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

Bill Russo to Chair “Future Cars” Panel at September Automotive Roundtable

Shanghai, China, September 1, 2016

Inbox Microsoft Outlook, Today at 2.33.36 PM

As the development of automotive electronics and telematics is gaining speed, intelligent car applications are gradually and successfully integrated in our daily lives.

The numerous advantages of latest technologies do not only include an improved driving experience or enhanced safety, but also the evolution towards less fuel consumption and more sustainable driving.

Therefore, the September Automotive Roundtable in Shanghai will discuss promising trends of future cars in China and its latest applications in several areas, such as Driver Assistance Systems, Autonomous Driving, Automotive Multimedia & Communication, Connected Vehicles and Online Services in China.

– in cooperation with Autoköpfe –

– Strategic Partner: EU Chamber –

When: Thursday, September 01, 2016, 6 pm

6:00 – 7:00 pm: Registration and Networking Dinner, incl. buffet dinner

7:00 pm: Presentation:

By Mr. Roger Looney, VP of Vehicle Engineering – Vehicle Systems Development, including Electric Drivetrain & Autonomous Driving, Qoros

Roger Looney has 30 Years experience in automotive tooling, engineering and design and over 20 years experience in Asia. Current goals include utilizing that knowledge and experience to develop world class, exciting vehicles of the future.
Specialties: Automotive Product Development and Launch, Electronics, Hybrid & EV development, Asia Mergers and Acquisitions, Six Sigma, Product Development, New Business Development in Asia, Team Building in China, Low Cost Country Sourcing, Contract Development and Negotiation in China, Korea, Japan.
 

7:20 pm: Presentation: Integrated Mobility, Transportation Redefined

By Mr. Bevin Jacob, Head of Biz Dev, APAC, Continental Intelligent Transportation Systems

An ‘Internet of Vehicles’ enthusiast, Bevin Jacob envisions building and incorporating “Mobility Services” to improve Consumer’s digital lifestyle. He has 16 years of active involvement in building “Connected Solutions” for Mobile, Telematics and Multimedia Devices. Bevin enjoys working with highly motivated teams to bring about disruptive innovations in connected vehicles business.

7:40 pm: Panel discussion: Future Cars

Moderator: Mr. Bill Russo, Managing Director, Gao Feng Advisory Company

Bill Russo is the Shanghai-based Managing Director and the Automotive Practice leader at Gao Feng Advisory Company. His over 30 years of experience includes 15 years as an automotive executive, including 12 years of experience in China and Asia. He has also worked nearly 12 years in the electronics and information technology industries.  He has worked as an advisor and consultant for numerous multinational and local Chinese firms in the formulation and implementation of their global market and product strategies. While the Vice President of Chrysler North East Asia, he successfully negotiated agreements with partners and obtained required approvals from the China government to bring six new vehicle programs to the market in a three-year period, while concurrently establishing an infrastructure for local sourcing and sales distribution. Mr. Russo has a Bachelor of Science in Chemical Engineering from Columbia University in New York, and a Master of Science in Manufacturing Systems Engineering from Lehigh University in Bethlehem, Pennsylvania. Mr. Russo is a highly sought after opinion leader on the development of the China market and the automotive industry.

Panel additionally includes:

 Ms. Vanessa Moriel, Managing Director Asia, Liase Group

Vanessa Moriel is Managing Director Asia with the LIASE Group, a global retained executive search firm & talent management consultancy that specializes exclusively in automotive and mobility companies. 

Ms. Moriel has been providing CEO & top management placements and succession expertise for global automotive companies across the Asia-Pacific region for close to 15 years. She previously worked for Schlumberger, the London Consulting Group, Frito-Lay (Pepsico) and Fiducia Management Consultants. 

She holds a Bachelor’s degree in Chemical Engineering for the Institute of Technology and Superior Studies of Monterrey and has completed an Executive Program in Strategy and Organization from the Stanford Graduate School of Business.

Mr. John Shen, Managing Director, Accenture Strategy, Greater China

Mr. Shen Jun has more than 20 years of industry and management consulting experience. He is now Managing Director with Accenture Strategy Greater China. Before he joined Accenture, Mr. Shen was Senior Partner at Roland Berger Strategy Consultants and has been leading the Automotive Competence Center (ACC) in Greater China. Mr. Shen has served many leading MNC/local companies in automotive industry, covering a wide range of topics. Mr. Shen has in-depth knowledge and expertise in the functional areas of corporate strategy, merger and acquisitions, operational benchmark, organizational restructuring and sales and marketing management (especially on branding, channel optimization, pricing and new product launch), etc.

