In China, hybrids can't seem to sell without a lustrous nameplate

Nikkei Asian Review, December 19, 2013

A Lexus ES300h on display at a dealership in Shanghai.(Mark Andrews)

SHANGHAI -- Hybrid cars haven't been a big hit in China.
   
Shanghai rolled out 350 Buick LaCrosse Hybrids for use as taxis for the green-themed World Expo in 2010, but the cars disappeared soon after the exhibition ended.

Toyota infamously sold only one of its world-leading Prius models in China during the same year.

Sales of the utilitarian Prius have rebounded slightly but are still slow. Imported Honda gasoline-electric cars, meanwhile, have been faring worse.

Hybrids, however, are making inroads at the premium end of China's car market.

Toyota's luxury Lexus division is on track to sell close to 20,000 hybrids in China in 2013. Last year, it unloaded 16,000 of the things, leaving Prius sales way behind at 2,434.

Lexus last month pointedly unveiled the revamped CT200h model at the Guangzhou Auto Show rather than at shows going on at the same time in Tokyo and Los Angeles. Mercedes is also finding a welcome for its hybrid S-class sedans, though it isn't giving out figures.

"It is easy to sell these cars," a sales manager at a Shanghai Lexus dealership said, gesturing at the CT200h hybrid and other models. "We firstly emphasize the six-year warranty and secondly that it saves fuel."

Indeed, fuel economy has not been a strong selling point in China, where most car buyers are first-time purchasers.

Said Boni Sa, an automotive analyst at consultancy IHS Automotive: "For these first-time buyers, they have more to consider, like brand, vehicle size, features or safety. In an emerging market like China, to spend money on a better brand or larger model is much more reasonable than spending money on better fuel consumption."

Price is a key factor even for repeat buyers. In Chengdu, where the Prius is produced, businessman Jimi He recently bought his third car, a Volkswagen Tiguan crossover.

"I'd love a hybrid," He said. "It is more environment-friendly and more energy-saving. However, the price is the key issue that stops me from getting one."

The argument that buyers will recoup the higher upfront cost of a hybrid through fuel savings is not so convincing in China. To recover the 12,000 yuan ($1,976) price premium on the hybrid version of SAIC Motor's locally developed Roewe 750 sedan, for example, would require driving the car at least 100,000 kilometers.

Some automakers had campaigned for Beijing to begin subsidizing gas-electric hybrid purchases this year. They argued this could be more effective in addressing pollution concerns than the government's generous subsidies for pure electric cars and plug-in hybrids, which have not generated significant sales. Instead, China in September renewed the existing subsidies.

So the carmakers are finding other ways to close the price gap. Toyota announced at the Guangzhou show that it will localize production of batteries and hybrid motors for the Prius and Camry Hybrid. These components are now imported and slapped with high duties. As it stands, for the price of a Prius, a Chinese buyer can get a much larger family car.

This is why hybrids are attracting buyers for whom price is less of an issue.

"Some customers are buying a Lexus SUV or a Mercedes-Benz S-class rather than hybrid vehicles," Sa said. "Hybrids' inflated costs can be ignored by these customers."
   
At the premium end, hybrids can be positioned as high-tech and top-of-the-range rather than fuel-saving and environmentally friendly.
   
A new Mercedes E400 hybrid is to offer a more powerful engine with better acceleration than that of the standard model.
   
"Premium carmakers have a higher chance of success in the area of hybrid vehicles, mainly because premium autos are not purchased by price-sensitive consumers" said Bill Russo, president and chief executive of automotive consultancy Synergistics in Beijing. "It is still a small market but will grow as more automakers slowly introduce more models."
   
The long wheel-base E-class Mercedes will be the first premium hybrid to be produced in China. Infiniti is set to begin producing cars in China 2014, and Lexus is a possibility.

Click here to read the article at asia.nikkei.com

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

Bill Russo to Chair Day One of Green Mobility 2012 Conference

Beijing, September 13-14, 2012

Click here to view the event website

The China’s New Energy Vehicle Program is expected to be strategically achieving the better future: global climate change; energy security; urban air quality; and China’s auto industry growth. In 2009, the Chinese government initiated the Ten Cities, Thousand Vehicles Program to stimulate electric vehicle development through large-scale pilots in ten cities, focusing on deployment of electric vehicles for government fleet applications. The Program has since been expanded to 25 cities and includes consumer incentives in five cities. Significant electric vehicle (EV) technology development in China is occurring in industry as well as universities, focusing primarily on batteries and charging technology. The new EV value chain is beginning to develop new businesses and business models to provide the infrastructure, component, vehicle, and related services necessary to enable an EV ecosystem.

