China’s thriving SUV-only automaker looks to global growth

ASSOCIATED PRESS  / Feb 22, 2017, 03:06 AM

By JOE McDONALD AP Business Writer

In this photo, taken, Feb. 19, 2017, a worker assembles a Haval SUV H3 model at the Great Wall Motors assembly plant in Baoding in north China’s Hebei province. Great Wall Motors became China’s most profitable automaker by making almost nothing but low-priced SUVs. Now it wants to expand into global markets. (Photo by ANDY WONG/AP)

BAODING, China (AP) — Wei Jianjun is the chief matchmaker in China’s love affair with the SUV.

A decade ago, the chairman of Great Wall Motors Ltd. saw opportunity as the bulky vehicles began shedding their image in China as a farm tool. Wei cut back on making sedans and poured resources into its fledgling line of Havals.

That gamble paid off as SUVs caught on with drivers who saw them as the safest ride on bumpy, chaotic streets. By 2013, with demand surging, Great Wall had become China’s most profitable automaker and Wei was a billionaire.

Now, Wei wants to make the Haval a global brand. It’s an ambitious goal that requires advances in safety and features for a company known until now mainly for low prices. Great Wall sells Havals in Australia, Italy and Russia, but exports were less than 5 percent of last year’s output of just under 1.1 million units.

“By 2020, we hope Haval can become the world’s biggest specialty SUV brand,” Wei said at a reception at Great Wall headquarters in this city southwest of Beijing to celebrate sales passing the 1 million mark.

That “globalization strategy” includes working toward meeting American safety standards, Wei said. But he gave no indication when Haval might export to the United States or major European markets such as Germany.

Great Wall is part of a cadre of small but ambitious independent Chinese automakers that grew in the shadow of state-owned giants such as Shanghai Automotive Industries Corp., which assembles vehicles for General Motors Co. and Volkswagen AG.

Without foreign joint-venture partners, the independents created their own brands and started exporting to Africa and Latin America.

Geely Holding Ltd., which owns Sweden’s Volvo Cars, plans to start U.S. and European sales of its new Lynk & Co. brand in 2019. BYD Auto, the world’s biggest-selling electric car maker, supplies battery-powered buses and taxis in the United States and Europe. Great Wall opened a European assembly plant in Bulgaria in 2012. It has similar facilities with local partners in Russia, Indonesia, Iran, Egypt and Ecuador.

SUVs have an outsized role in China, where their popularity has helped offset sagging demand for sedans and other vehicles.

Sales of domestic brand SUVs soared 58 percent last year to 5.3 million units out of total sales of 24.4 million in the world’s biggest auto market. They are growing fastest in the lowest price ranges, dominated by Haval and Chinese rivals. That has helped Chinese brands to claw back market share they were losing to global competitors.

The top seller was Haval’s flagship H6, starting at 89,000 yuan ($12,900), which has become China’s most popular vehicle to date. H6 sales surged 55 percent last year to 580,000 units while the overall market grew 15 percent.

“They are definitely one of the most successful car companies in China,” said Yale Zhang, managing director of Automotive Foresight, a research firm.

“This company has some very special strengths,” Zhang said. “Of course, it also has weaknesses, because their products are focused on one model. But they are correcting that. They have tried very hard to cultivate another star product.”

Great Wall’s 2016 profit rose 31 percent to 10.5 billion yuan ($1.5 billion) on revenue of 98.6 billion yuan ($14.4 billion). Wei, 52, ranked No. 36 on the year’s Hurun List of China’s richest entrepreneurs, with a fortune estimated at $5.9 billion.

Begun in the 1980s as a collective that repaired and modified vehicles, Great Wall was bleeding cash when Wei, then 26, left his father’s business making industrial machinery and signed a deal in 1990 to take it over and share profits with the collective’s members.

The company launched a sedan in 1993. Its popular Deer brand pickup trucks were its first hit, in the late ’90s.

Its CEO, Wang Fengying, is a former saleswoman who worked her way up the ranks, becoming the first woman to lead an automaker a decade before GM Chairman and CEO Mary Barra.

Wei has a reputation for military-style discipline.

“He wants a quick decision and a thorough execution,” Zhang said. “This style is very different from large automotive companies, which can be a huge bureaucracy. This company definitely doesn’t have that weakness.”

Most of Great Wall’s 60,000 employees work at its Baoding factory complex, a 13-square-kilometer (5-square-mile) mini-city of assembly lines and workshops in long, pale yellow two- and three-story buildings.

A test track that wraps around the complex is banked to allow drivers to push vehicles to over 200 kph (125 mph).

“It’s an orderly, organized, very disciplined operation,” said Bill Russo, managing director of research firm Gao Feng Advisory. “You think, this isn’t China; this is what I would expect to see in Switzerland or Germany.”