8:10 pm: Q&A

Where: Courtyard by Marriott Shanghai Jiading 上海绿地万怡酒店

            3101 Huyi Highway, Jiading District, Shanghai 201821, P.R.C
上海嘉定区沪宜公路3101号

~~~~~~~~~~~~~~~~~~

Fee: 250 RMB/Person for annual spinsors, incl. buffer dinner, free flow soft drinks and beer

350RMB/Person for non-sponsors, incl. buffet dinner, free flow soft drinks and beer

(Please note only cash or pre-payment via bank transfer is accepted)

Hotel Room Information: The participants of Automotive Roundtable can enjoy the special rate of the hotel room: Superior Room: 550 RMB/night (incl. 1-2 breakfast). To book the room, please email to:

Ms. YILIA JIANG

Assistant Sales Manager

cy.shajd.sales.exe3@courtyard.com

Tel: 86.21.3991.6816,  mobile: 139.1831.2521

and indicate rate code of “Automotive Roundtable”.

Language: English

Seats are limited! If you like to attend, RSVP via email

kathrin@g-i-events.com or lucia@g-i-events.com by August 30, 2016.

In case you register but cannot attend, please cancel your reservation before August 30. Otherwise you will be invoiced for the event.

Thanks to all our sponsors and our media partner!

If you are interested in sponsoring, speaking or participating, please feel free to contact us at: info@g-i-events.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.

Bill Russo to Deliver Keynote Speech at Electric & Hybrid Vehicle Technology Conference

Novi, Michigan, September 13-15, 2016

TBS&EVT 2016 overview.pdf (page 1 of 3) Preview, Today at 3.32.03 PM

Bill Russo will be a keynote speaker at the plenary session of the Electric & Hybrid Vehicle Technology Expo (Day 1, Track 1) on September 13 in Novi, MI on the topic China Drives the Future of Personal Mobility.

 

China’s Path to Electrification vDraft6 Microsoft PowerPoint, Today at 3.38.27 PM

Topic Outline: 

  • China has emerged as the world’s largest automotive market since 2009 and remains the growth engine of the global automotive industry.
  • The world has entered a new era since 2008, with over half of the world population now living in cities, and this increasingly urbanized world challenges the established set of paradigms for personal and commercial transportation, especially in the densely populated urban centers in China.
  • The unique context of China’s urban transportation challenge, the high rate of adoption of mobile device connectivity, combined with the rapid and aggressive introduction of alternative mobility and ownership concepts will compress the time needed to commercialize new and innovative solutions and business models for personal urban  mobility
  • Shaped by several forces, China is already the largest EV market in the world and will continue to grow exponentially.  Several scenarios will be described that are shaping the market dynamicsgovernment policies, and competitive landscape.

Click here to view the conference flyer:  TBS&EVT 2016 overview

Click here to view the Day 1, Track 1 Agenda

Bill Russo to Chair Panel Discussion on the Internet of Vehicles at TechCrunch

Shanghai, China, June 27, 2016

Venue:
West Bund Art Center
2555 Longteng Ave, Xuhu

Time:  11:10-11:40am

The Big Data Behind the Internet of Vehicles

TechCrunch_Shanghai_2016___TechCrunch

The traditional automotive industry, where technology innovation has primarily been focused on powertrain and safety systems, must now contend with new forms of mobility services that are transforming the manner in which we experience the product.   The particular conditions of urbanization, an ever-expanding middle class population, pollution, and congestion are uniquely challenging in China, which may create opportunities for innovative new mobility solutions for China.

The conventional hardware-centric, sales-driven, asset-heavy and ownership-based business model with sporadic customer interactions is now competing with a connected, on-demand, and often personalized mobility experiences.  This new form of “connected mobility” is driving new technologies in the world of navigation, analytics, driver safety, driver assistance and information virtualization.

Innovations such as these, originating from both traditional OEMs and new mobility solutions platforms, many of whom are Chinese, could pave the way to a an entirely new business model for China’s auto industry.

Panel Members:

Dr. Markus Seidel, Vice President, BMW Group Technology Office China

Ms. Celine Le Cotonnec, Head of Connected Services, Digital and Mobility for PSA Peugeot Citroen China

Mr. Bevin Jacob, Head of Business Development, APAC, Continental Intelligent Transportation Systems

Moderated by:

Mr. Bill Russo, Managing Director, Gao Feng Advisory Company

When Big Apple Meets Little Orange

Forbes Asia, May 23, 2016

Click here to read the full article at Forbes.com