So far the program has not achieved its initial expectation; the market is still in a vague situation. According to World Bank’s 2011 report, there are several challenges China is facing right now: except introducing the purchase subsidies, the government has to stimulate demand for EV. As private EV cars will be fully involved eventually, integrated battery charging solutions need to be developed. It is emergent to launch a full set of standards include vehicle charging and safety & power grid standards. In the mean time significant efforts underway elsewhere have put many electric vehicles on the road around the world.

Based on the huge success of last two annual Green Mobility events, the Green Mobility 2012 aims to discover the challenges and opportunities for the China EV industry and also provide participants with cutting edge insights on relevant technology, economic, societal, trade developments impacting on the industry. Green Mobility 2012 will bring business leaders from the automotive sector from China and Worldwide, along with government officials and senior executives from sectors closely associated with the world industry. 

Agenda at a Glance

	Day One, 13th Sep	Day Two, 14th Sep
AM	Policy & Latest Development Plan of  New Energy Vehicle	Emerging Ingustry Trends & Technology Innovation
PM	Commercialization And Marketlisation Roadmap	Battery Management & Development

3rd Annual Green Mobility 2012 from Synergistics Limited

Bill Russo's Opening Remarks:

Towards a Green Automotive Industry from Synergistics Limited

Still waiting for an electric start

Business Standard of India, February 28, 2012

Mahindra's Reva sells only around 40 units per month domestically, but is exported to 24 countries 

Devjyot Ghoshal & Sharmistha Mukherjee / New Delhi 


Toyota Prius, the world's best-known and highest-selling hybrid car, sold over two million units worldwide in the last 15 years but only 150 vehicles in India last fiscal.  So far this financial year, not a single Prius has been driven out of a Toyota showroom in the country.



The Prius experience is illustrative of the dismal state of affairs in the electric vehicle arena in India, which has sales of a paltry 83,000 vehicles compared to over 4 million cars and scooters sold in the country.


That may change.  The government is expected to roll out a policy for hybrid and electric vehicles (xEV) this April after over a year of consultations.  Yet, while all indicators for India's auto future point roughly in the  "electric" direction, India's blueprint for success may require adopting a balanced three-pronged strategy: create infrastructure; provide crucial subsidies; fund essential research and development (R&D) programmes.

DEVELOPMENTS IN ELECTRIC LAND Company Status Mahindra Reva Electric Car Company Sells 30-40 units of two-seater REVAi in India per month. Will launch four-seaterReva NXR in the first half of 2012-13 General Motors Has showcased an electric version ofsmall car Beat. No clarity yet on commercial launch Maruti Suzuki Has operational models of Eeco Electric and SX4 Hybrid but the cars will not immediately go for commercial production Hero Electric Market leader in the two-wheeler EV segment in India. Refused to give out exact sales numbers TVS Currently undertaking feasibility study  to introduce an electric version of Scooty Teenz Hero MotoCorp Showcased hybrid scooter Leap and is working on making it viable for commercial production Honda and Yamaha Have the technology to introduce electric two-wheelers but will take a final call once adequate infrastructure is set up in India

For lessons on how to do this, we could look at China's recent electrifying performance. Between 2002 and 2006, Beijing spent at least $200 million on New Energy Vehicle (NEV) programmes, with plans to put out another $15.15 billion into an alternative energy vehicles development plan during 2011-2020, much of it going into bolstering R&D programmes, with the remainder to be spent on subsidies and infrastructure creation.

NOT QUITE HIGH VOLTAGE Sales of electric vehicles pale in comparison to its fossil fuel cousins...   xEV** sales 2,010 xEV sales (P) 2011  Total auto  sales 2010 2-Wheeler 40,000.00 80,000 1.9 million* 4-Wheeler 1,000.00 3,000 2.3 million (P) Projected; * Scooters only;  Source: Industry estimates  **xEV: Hybrid and electric vehicles

Undertaking such massive financial interventions is a strategy that has worked well for China, the world's largest car market by volume, and has helped it emerge as a frontrunner in the EV sector; some forecasts even predict that China's EV market could grow to become the world's largest by the end of this decade.


In contrast, the first tangible governmental support for the xEV industry in India came only at the end of 2010, with the Ministry of New and Renewable Energy (MNRE) creating a minuscule Rs 95 crore ($19 million) incentive scheme for manufacturers and the government subsequently slashing the import duty on batteries from 26 per cent to four per cent.  The scheme provides for incentives of up to 20 per cent on the ex–factory prices of the vehicles, subject to a maximum limit, which is Rs 1 lakh for an electric car.