Wei has emphasized product quality, in one case hiring Korean auto industry veterans to show Great Wall how to make better body panels, according to Russo, a former Chrysler executive. That has paid off by raising Haval’s image from entry-level to a mass-market brand that can charge higher prices.

“They have cracked that glass ceiling,” said Russo. “Their quality level is better than the basic Chinese car companies.”

Still, Great Wall’s market is increasingly crowded as Chinese rivals roll out dozens of new SUVs. Global brands including VW and GM are preparing to invade Haval’s segment with their own low-cost models.

Competitive pressures have reached a “deep red level,” Wei said.

The company is responding by trying to move up-market.

Haval opened a Shanghai design studio in 2013 and a Technology Center in Baoding, housed in a sleek glass tower with reflecting pools and a 23-story lobby. It includes engineering workshops, a wind tunnel and a low-pressure chamber that can mimic operating conditions up to 5,000 meters (16,500 feet) in altitude.

In November, Great Wall unveiled a premium brand, Wey, an alternate spelling of Wei’s name. It has yet to say how it will attract buyers to models expected to be priced above 200,000 yuan ($29,000).

Haval has struggled to lure drivers to its higher-priced models, such as its top-of-the-line H9, a seven-seater starting at 210,000 yuan ($30,600), that sold just 11,500 units last year. The H8, another full-size model, sold only 7,500 units.

In November, the company rolled out an updated H6, designed by a 50-member team led by Pierre Leclercq, a Belgian-born BMW veteran.

“The H6 is an extremely important product for us,” said Leclercq, the company’s senior vice president for design.

The company’s next rising star is the H2, a four-seat compact SUV that sold 197,000 units last year. But it starts at 87,000 yuan ($12,700), a step down in price instead of toward a higher market segment.

Great Wall also faces pressure from Chinese government rules that require improved fuel efficiency by 2020. That will hurt brands such as Haval that lack smaller models to improve the average of their product lineup.

In response, Great Wall has developed an electric car, the C30 EV, a compact sedan it says can go 200 kilometers (120 miles) on one charge. The company has yet to say when it might go on sale.

China’s Answer to Tesla Is Hopeful Entrant to Global Car Market

The New York Times, January 26, 2017

Lu Qun, chairman of Qiantu Motor, in Beijing in December.

by Michael Schuman

BEIJING — On a windswept lot near Beijing’s main airport, Lu Qun talks up the electric sports car he hopes will transform him into China’s Elon Musk.

“This is a real performance car,” the entrepreneur boasted of his sleek, gray-and-black Qiantu K50. “It’s fun. You can feel the quality. You’ll love driving this car.”

For Mr. Lu, 48, the roadster is his best chance to make it big. After a lifetime of obscurity creating vehicles for other companies, the bespectacled engineer is betting that the rise of electric cars will propel his company — and his country — into the automotive spotlight.

“Traditional auto manufacturers are constrained by their old models,” he said. “We can see things with fresh eyes.”

Across China, government officials, corporate executives, private investors and newcomers like Mr. Lu are in a headlong rush to develop a domestic electric car industry. The country’s goal, like Mr. Lu’s, is to capitalize on the transition to electric to turbocharge the country’s lagging automobile sector to become a major competitor to the United States, Japan and Germany.

That has been a goal of China’s industrial planners for decades, as the government has lavished resources on building homegrown automakers and discriminated against foreign players.

But so far, that effort has failed.

Local manufacturers have lacked the brands, technology and managerial heft to outmaneuver their established rivals, either at home or abroad. Chinese consumers have preferred more reliable Buicks, Volkswagens and Toyotas to the often substandard offerings from domestic manufacturers, while little-known Chinese models have struggled to gain traction overseas.

Electric vehicles could offer a second chance — one China’s policy makers do not intend to miss.

They targeted electric cars for special support in an industrial policy called “Made in China 2025,” which aims to foster upgraded, technologically advanced manufacturing. By 2020, Beijing expects its automakers to be able to churn out two million electric and hybrid vehicles annually — six times the number produced in 2015.

This time, China’s carmakers may be better positioned. Since electric vehicles are a relatively new business for all players, Chinese manufacturers and international rivals are largely starting from the same point.

“There is a smaller gap between where China is today and the rest of the world” in electric cars, said Bill Russo, managing director at Gao Feng Advisory, a Shanghai consultancy, and a former Chrysler executive. “There is room for newer start-up companies to dream big in China.”

Mr. Lu is one of those dreamers.

Fascinated by cars since he was a boy, he studied automotive engineering at Beijing’s prestigious Tsinghua University. Upon graduating in 1990, he joined the research and development team at the China-based joint venture of Jeep, then a division of Chrysler.

