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

China's BYD profit plunges after auto tax breaks end

Reuters, August 22, 2011

(Reuters) - BYD Co Ltd (1211.HK) (002594.SZ), a Chinese carmaker backed by billionaire Warren Buffett, reported an 89 percent plunge in first-half net income as government policy changes hurt its auto sales.

The outlook for Chinese auto companies for the rest of 2011 remains unclear after Beijing stripped away tax incentives for small cars at the end of last year, helping to take the world's largest auto market off the boil.

BYD said it expected a 85-95 percent drop in its net income in the first nine months, while Great Wall Motor Co Ltd (2333.HK), China's top maker of sports utility vehicles, said earlier on Monday it will miss its sales target this year.

"The challenge facing BYD is more than a market slowdown. BYD had been expanding too fast in the past years and it will take time to make the necessary adjustments in its strategy," said Zhang Yu, an analyst at AJ Securities.

In a stock exchange filing on Monday, BYD said profit margins for its battery, cell phone parts and assembly businesses have also fallen due to competition and higher costs.

BYD, 10 percent owned by Buffett's Berkshire Hathaway (BRKa.N), delivered 259,915 vehicles during the period, down 19.3 percent from a year earlier. Sales fell 16.8 percent to 27,496 units in July, official data showed.

Xia Zhibin, head of the company's sales unit, resigned earlier in the month, citing personal reasons. Analysts said slumping sales were likely to have played a part in the move.

BYD reported a first-half net profit of 275.36 million yuan ($42 million), down from 2.42 billion yuan from a year earlier and slightly above an average forecast of 267 million yuan from three analysts polled by Reuters.

BYD forecast in July that it expected its first-half net profit to be between 121.06 million yuan and 363.18 million yuan.

The results lagged rivals such as Geely Automobile Holdings (0175.HK) which reported a 17 percent earnings rise and Great Wall Motor which more than doubled net profit on improved sales and margins during same period.

BYD's F3 sedan was China's best-selling car brand in 2009 and 2010, but demand for most of its other models, such as M6, S6 and L3, has been lukewarm.

"The problem is they didn't have a continuous flow of product launches that let them build on their initial success," said William Russo, an industry veteran who runs Beijing-based consultancy firm Synergistics.

BYD, which competes with Geely, Chery Automobile among others, has rolled out two cars, G3R and S6 sport utility vehicle, so far this year, to be followed by its most pricey sedan G6 in the second half.

The earnings announcement came after markets closed.

BYD's Hong Kong-listed shares, which have lost 54 percent since the start of the year, dropped 5.5 percent on Monday, lagging a 0.5 percent gain of the Hang Seng Index .HSI.

Its Shenzhen-listed shares ended up 0.8 percent on Monday at 26.31 yuan, slightly ahead of a 0.7 percent dip in the benchmark Shanghai index .SSEC.

(Editing by Erica Billingham)

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Bill Russo to Present at Annual Conference of the Society of Indian Automobile Manufacturers

New Delhi, India, September 7, 2011

Bill Russo will be presenting on the topic “Alternative Powertrains & Challenges for Next Decade”. The theme of the conference is "Reinventing Mobility: Vision 2020".

SIAM 51st Annual Convention: Reinventing Mobility

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VW seeks more of FAW partnership

China Daily, August 15, 2011

Reports: Owner of China's top - selling luxury brand wants another 9 percent

BEIJING - As China's auto market sets global records and holds the promise of even greater gains, the nation's top luxury carmaker is pushing for a bigger share - of its own partnership.

While neither side in the 20-year-old joint venture between FAW Group and Volkswagen AG will comment publicly, industry watchers say a change in its shareholding is taking shape.

FAW plans to transfer an additional 9 percent stake to Volkswagen's luxury unit Audi, say insiders with knowledge of the deal. They note it has already been approved by the joint venture's board of directors and has been submitted to government departments for approval

FAW currently owns 60 percent in the partnership, while Volkswagen has 30 percent and Audi has 10 percent.

After the possible restructuring, FAW would retain a majority stake, but it would fall to 51 percent, with Volkswagen continuing to hold 30 percent and Audi boosting its share to 19 percent.

While FAW and Volkswagen decline to publicly discuss the deal, industry observers find it believable as Volkswagen has long pushed for a greater share in the partnership.

When the automaker came to China to form the joint venture with FAW in 1991, it didn't know the local market, so "a minority stake was a way to reduce risk and let the Chinese partner to play a more active role in exploring the market", said Zhong Shi, a Beijing-based independent automotive analyst.

Greater rewards

But as the local business turned hugely profitable - the Audi brand is dominant in the lucrative luxury segment - parent company Volkswagen naturally wants to reap greater rewards, he said.

The Chinese government requires that Chinese companies hold at least a 50 percent stake in automobile joint ventures, so the ownership structure at almost every Sino-foreign partnership is 50-50.

