.” Saab Automobile and Youngman will each have a 45 percent interest in the manufacturing JV and Pang Da will hold the remaining 10 percent.
• Then, there will be a distribution JV. Saab Automobile and Youngman will each have a 33 percent interest, Pangda will hold 34 percent.

Now keep in mind that Saab is owned by Spyker. If the deal goes through, Youngman and Pangda will own the joint ventures via their ownership of Spyker and hence Saab, and then again directly. Victor Muller better polish his resume.

Says AFP: “The deal, which still requires regulatory approval from a number of authorities, would place basically all of Sweden’s auto industry in Chinese hands, after Swedish brand Volvo was bought by Chinese Geely from Ford last year. Saab and Spyker chief executive Victor Muller said he was thrilled by the deal.”

Production will stay shut down at least until the end of this week, company spokeswoman Gunilla Gustavs told AFP, adding it was too soon to say when the assembly line would begin moving again.

Youngman is a relative nobody in the highly fractionalized Chinese auto market. They are more known for their buses. Youngman Lotus makes uninspired cars with the Lotus badge for added cognitive dissonance.

Whether Saab will continue to live another day or die, that is in the hands of Chinese regulators, GM, and European governments. AFP has its doubts: “It remained unclear however if the deal would be approved quickly enough to rescue Saab.”

The Financial Times called around and received nothing but unenthused comments.

Bill Russo, head of Synergistics, a Beijing auto consultancy, and former head of Chrysler in China, said: “Going public before doing the political engineering is generally not a pathway to success in China”.

“I don’t think Youngman has enough credibility to be the third partner in the Pang Da-Saab deal”, Namrita Chow, analyst with IHS Automotive, told the FT. “Beijing is unlikely to give approval for a venture that will bring direct competition to BAIC”.

Maybe, maybe not. There are rumors in Beijing that the smaller companies could be stalking horses for a bigger Chinese company. Saving Saab in Europe and setting up a new factory in China needs someone with bigger pockets.

What are the insiders in Sweden saying? Not much. The Saabsunited fanzine runs the press release uncommented between the story of a Saab with three big dogs, and an update about the still unsolved leaseback. And what does inside-saab.com have? A story about a drive through the Swedish midsummer night.

Prior dealings received much more fanfare.

Click here to read the article on www.thetruthaboutcars.com

A weak car brand like Saab does not fit the policy of the Chinese government

Het Financieele Dagblad, June 15, 2011

Original publication in Dutch:

Een zwak automerk als Saab toevoegen past niet in het beleid van de Chinese overheid

View more documents from Synergistics Limited

English Translation:

Victor Muller of Saab seems to have been saved by winning over Chinese Youngman as a production partner for Saab. But it is very unlikely that the Chinese government will approve the deal. And certainly not in the short term.

It is not very probable that the NDRC, China's mighty planning agency, will approve the Youngman-Saab deal

Victor Muller has done more for the promotion of the Chinese auto industry than hundreds of expensive campaigns. Until recently Hawtai, Pangda and Youngman were unknown Chinese car companies, but are now, thanks to Muller, suddenly on the map in the West. Four days later after a collaboration with Hawtai bounced half of May, he was able to trick China's largest car distributor Pangda for a substantial investment in the ailing Spyker. Because Pangda has no production license, a third party was necessary.

Therefore Youngman was found, which will take a share of 29.9% in Spyker for €136 million. Pangda will increase its investment up to €109 million. According to Spyker CEO Victor Muller this funding will secure his company in the medium and long term. That is, however, doubtful. The probability that the National Development and Reform Commission (NDRC), the mighty Economic Planning Agency China, will approve the deal, is small.

"I do not expect China to approve this deal, especially not in the short term”, says Namrita Chow, analyst IHS Automotive in Shanghai. Spyker is in a great hurry to find a wealthy partner for Saab. Therefore Chow is surprised that the company thinks this construction will soon get approval. "Spyker, has entirely misjudged the Chinese market. The NDRC will not allow Spyker to impose a time table. I don’t expect that there will be a decision within ten days. The approval of the cooperation between PSA Peugeot and Changan Automobile also took over one year. "

To survive Saab cannot do without an injection for such a long time. Bill Russo, senior automotive consultant with Booz & Company in Beijing also warns against too much optimism. "Deals in China are often more complicated than they seem at first. Much effort remains to be put into negotiating contracts and acquiring approval of the government. That takes time and Saab does not have that luxury."

According to Russo, a detailed joint venture agreementand a feasibility study are required as proof of the financial need for the deal. "All expenditure on R&D and manufacturing and locations must be included. This will cost 18 to 24 months."
Apart from the time pressure, analysts see no reason why China would approve the deal content wise or financially. "I just do not see it happen," Chow says. "Saab is an onerous and highly distressed brand, while Youngman is not among the top fifteen the Chinese car manufacturers. "

"Adding a weak player is not consistent with government policy ", says Russo. With investments by Chinese companies the NDRC looks at the wordlwide power of a car brand and the technology. "The NDRC is also trying to consolidate more than one hundred dealers, including many weak players, into a few strong players. Adding a weak global brand does not fit into that policy. "

A complicating factor for Youngman is that Beijing Automotive Industry
Holding Company (BAIC) wants to bring old Saab Models on the Chinese market with General Motors licenses, the former owner of Saab. They are not allowed to be called Saab, but they will intensify competition with Pangda-Youngman. "BAIC will be very unhappy about the deal between Saab and Youngman and lobby firmly against it in Beijing" Chow expects. "The big players in China will not buy the Saab brand," Chow thinks. "It has no positioning in China and will lose a lot of money. There is no interest for that. "