During his time there, which included two years in Detroit, Mr. Lu came to feel such overseas operations had limited prospects in China — the ventures’ partners would try to balance their interests, and so were slow to develop strategies and make decisions.

So in 2003, he and nine colleagues started CH-Auto Technology Corporation as a specialty research and design shop for the local car industry. Since then, the firm has designed vehicles for some of China’s biggest automakers.

Mr. Lu decided to start manufacturing his own vehicles because of the shift to electric. Since producing electric cars requires new parts and technologies, he believed a small entrant could better compete with these new vehicles than traditional automakers.

“Electric vehicles won’t just replace cars with conventional engines, but they will bring a huge change to the entire car industry,” Mr. Lu said. “We wanted to be part of this revolution.”

The result is the K50. Designed at his research center, the two-seater has a light, carbon fiber exterior and a console stuffed with touch screens. Rows of batteries propel the roadster to a top speed of about 120 miles per hour and carry it as far as 200 miles on a single charge.

No longer content to watch others produce his designs, Mr. Lu is currently constructing a $300 million factory in Suzhou, a city near Shanghai, to manufacture 50,000 cars a year. In all, he expects to invest as much as $1.4 billion into his venture over five years.

He did not specify what the car would sell for, but Mr. Lu intends to price the K50 at the top of the market when it goes on sale this year.

That sets CH-Auto on a collision course with the industry’s flagship: Tesla.

Elon Musk’s company already has an edge. While Mr. Lu is building his business from scratch, Tesla has been established in China since 2013. CH-Auto will have to persuade wealthy customers to plunk down a large sum on an unfamiliar brand — Qiantu — over Mr. Musk’s recognizable models.

Mr. Lu nevertheless remains confident. He argues the sporty K50 will appeal to a more leisure-oriented driver than Tesla’s cars. As a logo, the company has chosen the dragonfly, because its managers believe the speedy, nimble insect has similar attributes to his electric car. To market it, Mr. Lu is considering opening showrooms in major Chinese cities, backed by a platform to sell online.

Elon Musk “is someone I can learn from,” he said. “Tesla has huge symbolic significance because it is the first company to make people believe a business model solely around electric vehicles is possible.”

But, he added, “we are not looking to create the Chinese Tesla.”

When it comes to competing with Tesla, Mr. Lu can count on ample help from the Chinese government.

To bring down costs and spur demand, the state has unleashed a torrent of cash. It has offered subsidies to manufacturers and tax breaks for buyers, and plowed investments into charging stations to make electric cars more practical.

In all, UBS Securities estimates that the government spent $13 billion promoting electric vehicles in 2015 alone. So far, Mr. Lu has financed the K50 through loans and injections of fresh capital, but says he “won’t refuse” government subsidies if they become available.

Some analysts fear the state’s largess could prove as much bane as boon.

China may be recreating the waste and excess in electric cars that has plagued other state-targeted sectors, like steel and renewable energy, without spurring the technological innovation the economy needs to compete. And even though China’s car market is the world’s biggest, it is still unlikely to absorb all of the electric vehicle projects underway today.

“They are fueling overcapacity, with a lot of wasted money, and I’m doubtful that in the end you’ll have a successful electric car industry,” says Crystal Chang, a lecturer at the University of California, Berkeley who studies China’s auto industry policies.

Significant sums have already been squandered. In September, the Finance Ministry fined five companies for defrauding the government of $150 million by fabricating sales of electric vehicles to obtain more subsidies, and several companies have failed to make an impression.

Mr. Lu is certain, however, that the K50 stands out in a crowded field. The car has already gotten some advance buzz; a review on one popular Chinese website praised its design as “beautiful” and “avant-garde” and its body as “very muscular.”

“A big advantage they have is their knowledge of what it takes to build a quality vehicle,” said Jack Perkowski, managing partner of the Beijing-based consulting firm JFP Holdings and a veteran of China’s car sector. “They have a better chance than many others because of that.”

Mr. Lu is counting on it.

“There are a lot of electric vehicle companies and hot projects attracting a lot of money,” he said. “Not every company and not every car will be successful.”

Faraday Future Faces Crucial Test With New Electric Car

The Wall Street Journal, January 3, 2017

Electric carmaker Faraday Futures demonstrated its prototype all-electric FF 91 vehicle at CES 2017 on Tuesday. The four-door car can go from zero to 60 miles an hour in 2.39 seconds, executives say.

LAS VEGAS—Time is running out for Faraday Future’s ambitious plan to crack the U.S. auto industry and take on Tesla Motors Inc.

The startup faced a critical test here on Tuesday when it revealed an all-electric car that it says will be ready for production in 2018 and will cast aside doubts about its future.