Today, Volkswagen Group's partnership with FAW is "unusual" because the foreign company holds a minority stake, analysts said.

"In this case, Audi probably wants to be more successful," said Bill Russo, senior advisor at consulting company Booz & Co.

It's a "logical expansion of business", he added.

In the first seven months of this year, Audi reported sales of 167,000 vehicles in its largest market after Germany and has plans to more than double capacity at the joint venture to 700,000 cars in 2015 from the current 300,000.

With an even bigger investment, the company clearly wants a bigger share of the earnings, analysts said.

For FAW, the possible share restructuring would help its plans to go public, they said.

The group has been preparing an initial public offering for several years. According to recent announcements by the group's two listed subsidiaries - FAW Car Co and Tianjin FAW Xiali Automobile Co - the parent company has received government approval to establish a new subsidiary for listing.

The group plans to inject its FAW Car and Tianjin FAW Xiali holdings into the new company, the announcement said.

Its business with Volkswagen is FAW's most profitable asset and the group is widely expected to fold its joint venture holdings into the new company, analysts said.

They note the plan would need Volkswagen's consent, so the shareholding structure became a bargaining chip.

Some analysts say FAW might also want its German partners to introduce new models and bring more technologies into the joint venture.

But others note Volkswagen and Audi need bring in more and better products anyway to stay competitive in the increasingly fierce Chinese market regardless of the shareholding structure.

Currently auto giants like Toyota, GM, Nissan and Hyundai are all in the race and the result will depend on who brings the latest technology and models to China - who invests more in the market, said analysts.

Another case

Another auto giant that currently has a minority stake in its Chine joint venture is General Motors. It sold 1 percent of the joint venture Shanghai GM to its partner SAIC Group at the end of 2009, which tipped the balance to 51 percent ownership by SAIC.

Earlier this month, General Motors CEO Daniel Akerson said GM has informed SAIC that it intends to buy back the 1 percent stake.

Analysts said that a crucial reason for majority ownership by SAIC is a shining financial statement - it is able to integrate the earnings of the joint venture into its own.

When the ownership change was consummated two years ago, SAIC said GM could call back the 1 percent only if a way was found for SAIC to keep the right to combine financial statements.

Accountants said that would be possible through some complex capital maneuvering, but others suggest the Chinese automaker should avoid too much attention on the numbers game and focus on truly growing its wholly owned brands Roewe and MG.

"From both cases (FAW-VW and Shanghai GM), we can see one thing in common - Chinese automakers are still in the weaker position at their joint ventures," said Zeng Zhiling, director of JD Power Asia Pacific Forecasting.

While most Sino-foreign automobile joint ventures have a 50-50 structure and are theoretically equal partners, foreign automakers usually have a majority ownership or even 100 percent share of the parts companies that provide components needed to make the cars.

Zeng noted the way forward for development of the domestic auto industry is true homegrown brands.

Click here to read the article at chinadaily.com.cn

Nissan aims to make up lost time in China

China Daily, August 18, 2011

A visitor looks at a Nissan Motor Co vehicle on display at the company's showroom in Yokohama, Japan. The automaker plans to quadruple Infiniti's share of the Chinese luxury-auto market within five years.

Luxury brand Infiniti rushing to grab share of high-end market

BEIJING - Nissan Motor Co plans to quadruple Infiniti's share of the Chinese luxury-auto market within five years as it rushes to make up a "ridiculous" amount of time lost to Volkswagen AG's Audi and Toyota Motor Corp's Lexus.

Chief Executive Officer Carlos Ghosn has set a target of winning at least 8 percent of the luxury segment in the world's largest auto market by 2016. Infiniti has 2 percent at present. Market leader Audi has 34 percent while Lexus has 8 percent, according to industry researcher JD Power & Associates.

Nissan's strategy to boost sales includes doubling the number of Infiniti dealers this year, adding five product lines over five years and airing its first TV commercials in a nation where primetime audiences can exceed 500 million. The company is also considering production in China to eliminate tariffs of 25 percent on imported cars.

"We entered the Chinese mainland market even later than Taiwan and South Korea, and that's very ridiculous to anybody who has a bit of knowledge about the industry," Allen Lu, who left Ferrari SpA to become managing director of Infiniti's China unit last year, said in an interview in Beijing. "But, it's like running a marathon - you can't tell who will win after just 10 kilometers."

Nissan, Japan's second-largest automaker, aims to more than triple worldwide Infiniti sales to 500,000 a year by March 2017, taking about 10 percent of the global luxury-car market. China became Infiniti's second-biggest market after the United States last year, according to Lu. The brand isn't sold in Japan.

"We have good momentum in China and we should continue," Ghosn said last month in Beijing, where Nissan unveiled its mid-term China business plan.

Infiniti trails Audi, Munich-based Bayerische Motoren Werke AG and Daimler AG's Mercedes-Benz in China. BMW has a 22 percent share of the luxury-car market and Stuttgart-based Mercedes has 14 percent, according to JD Power.