....BUT THE FUTURE LOOKS BRIGHTER (forecasted xEV sales in 2020 (‘000 units)   2-Wheeler 4-Wheeler Bus LCV 3-Wheeler Hybrid/ Hybrid Plug-in vehicles - 1275 2 120 - Battery-operated electric vehicle 4,800.00 170-320 0.3-0.7 30-50 20-30 Source: SIAM, Booz & Company analysis

But it isn't merely the incredible disparity in monetary support that differentiates the trajectories that the two countries are taking.  China's automotive sector thrives on the collaborations that exist between strong domestic players and international majors, such as those between Germany's Volkswagen and Shenzhen-based BYD Automobile or General Motors and SAIC.


At the same time, the presence of some of the world's biggest rechargeable battery manufacturers, by virtue of the booming cell phone and laptop industries in China, alongside growing mobility demand in a country with serious environmental concerns, creates a near-perfect situation for the xEV market to thrive.


"In India, only Tata and Mahindra & Mahindra are domestic manufacturers of some reckoning.  Any technology that comes in here would be driven by global manufacturers, rather than local R&D.  In China, the government has $15 billion to spend on EVs and the domestic players are strong enough to do the R&D,"  said Deepesh Rathode, Managing Director of IHS Automotive India.


Since India has negligible volumes, little money and, so far, fleeting ambition to take a big (and expensive) leap into the xEV sector, Rathode is convinced that growth in the sector has to be infrastructure-driven.   Others, like Bill Russo, President of Beijing-based consultancy Synergistics, and a keen observer of the Chinese xEV market agrees.  "I do believe infrastructure investment is a 'price of entry' which can drive market acceptance of a new technology," he says. "This, by the way, was also true for gasoline powered cars in the early 20th century. Consumers need to know they can conveniently service and recharge their vehicles before they would even consider buying.  Infrastructure is a 'foundation' for driving xEV market acceptance," he added. 


Indian EV makers, however, are pitching for higher subsidies to drive initial demand, on the premise that infrastructure can follow once there are enough such vehicles on the road. Consumers, typically, are reluctant to buy xEVs that exceed the price of conventional vehicles by more than 10 to 15 per cent. “There should be a good incentive for consumers. Once the demand side gets going, in turn it will make other things viable,” said R Chandramouli, chief of operations, Mahindra Reva Electric Car Company, which sells between 30 to 40 units per month in the domestic market.


Bangalore-based Reva, now a part of Mahindra & Mahindra, is the maker of one of the world’s highest selling EVs— the REVAi, which is exported to 24 countries. The carmaker is in the process of setting-up a 30,000 unit per annum plant, making it the single-largest electric car manufacturing facility anywhere in the world.


Pawan Goenka, president, automotive division and farm equipment sectors, Mahindra & Mahindra, is more explicit. “Without the subsidy currently provided under the MNRE scheme it would be difficult to enthuse buyers to purchase electric vehicles. EVs have to be subsidised to encourage use by consumers. The quantum of the outlay made would determine how serious the government is about green vehicles,” he said.


There is little doubt that the government is serious. The National Hybrid / Electric Mobility Study, conducted by Booz & Company, on behalf of the Ministry of Heavy Industries and Public Enterprises and the Society of Indian Automobile Manufacturers (SIAM) makes a strong case for pushing the xEV sector in India. It outlines the need interventions required to support the growth of the hybrid/electric market can be classified into five areas—fuel efficiency regulations, demand-and-supply- related interventions, research and development support, and infrastructure investments.


"To achieve the tipping point for the market, the first step is to bridge this price–performance gap for consumers, and bring acceptable products into the market through demand side and supply side interventions. In parallel, the industry also needs to invest in building manufacturing and technology development capabilities. Along with this, power and charging infrastructure investments need to be made to facilitate adoption" a summary of the study states, adding that by 2020, a self-sustaining stage can be targeted for the industry.


But it's the government's strategy, rather than its intent, that will be crucial in determining the eventual success of India's xEV push. At the same time, any blueprint must also leverage the existing advantages that India Inc offers, much like how China's EV industry has benefited from the presence of large rechargeable battery manufacturers. 


"India's largest potential opportunity is in the area of BEV 2W (Battery electric vehicle, two-wheeler) and HEV 4W (hybrid electric vehicle, four-wheeler) segments. These are areas where many Indian manufacturers, who understand the nuances of the market, can take the lead in offering frugally engineered and affordable solutions," explained Russo.


Reva's Chandramouli, too, felt that bringing the cost of EVs down is something that the Indian firms could achieve. “The difference India can make is to make EVs more affordable, and for it to happen there needs to more R&D in this segment”.


In particular, there may be significant opportunities in the two-wheeler EV vertical, which could comprise between 3.5 to 5 million of the total 5 to 7 million EVs that may be annually sold in India by 2020, according to the Booz & Company study.