by Bill Russo, Edward Tse and Alan Chan

Apple CEO Tim Cook with Didi Chuxing President Jean Liu Photo Courtesy of Didi Chuxing
Apple CEO Tim Cook with Didi Chuxing President Jean Liu
Photo Courtesy of Didi Chuxing

On May 13, Apple announced a USD 1 billion investment in China’s leading on-demand mobility (ODM) service, Didi Chuxing (Didi).  Didi’s legal name in Chinese means “little orange”, and an internal announcement made to Didi’s employees literally welcomed the apple to the orange family.

To understand the logic of this investment, it is important to first understand the popularity and explosive growth of such services in China – along with the role that Didi plays inside the expanding ecosystems of its largest investors, Tencent and Alibaba.

Originating from separate taxi-hailing services in 2012, Didi is now a one-stop mobility solutions provider that provides a variety of services including taxi-hailing, private-car hailing, on-demand bus, peer-to-peer ride-sharing, designated driver and test driving.  Didi currently has 14 million registered drivers, completing over 11 million rides per day in over 400 cities across China.  With over 87 percent share of the Chinese private car-hailing market, Didi is far larger than all the other ODM service providers in China, including Uber.

As a global leader in smart connected device technology, Apple has been exploring opportunities to expand the reach of its iOS ecosystem.  It is an “open secret” that Apple is working on its own vehicle program, code-named Project Titan, investing billions in R&D and poaching talent from leading automakers including Tesla, General Motors and Ford.  As a manufacturer of intelligent devices, Apple is a “serial disruptor” of industries ranging from media to telecommunications, and views smart transportation as a key target.

The logic of this collaboration is quite evident: the premier global smart device maker (Apple) has set its sights on disrupting transportation in partnership with the dominant mobility services platform (Didi) in the world’s largest car market with the largest number of mobile internet users.   Through this partnership, Apple and Didi will have the opportunity to shape the connected mobility ecosystem for China as well as the rest of the world.

A Collaboration Model for Connected Mobility Innovation

The traditional owner-centric business model of the car industry is being disrupted by shared ODM services.  As a result, we have witnessed the rapid emergence of a user-centric business model served by mobility services platforms dominated by Uber and Didi.  Apple’s investment in Didi will ensure that they will be able to access China’s dynamic internet and mobility ecosystem.

Apple gains a Chinese partner not only with a strong mobility services brand, but also with a proven market sensing capability and keen understanding of how to address mobility pain points.  Apple can leverage this to launch a car that delivers the perfect connected mobility user experience, and this can be leveraged both inside and outside of China.  Didi will benefit from being affiliated with the world’s premier smart device company, and also gains a major global strategic partner to help penetrate into overseas markets and compete globally with Uber.

While not the primary motivation, Apple’s investment in Didi can also help foster goodwill in China, signaling a willingness on the part of Apple to collaborate with leading Chinese companies.  The importance of maintaining such goodwill was underscored recently when Chinese regulators shut down access to some of Apple’s online media stores, triggering concerns among investors.  In addition, Didi expects to turn a profit next year and eventually list their shares, which could provide Apple with a fast return on their capital investment.

The recent loss of momentum in Apple’s profit growth and share price performance has raised concerns among investors that the Apple may not be able to recover its shine.  The deal with Didi brings hope that Apple can disrupt the auto industry in the world’s largest auto market.

From Connected Mobility to Connected Lifestyle

However, connected mobility is just one segment of the larger “connected lifestyle” opportunity.  The convergence of disruptive technologies such as autonomous driving, artificial intelligence and virtual reality will have the power to transform our everyday lives.  The implications of this go far beyond mobility, which is just one of the spaces where we will be connected through a smart device or platform.