Faraday made a splash at the CES technology conference last year with futuristic car designs and plans to build a $1 billion factory in Nevada. The buzz soon turned to skepticism amid a steady drip of news about suppliers demanding payments, Faraday executives leaving and its main investor bleeding cash.

At a media event on Tuesday ahead of this week’s CES 2017 conference, the Los Angeles-area company showed a four-door, sports-utility-like vehicle called the FF 91 that executives claim can go from zero to 60 miles an hour in 2.39 seconds, faster than the Tesla Model S.

Faraday’s car has cushy back seats that can recline like a La-Z-Boy chair and an interior cabin loaded with large video screens that can be updated with next-generation gadgets. Faraday hasn’t disclosed a starting price.

“I’m hoping…to convince people that we’re real,” said Nick Sampson, Faraday’s senior vice president of engineering and research and development. “We are doing a real product, it’s not just a vaporware, Batmobile to create attention.”

Mr. Sampson said the company plans to roll out the FF 91 in 2018, but he wouldn’t discuss Faraday’s financial status.

That question arose in November when Faraday’s main investor, Chinese billionaire Jia Yueting, disclosed a cash crunch at LeEco Holdings. Mr. Jia, founder of LeEco, told employees the company had expanded too quickly as part of a multibillion-dollar spending spree to build a conglomerate ranging from smartphones to electric cars and a film studio.

LeEco’s precarious cash situation has had “some impact” on Faraday, Mr. Sampson said, but he stressed the companies are separately run.

In late December, Mr. Sampson spent more than three hours showing reporters around the company’s headquarters, a former Nissan Motors Co. facility in Gardena, Calif. The former Tesla executive led a tour through various departments, including aerodynamics, body engineering and manufacturing, as many executives presented using large LeEco TVs and talked optimistically about being ready to begin production.

Notably absent was Marco Mattiacci, global chief brand and commercial officer, whose name was printed on the agenda. He quit a few days later, according to people familiar with the matter.

Mr. Mattiacci formerly headed Ferrari in North America and was one of eight senior executives who left in the past year, according to one of the people.

Some of Faraday’s Western executives, hired from high-profile auto makers, have disagreed with their Chinese counterparts over the direction of Faraday, according to people familiar with the matter.

Underscoring how important Faraday views the CES reveal, a giant TV screen in the company’s lobby near the boardroom displays a clock counting down the hours until the event. “While getting a PR event right would be a step in the right direction, it’s still not clear whether they can raise the funds needed to finish the journey,” Bill Russo, an automotive consultant for Gao Feng Advisory Co. in Shanghai, said.

Faraday joins a crowded field of startups that aim to follow the same path as Tesla. Silicon Valley automotive startup Lucid Motors last month revealed the production version of its electric sedan that will cost about $160,000 for early versions, with the expected starting price to drop to around $65,000.

The sales pitch for the Lucid car is similar to Faraday’s: promises of sports-car-like abilities, luxurious interiors and eventual self-driving capabilities. The companies also share Mr. Jia as an investor, though he isn’t a majority shareholder in Lucid.

During the recent Faraday tour, an executive demonstrated the car’s self-parking feature. While reporters were allowed rides in prototypes to demonstrate acceleration and handling, they weren’t given up-close demonstrations of the autonomous feature.

Instead, they watched from across the parking lot as the vehicle’s operator kept his left hand hanging out the window as the car approached an open spot and backed into it. Asked if reporters could see up-close how it worked, a spokesman said, “Maybe later.”

At the event Tuesday, after showing a video of the self-parking, Mr. Jia surprised the audience by popping out of the car after driving on stage.

He pushed a button to activate the self-parking feature. But it didn’t work.

“It’s a little bit lazy tonight,” Mr. Sampson said.

Moments later they tried it again with success. The company then said it will begin taking $5,000 deposits.

Write to Tim Higgins at Tim.Higgins@WSJ.com

Click here to read this article at wsj.com

Scientists: AI will free Beijing from traffic jams

Tech Wire Asia, September 20, 2016

by 

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With a population of over 20 million, Beijing citizens face traffic congestion on a regular basis despite the government’s efforts to maintain a smooth traffic flow, such as tolls, car usage limitations, and public transport subsidies.

But top scientists believe that artificial intelligence (AI) could – and in the near future, will – solve this problem.

According to Sixth Tone, on Saturday, scientists said at a lecture at New York University’s Shanghai campus that autonomous vehicles will aide smoother traffic flow in less than a decade.

 Fei Yue Wang, director of the State Key Laboratory for Management and Control of Complex Systems, is certain that Beijing will no longer see traffic jams in five years’ time as they begin implementing AI in everyday tasks, including transportation, the article noted.

AI scientists are attempting to design self-driving cars that are able to drive smoothly and avoid sudden slowdowns and collisions that cause traffic congestion.