While the future of the Indian automotive sector may very well be down electric avenue, what remains to be seen is how we’ll all get there.



Click here to read the article at business-standard.com

The Circuitous Path to Electrification of China's Automotive Industry

Booz & Company Viewpoint, February 2012



The paper suggests a need for cross-value chain collaboration and that new business models are essential to achieve broader acceptance of electric vehicles.

The Circuitous Path to Electrification of China's Automotive Industry

View more documents from Synergistics Limited

China debates electric car policy

The Financial Times, August 23, 2011

By Patti Waldmeir in Shanghai

Beijing appears to be rethinking its singular focus on electric vehicles to reduce fuel consumption and improve air quality as it becomes increasingly clear that its targets for mass-producing electric vehicles in China are unrealistic.

China had planned to leapfrog a generation of conventional engine technology to develop what Beijing hoped would be an early advantage over the west in electric vehicles . No formal decision has been taken to abandon that plan, but top decision-makers in Beijing now see its original timetable as too optimistic.

“The shift in focus means that even traditional internal combustion engines could now see beneficial policies,” he said. China’s targets of 1m new-energy vehicles on the roads by 2015 and 5m by 2020 could be revised to include conventional hybrid vehicles, as otherwise the government will struggle to meet these goals, IHS said.

Wen Jiabao, the Chinese premier, reflected intense debate within the bureaucracy recently in a Communist Party journal article that questioned China’s “road map” towards alternative vehicles. Peter Huang, forecaster at consultants IHS Automotive in Shanghai, expects Beijing to shift its focus now to “hybrids and all vehicles that can reduce fuel consumption”.

Other Chinese analysts say while a battle is on for the future of China’s alternative fuel policy, any changes have yet to be agreed.

Industry analysts say Beijing has been disappointed by slow progress towards a domestic electric vehicle industry. China’s highest profile electric vehicle maker, BYD – which is backed by Warren Buffett – has repeatedly delayed plans to commercialise and export its electric vehicles.

Government subsidies of up to Rmb60,000 ($9,370) for pure electric vehicles and Rmb50,000 for a new generation of plug-in hybrids are already available in five Chinese cities on a trial basis, but very few individual buyers have taken them up.

“It was simply never realistic for a fledgling auto industry to skip conventional hybrids and immediately electrify,” said Bill Russo of Synergistics auto consultancy in Beijing, who previously ran Chrysler in China. “However, I believe this will not deter China from a long-term goal of pursuing such an endgame. They have planted the seeds for the future EV industry: it is just going to take much longer than they anticipated.”

Chinese buyers have shown little appetite for conventional hybrids: last year, Toyota sold only one Prius in China, produced by its local joint venture with FAW, according to Namrita Chow of IHS Automotive. Boosting sales of current-generation hybrids would depend on whether government subsidies currently available for electric vehicles are extended to other fuel-efficient vehicles.

Beijing’s review of its policy comes in the context of a growing industry debate over the viability of electric cars. All of the world’s big carmakers are developing electric or rechargeable hybrid models in order to comply with more stringent regulations on fuel efficiency and carbon dioxide emissions.

However, because of the electric vehicle’s limited driving ranges and high prices compared to conventional cars, there are doubts over how many consumers will buy them. Early reviews of Nissan’s all-electric Leaf, while mostly positive, have emphasised the car’s limited driving range and relatively high price for its size.

Toyota, the industry’s top-selling producer and leading champion of hybrid technology, is among the producers who think that pure electric vehicles will be a small niche market. Rival producers including Ford Motor and Volkswagen, while developing their own hybrid and electric models, also emphasise the major gains in fuel efficiency and CO² emissions that can be gained by downsizing and turbocharging of conventional engines.

Additional reporting by John Reed in London

Click here to read this article at FT.com

Chinalogue: Environmentally Friendly Driving

Blue Ocean Network, March 23, 2011

Click here to view the Chinalogue program

Getting stuck bumper to bumper in a cloud of exhaust is regular occurrence in China. Not only is it unpleasant, it's taking a toll on the environment.

As the world's largest car market continues to grow, the country aims to have more than 500,000 new energy vehicles on the road by 2015 and 5 million by 2020. It began spurring this growth with rebates of up to $9,000 dollars per energy efficient car and started testing electric charging stations in pilot cities from Beijing to Hainan.

What will the 200 million cars expected to be on the road at the end of this decade will be running on--Gas? Electricity? A little bit of both? Something else?

Bill Russo

President, Synergistics

Linda Luo

Executive Editor, China Auto Review

Klaus Paur

Managing Director, Synovate

Aired March 23, 2011