China Appears Poised To Dump Support For EVs

Edmunds Auto Observer, September 8, 2011

By SCOTT DOGGETT

Beijing's strategy to electrify the country's automobiles has been extremely ambitious. For more than two years, the Chinese government has tried to leapfrog years of incremental fuel-economy improvements in conventional gas- and diesel-engine technology by massively supporting the development of battery-electric vehicles (BEVs) and plug-in hybrid-electric vehicles (PHEVs). Its often-stated goal: No fewer than 1 million electric vehicles on China's roads by 2015 and 5 million by 2020. But Beijing appears to be on the verge of doing a U-turn on its support for plug-in vehicles, in light of the fact they have proven enormously unpopular despite hefty government incentives to by them.

Premier Wen Jiabao said in July's issue of Qiushi, a leading Communist Party magazine, that "it remains uncertain whether hybrid and electric cars, which are now the focus of much of the development, will be the winners in the end." He cited "problems with their technical path, problems with core technologies, problems with investment, problems with policy support." Meanwhile, intense debate broke out between influential Chinese bureaucrats over the future of the country's green-car industry, with officials of the National Development and Reform Commission and the Ministry of Industry and Information Technology (MIIT) bitterly arguing in public. The NDRC's Li Gang pulled no punches, referring to the "hopeless" prospects of the country's "garbage technology" for electric cars. Former MIIT official Hou Shiguo, offering the ministry's perspective, countered that Beijing was not built in a day.

The heated debate comes less than a year after Beijing announced plans to spend about $15.6 billion on plug-in electric vehicles by 2020. Since June of last year, consumers in five large Chinese cites have been able to get up to $8,785 off the price of a battery-electric car and $7,320 off a plug-in hybrid. Additionally, Beijing announced last year that it would subsidize the construction of charging stations in the five cities. To further stimulate EV sales, Beijing chose the Chinese capital and 24 other cities for large-scale promotion of electric vehicles. Despite the financial incentives and the promotional campaign, only slightly more than 10,000 battery-electric vehicles and plug-in hybrids have been sold in China in the last two years, and less than a tenth of those were sold to private owners.

In a recent article in Britain's Financial Times, Bill Russo of Synergistics auto consultancy in Beijing was quoted "it was simply never realistic for a fledgling auto industry to skip conventional hybrids and immediately electrify." The former head of Chrysler in China said, however, that he does not believe Beijing's probable retreat from making EVs the focus of its green-car strategy will deter China from a long-term goal of electrifying the country's vehicles. "They have planted the seeds for the future EV industry: it is just going to take much longer than they anticipated," he said.

Click here to read the article at autoobserver.com

SIAM Presentation on Alternative Powertrains

New Delhi, India, September 7, 2011

Presentation and Briefing paper prepared for the 51st annual convention of the Society of Indian Automobile Manufacturers.

Booz SIAM Presentation on Alternative Powertrains

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Alternative Powertrains: Mobility Solutions for the Future

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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)

Click here to read the article at reuters.com

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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Competing for the Global Middle Class

Strategy & Business, Autumn 2011

Competing For the Global Middle Class

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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