SEE ALSO: No more ‘carmageddon’: Can self-driving cars really end long city traffic jams?

According to Tsinghua University Professor Li Keqiang, the Ministry of Industry and Information Technology has outlined a plan that allows autonomous vehicles to access highways within three to five years, and city centers by 2025.

With today’s advancements in science and technology, this five-year prediction is certainly not impossible.

Bill Russo, automobile consultant from Gao Feng Advisory Company, said as it stands, full optimization of self-driving automotive technology is more a matter of regulation than science.

“Unlike other countries, China has the capacity to drive the market from the top down and create the right circumstances for self-driving cars,” Russo was quoted saying.

Therefore, the government needs to open more doors for self-driven and human-driven vehicles to operate side-by-side on roads, he said.

SEE ALSO: China’s Baidu gets California’s nod to test self-driving cars

Currently, self-driving cars are banned on public roads in China. Automobile players, however, view this restriction as a slowdown for the industry. Tech giants around the world like Google, Baidu and Alibaba, are already tapping into the automobile industry as their next business target.

As Forbes said last month, China “will be reluctant to forbid semi-autonomous cars completely.”

“The country has too much at stake, it has invested heavily in autonomous technology and urges its automakers and tech companies to develop autonomous cars,” it pointed out.

But after a number of fatal incidents, a ministry official in China recently said drivers could be held liable for accidents with advanced driver-assistance systems, a China Daily report said.

SEE ALSO: Singapore rolls out world’s first self-driving taxis, as Uber starts testing theirs

The report quoting China’s deputy head of Bureau of Work Safety Jin Xin said when fully autonomous vehicles hit the road, the manufacturer would become legally responsible for accidents.

But according to Yu Kai, founder of the Institute of Deep Learning – China’s first AI research and development center – the country’s automobile industry is anticipating the commercialization of autonomous vehicles as Chinese consumers are beginning to expect cars to be connected devices.

Yu also believes that self-driving cars could go on roads within 10 years.

“My focus is creating innovative technology to put in the car, to make the car independently intelligent.

“We are working with car manufacturers on how give their vehicles the ability to plan and make decisions, using a combination of sensors, processors, and algorithms,” Yu said, as quoted by Sixth Tone.

Click here to read this article at techwireasia.com

Bill Russo to Chair the Connected Mobility ROADSHOW Conference

Shanghai, China, December 1, 2016

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Bill Russo, the Managing Director and Automotive Practice leader at Gao Feng Advisory Company will  chair the Connected Mobility Roadshow conference in Shanghai – hosted by Messe Frankfurt.

The main players in the mobility industry are currently re-evaluating their positions, for connected mobility promises huge potential: by 2020, the market for interconnected cars is expected to have increased by 45% – ten times the growth of the general automobile market. It is estimated that in five years, three quarters of all new cars will be able to connect, and, from 2025, autonomic driving could be possible outside of protected areas.

Geely set to unveil mid-tier brand

China Daily, October 15, 2016

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A Geely Auto’s SUV model Emgrand GS is presented at the Auto China 2016 show in Beijing.
[Photo/ REUTERS]

Chinese billionaire Li Shufu will test whether there’s room for another global car brand by introducing a new marque next week, built on technology jointly developed by his two car companies, Geely Automobile Holdings Ltd and Volvo Cars.

The new brand, called Lynk & Co, will be unveiled on Oct 20 in Berlin and share its underpinnings with Volvo Cars models. Sales are slated to start in the second half of next year, with the first model likely being a sport utility vehicle, according to Geely Auto Chief Executive Officer Gui Shengyue, declining to provide more details ahead of the official announcement.

“The new brand carries great importance for Geely’s development,” Gui said in a telephone interview on Thursday. “We are currently competing against other local car brands, as well as high-end brands with Volvo Cars.” Lynk & Co will help Geely fight against other mass-market foreign brands, he said.

The new mid-tier brand comes about two years after Li killed three sub-brands and unified its models under the Geely nameplate. The new marque, to be produced in China but distributed globally, will allow Geely to compete in the lower end of the market while freeing Volvo Cars to focus on the premium end.

Even so, any new brand would have to fight for consumer acceptance in a market crowded with more than 100 passenger-vehicle nameplates. Geely’s Lynk & Co will join newcomers such as Borgward Group AG, a defunct German brand revived by Chinese State-owned BAIC Group, and a host of electric vehicle startups in trying to carve out a niche.

Geely has some advantages because the new brand would have access to a platform and technology from Volvo, and it may have better insight as a Chinese company in how to tap growth in faster-growing smaller cities, said Bill Russo, managing director of Gao Feng Advisory Co.