Infiniti's China sales were 11,513 last year, doubling from the year before, though still only 5 percent of Audi's. Lexus sales rose more than 55 percent to 52,933 units in 2010, according to Toyota, Japan's largest automaker.

Audi also ranked first in a new-vehicle sales satisfaction survey released on Aug 15 by JD Power. Nissan's Chinese venture Dongfeng Motor Co came second. The survey was based on responses from 11,496 owners and covered 57 passenger-vehicle brands.

"The real challenge for Infiniti is to get on the consideration list for luxury-auto shoppers in China," said Bill Russo, a senior adviser at consulting company Booz & Co in Beijing.

China has more than 1.1 million millionaires and an economy that expanded at 9.5 percent in the second quarter, so "it should be possible for Infiniti to carve out a piece of this expanding pie", he said.

Toyota declined to comment on the challenge posed by Infiniti, saying in an e-mail that "we respect all competitors".

Honda Motor Co, Japan's third-largest automaker, is preparing several new Acura luxury models for the US and Chinese markets, Chief Financial Officer Fumihiko Ike said in June.

Infiniti got a late start in China, entering the market in 2007, about three years after Lexus opened its first dealerships there and more than a decade after Audi began local production. The two Japanese luxury units don't have production facilities in China, which means customers pay import duties that elevate prices.

The Infiniti M25 sedan starts at 498,000 yuan ($78,000) and a Lexus ES350 costs from 545,000 yuan, according to pricing data compiled by Sina.com. That compares with 355,000 yuan for an Audi A6 and 418,600 yuan for a BMW 5-series, both of which are assembled in China.

"Brand loyalty in China is not strong," Lu said. "Everyone in China made their wealth in the past 20 or 30 years, and when people have all this money and don't know where to spend it, that's a great opportunity."

Infiniti's success may hinge on manufacturing vehicles in the country, said Klaus Paur, China managing director at Synovate Motoresearch.

Ghosn said in June that Nissan plans to make Infiniti cars in either the US or China. Ghosn and Lu declined during separate interviews last month to comment on whether Infinitis will be made in China.

Click here to read the article at chinadaily.com.cn

Saab: Ultima Chiamata (Last Call)

Quattroroute, June 24, 2011

La Saab è a un passo dal baratro. Mancano i soldi per pagare i fornitori e anche quelli per pagare gli stipendi ai suoi dipendenti che questo mese resteranno a secco. L'annuncio è stato dato oggi con una nota dove si spiega che la "Swedish Automobile (la Casa madre, l'ex Spyker Cars n.d.r.) è in trattative con vari soggetti per ottenere capitali a breve termine". Per reperirli è stato persino messo in vendita lo stabilimento di Trollhättan, attraverso una formula che prevede il successivo riaffitto degli immobili da parte di Saab. Insomma, dopo i blocchi della produzione, la ripartenza e un ulteriore stop imputabili al mancato pagamento dei fornitori, la situazione è tutt'altro che tranquilla. A conferma, c'è la minaccia da parte dei sindacati di avviare le procedure di bancarotta.

Nessuna garanzia sul futuro. "Le discussioni proseguono", continua il comunicato, " ma non è sicuro che avranno successo e che il sostegno finanziario arrivi. Al momento vanno avanti le trattative con i fornitori per stabilire i termini di rimborso al fine di riprendere la consegna delle componenti". Secondo alcune stime il debito ammonterebbe a 300 milioni di corone svedesi, al cambio quasi 33 milioni di euro. Un'ancora di salvezza potrebbe arrivare dal magnate russo Vladimir Antonov che si è detto interessato a rilevare il 30% della società svedese mettendo sul piatto più di 30 milioni di euro.

L'affare cinese. Solo poche settimane fa il costruttore svedese aveva annunciato un'intesa con due aziende cinesi, PangDa e Yougman Lotus che prevede una partecipazione al capitale per 245 milioni di euro, oltre all'alleanza strategica costituita da due joint-venture tripartite, rispettivamente per la distribuzione e la produzione in Cina di automobili con il marchio Saab e di veicoli commercializzati attraverso un sottomarchio. Ma tali alleanze devono essere sottoposte all'approvazione del governo di Pechino, che di solito ha tempi lunghi, come conferma Bill Russo, senior advisor di Booz & Co: "In Cina gli accordi sono molto di più complessi di quello che sembra: ci vuole tanto lavoro e tempo per renderli effettivi, almeno 18-24 mesi per un caso come questo".

Le decisioni di Pechino. "Non sappiamo se le autorità di Pechino approveranno gli accordi", continua Russo, "tutto è possibile, certo. Ma in Cina è in corso un consolidamento dei produttori locali che prevede la riduzione del numero (oggi sono oltre 100 n.d.r.): aggiungere un altro costruttore debole a un mercato già affollato non rientra nelle linee guida governative".

D.S.

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