“The market is not asking for yet another brand, unless it brings a clear and unique proposition,” Russo said. “I assume Geely has learned a lot from its previous failed multi-brand strategy which they’re unlikely to repeat.”

Li purchased Volvo Cars from Ford Motor Co in 2010 for $1.5 billion and has rejuvenated the Swedish automaker with an $11 billion modernization and investment program. The company unveiled the XC90 in 2014, the first model wholly developed under Geely’s ownership, followed by the revamped S90 luxury sedan.

Bloomberg

Click here to read the article at China Daily

Disrupting the Disruptors: The Merger Of Uber China And Didi Chuxing

Forbes, August 8, 2016

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I co-authored this article with my colleague Edward Tse, CEO of Gao Feng Advisory Company

On August 1st, Didi Chuxing (Didi)and Uber China announced a plan to merge their businesses in China, effectively placing Didi in control of their combined ride-hailing business for the China market.  This deal has attracted a great deal of attention since the announcement, raising a number of critical questions which we address in this article, including:

  • Did the China government play any role in the merger?
  • Can foreign tech companies compete in China?
  • Did Uber China win or lose?
  • Could Uber China ever have become a dominant player in China if it decided to press ahead?
  • What will this deal mean to Uber and Didi’s global strategies?

China has become the epicenter of a disruptive wave of digital innovation, and the rapidly evolving landscape of partnerships for mobility services is a clear indication of this.  For sure, we can look forward to even more exciting developments in the future.

Click here to read the article at Forbes.com

This car company ripped off Land Rover. Here’s why it might get away with it.

The Washington Post, July 19, 2016

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(LEFT) The 2017 Range Rover Evoque Convertible is debuted during the
Los Angeles Auto Show in Nov. 2015, in Los Angeles (AP Photo/John Locher).
(RIGHT) Jiangling Motor Co.’s Landwind X7 SUV is displayed at the
16th Shanghai International Automobile Industry Exhibition in April 2015
(Tomohiro Ohsumi/Bloomberg).

The cars are basically indistinguishable unless you hone in on the exact stitching of the seats or the fine arrangement of the headlights. Even then, changes are so minuscule, it’s nearly impossible to realize one of these vehicles costs $41,000, and the other just $21,700.

British luxury carmaker Jaguar Land Rover and Chinese carmaker Jiangling will go to court this summer in China to settle their dispute over what exactly is fair game in the auto industry. Can Chinese companies continue to get away with “shanzhai” — a Chinese term for prideful counterfeiting — of car designs?

Range Rover’s Evoque and Jiangling’s Landwind X7 are practically the same car to the untrained eye.

It’s a judicial battle that pits Western car companies against the burgeoning Chinese and East Asian market, and one that has captured the attention of economists, auto industry insiders and intellectual property experts.

The Chinese consumer market has grown exponentially since late 1980s economic reform. Some of the largest growth has come from auto companies, both state-owned and foreign joint-ventures. In 2008, when the market was still in its relative infancy, Chinese buyers purchased 9.4 million cars. By 2015, they bought 24.6 million.

And as the industry rapidly expands, Western carmakers, from the United States’ “big three” to German luxury brands to other imports, have rushed to gobble up market share, in the process flooding China and its comparably fledgling car companies with new vehicle models.

The best way Chinese manufacturers could compete was “shanzhai,” reverse engineering foreign products as a way to enter the market without overwhelming research expenditures.

“In the automotive industry, you can copy the look of the the vehicle, but the skills required for the highly complex integrated systems, if you’re a Chinese company, you don’t have engineers with long career histories with that capability,” said Bill Russo, managing director of Shanghai-based Gao Feng Advisory Company.

“So you shorten the life cycle by purchasing or licensing or reverse engineering. And this is not a Chinese-invented cycle.”

Imitation, as the idiom goes, is the sincerest form of flattery. But it’s also a great way to make money, something merchants have realized for hundreds of years.

The United States in the 1800s, for example, lacked authors who could stack up against British literary giants, so American publishers reprinted British works without paying heed to copyright laws, said Mark Bartholomew, a professor of law at the University at Buffalo.

Benjamin Franklin, the Benjamin Franklin, even published pirated works. William Wordsworth and Charles Dickens came to America to complain about it. The United States only stiffened its intellectual property laws once its industries, both mechanical and intellectual, matured by the end of the century.

“It boils down to economics,” Bartholomew said. “The Chinese economy doesn’t have this same tradition of the manufacturers like Ford or Hyundai or any of the folks who are making these cars. So if you don’t have these copyright laws, why pay if you can get away with it?”

China does have intellectual property laws, though, and it’s a signatory to international intellectual property agreements. But China’s laws are applied inconsistently, and even the international rules aren’t always enforced in China and elsewhere around the world.

Some countries recognize certain kind of intellectual property, but not others. For example, special door handles on a car: Are those a decorative creative works, or do they have some functionality? Creative works get copyrights. Objects with usefulness get patents. And states, not companies, are the arbiters of what objects get what protection.

It leaves multinational companies rushing to strategically secure their rights all over the world. In large established markets like the United States and Europe, car companies apply for protection right away. But in a developing market such as China — its auto market was until recently considered “developing” — those applications only became priorities over the last decade.

Smaller Chinese companies without strong market presence used past administrative delays as windows of opportunity. If intellectual property protection hadn’t been filed domestically, it was convenient to reverse engineer the product. And if the protection was filed sloppily, companies reverse engineered cars largely without the risk of prosecution.

Even when U.S. auto makers file their paperwork in the right way, China car companies enjoy remarkable home field advantage in their courts. More mature courts in Beijing or Shanghai might have judges more willing to hear out foreign companies, but rural courts or those in factory-heavy districts often show interest to local industry, including counterfeiters.

And so the copycats started coming. Honda fought a Chinese carmaker for 12 years for copying the CR-V. The Chery QQ riffed off the Chevrolet Spark in 2005. Shuanghuan’s CEO SUV model copied BMW’s X5 in 2007. Shuanghuan’s Noble copied Mercedes Benz’s Smartcar in 2009. The Lifan 320 copied the Mini Cooper Countryman in 2012.

Hummers and Porsches and Rolls Royces have been copied. Even Ferraris have been copied, and were shipped to Spain where they were seized by police.

“Anything known to mankind can be faked, even a Ferrari,” said said Frederick Mostert, past president of the International Trademark Association and a research fellow at University of Oxford and Peking University. To prove a point, he bought one and traveled with it and shows pictures of it at speaking engagements.

Ferraris, though, aren’t the counterfeits major car companies worry about. Any buyer looking for a luxury car is in the market to spend luxury car kind of money. That’s especially true in China, where consumers are extremely brand conscious, experts say. Nobody who wants a Land Rover is going to be fooled by a Landwind.

“People who buy [the Landwind] can’t afford the Land Rover,” said Russo, the Geo Feng consultant. “And of course if you’re the company that’s out there, you’re going to be pissed off about it, but nobody is getting confused.

“Get in that Landwind and drive it. I’ve driven many, many cars in China. It’s not the same car.”

As much as the counterfeits are inconveniences, it may be the lawsuits to stop the practice that may hurt Western automakers moreauto industry experts say. The Chinese public doesn’t like to see its industries get bullied. Plus, if one copycat company gets shut down, others pop back up. Western companies end up playing legal whack-a-mole with money they could use to make newer, better cars, said Kenneth D. Crews, a Los Angeles-based attorney and adjunct professor of law at Columbia University.

That kind of strategy actually trains customers to look for newer models and not settle on older ones that are more easily counterfeited. More mature Chinese car companies have grown up and away from copying other models. Once they made enough money to invest in research and original design, they did.

“These companies have grown to become more than just copycats,” Russo said. “They’re advanced and they’re innovative.”

Click here to read this article at washingtonpost.com

Tencent-Backed Company Aims to Launch Smart-Electric Cars Before 2020

 The Wall Street Journal, July 12, 2016

Tencent-Backed Company Aims to Launch Smart-Electric Cars Before 2020 - WSJ Safari, Today at 1.01.49 PM

A BMW electric car at a Beijing car show in April; Future Mobility has hired about 50 engineers from car makers including BMW for its smart-electric-vehicle project. PHOTO: REUTERS

Chinese auto startup Future Mobility seeks eventually to sell several hundred thousand luxury vehicles a year

BEIJING—An auto startup backed by internet giant Tencent Holdings Ltd. plans to start selling premium electric cars globally by 2020, joining other Chinese car makers in taking aim at an increasingly crowded luxury market.

Four month-old Future Mobility Corp. seeks eventually to sell several hundred thousand fully electric, highly automated, China-built vehicles a year. The company is also backed by Chinese luxury-car dealer Harmony New Energy Auto and Foxconn Technology Group, which assembles iPhones for Apple Inc. Apple has been working on its own autonomous electric car.

Deep-pocketed tech companies have backed a wave of new auto companies in China, where a drive to cut fuel consumption and pioneer the auto industry of the future has encouraged startups. Analysts, citing increasing competition and uncertainty over a subsidy-fueled boom in electric vehicles, question how such ambitions can be turned into reality.

“Our target is to create the first Chinese brand which is premium and internationally successful,” Carsten Breitfeld, chief executive of Future Mobility, told The Wall Street Journal in an interview on Tuesday. He said the company aims to sell cars in China, Europe and the U.S. and to compete with Audi AGBMW AG and Daimler AG’s Mercedes-Benz, which combine for three quarters of China’s luxury-car market.

The company will soon complete its first round of fundraising, Mr. Breitfeld said.

Last year China’s industrial regulator amended rules to allow nonautomotive companies to invest in the electric-car industry, which Beijing has subsidized to the tune of tens of billions of dollars.

Internet giants jumped right in. China’s annual motor show in April showcased smart vehicles powered by software from online-shopping company Alibaba Group Holding Ltd. and search provider Baidu Inc. Last month, a Baidu executive said that the company plans to mass produce a driverless car within five years.

Tencent, China’s biggest social-network company, has a research team working on technology that can be used in automated cars, according to a person familiar with the matter. For now, its involvement in Future Mobility—beyond its minority stake as a financial investor—is limited, the person said.

Tencent is an investor in another electric-car maker, NextEV Inc., whose other backers include Sequoia Capital.

The companies are poaching talented engineers from global auto and technology giants, and setting up research centers in the West. Future Mobility has hired 50 engineers from BMW, Mercedes-Benz, Tesla and Google.com. Within 12 months it will have about 600 engineers globally, said Mr. Breitfeld, formerly the project manager for BMW’s i8 plug-in sports car.

He said the company will either build its own plant or partner with an existing auto maker to assemble cars. It has research and development units in Munich and Silicon Valley and is building its headquarters in Shenzhen, where Tencent is based.

Some analysts question how quickly such a new company can achieve its aims. “Several hundred thousand premium cars from an unknown brand sounds like a stretch,” said Bill Russo, managing director at Gao Feng Advisory Co. and former head of Chrysler’s North East Asia business. “Building a brand and competing with the likes of the premium car makers is very difficult. And the competition will not stand still.”

Robin Zhu, a senior analyst at U.S. research company Sanford C. Bernstein, noted that demand for electric vehicles in China is minimal except in big cities where they’re exempt from certain restrictions that apply to their gasoline-fueled counterparts.

The number of electric and hybrid cars and buses sold in 2015 was four times that of a year earlier—but at 331,000 vehicles was a small, subsidy-driven tally in a market where total sales exceeded 24 million.

Alibaba, SAIC Motor launch internet car Roewe RX5, SUV with YunOS operating system

CNBC, July 6, 2016

BillCNBC

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Two of China’s biggest household brands have teamed up to create what they call “the world’s first mass-produced car on the internet.”

E-commerce giant Alibaba and SAIC Motor, the country’s biggest car manufacturer, will launch the Roewe RX5 on Wednesday, a sports utility vehicle (SUV) featuring smart technology from Alibaba’s operating system YunOS. First unveiled at the Beijing Auto Show in April this year, the RX5 is reportedly YunOS’ first auto partnership.

YunOS was created in 2011 and is used by several prominent Chinese smartphones brands, including Meizu and Duowei.

In April, Alibaba said YunOS was the third-biggest operating system (OS) in the world with 40 million users as of 2015, adding that it would soon replace Apple’s iOS as the second biggest in the mainland, according to local media reports at the time. Google’s Android remains China’s most popular OS.

Connectivity, electric power and autonomous driving were the three principal themes for the auto market as it increasingly merged with the internet industry, Bill Russo, managing director at Gao Feng Advisory Company, told CNBC’s “The Rundown“.

The RX5 is a clear example of how car makers are employing big data to improve driver’s daily needs and mobility habits.

SAIC and Alibaba have promised that the car’s data capabilities would transform stressful driver experiences, such as negotiating traffic or undertaking maintenance, into enjoyable moments.

“The RX5 will be able suggest alternate routes in the case of road closures or traffic as well as a more personalized experience in the car,” Russo said.

Already the world’s largest car market, China is set to become a key adopter of these trends, but there’s already heavy competition to win the hearts of mainland consumers.

Apple’s recent $1 billion investment into ride-hailing app Didi Chuxingled many to question whether the two companies would produce an internet-based vehicle, while South Korea’s Kia Motors has partnered with Google to tap the latter’s Android Auto operating system. Meanwhile, Chinese online video firm LeEco has developed a self-driving concept car, called the LeSEE.

In fact, the real rivalry in the car market was no longer between car makers, Russo said.

“It’s a battle for the connected-car operating system,” he said, pointing to YunOS, iOS and Android Auto as examples.

When it came to China, Alibaba and SAIC’s biggest competitor was Apple, he added.

Apple’s investment in Didi was a strategic move to position a potential Apple car in China, Russo continued, noting that while Google had invested in Uber, it was not a threat because the search engine remains blocked in the mainland.

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CORRECTION:

This report has been updated to reflect that YunOS is an operating system, while Aliyun is a cloud computing system.

Click here to read the story at CNBC.com