Cars will increasingly become smart, connected, electronic and autonomous – and increasingly accessed through a mobility service.  A logical interpretation of Apple’s strategy is that it views the car as a “third place” after home and office where people are connected to the internet.  Its investment in Didi should be viewed as a strategic opportunity for Apple to capture a larger share of a mobility user’s time online, thereby generating recurring revenue.  By creating a more personalized mobility solution, Apple also hopes that the users of such a mobility service would eventually prefer an Apple hardware platform when they are on wheels.

More than just a taxi-hailing service, Didi is a technology-enabled platform. With advanced algorithms to match supply and demand, surge pricing and real-time route optimization, Didi is efficiently moving people and things by maximizing the utilization rate of vehicles.  More importantly, with big data and machine learning capabilities, Didi’s competitive advantages are constantly evolving and being reinforced.

Like WeChat and Alipay, Didi has emerged as one of the few “Super Apps” holding a vital part of Chinese consumers’ daily connected lifestyle.  These Super Apps typically start by addressing a major pain point and eventually evolve into ecosystems of connected lifestyle services for potentially billions of users.  They possess valuable “big data” on a user’s mobility patterns that are of high commercial value.

“Apple + Didi” vs. “LeEco + Yidao”

In fact, the “Apple + Didi” model is already being experimented by LeEco, a leading Chinese internet media company founded (as LeTV) in 2004.  Last year, LeEco purchased a 70 percent stake in another Chinese car-hailing app Yidao Yongche.  LeEco is also the principal investor in Faraday Future, a U.S.-based electric vehicle startup that is featuring a “subscription model” where users can enjoy the flexibility and convenience of mobility on-demand without having to own the vehicle.  Apple’s recent monthly paid iPhone subscription program indicates that they may already be considering such a business model for other smart devices.

The usage-based model effectively eliminates the problem of up-selling features to individual owners by allowing the businesses that generate revenue from the device to cover the cost for adding the technology.

LeEco’s vision is to cover all aspects of consumer’s connected lifestyle by establishing an extensive business portfolio with mobile internet, e-commerce, sports, internet finance, entertainment and others.  It is rapidly building a vertically-integrated ecosystem comprised of “Content, Devices, Platforms and Applications” offering premium user experience across multiple screens (i.e. mobile, tablet, computer, cinema, TV and cars).

Disrupt or Be Disrupted

Going forward, we expect to see increasing levels of co-opetition, and more cross-border, cross-industry collaborations:

Co-opetition: Google is an early investor in Uber while Baidu is a strategic investor in Uber China.  Alibaba is a major investor in Didi.  Meanwhile, Ant Financial Services Group, Alibaba’s affiliate that runs Alipay and other financial services, has partnered with Uber to enable Alipay globally.  Apple’s deal with Didi could potentially challenge both Uber and Google.  In addition, Didi is a member of an “anti-Uber alliance” including Lyft in the U.S., Grab (formerly GrabTaxi) in Southeast Asia, and Ola in India.  With Didi’s aspiration to become a global company, Apple could eventually extend strategic partnerships to other companies in the alliance as well.

Cross-border: China (Beijing) and U.S. (Silicon Valley) will be the leading innovation hubs for connected mobility and beyond.  The Chinese government is keen to promote electric vehicles adoption and digital transformation to improve urban mobility and address environmental issues.  China could leapfrog and become the epicenter for connected mobility innovation on a global scale, with its massive population serving as a fertile ground for technology commercialization, as well as connected lifestyle.  Permutations and combinations of cross-border alliances for connected lifestyle will create tremendous value for Chinese internet users as they trade-up for better products and services.

Cross-industry: The boundary between automotive and internet technology industries will become increasingly blurred.  General Motors, as one of the most forward-looking incumbents, has formed a strategic partnership with Lyft, acquired self-driving start-up Cruise Automation and established a new business division named Maven to experiment with new mobility services. Other automakers are also catching up by piloting ODM services, including Daimler’s Car2Go, Ford’s Go!Drive and Ford Pass, BMW’s DriveNow, and Audi On-Demand.  We have already seen emerging “disruption clusters” in China, including (1) LeEco, Faraday Future, Aston Martin and Yidao Yongche, (2) Future Mobility, Tencent and Foxconn, (3) NextEV, Tencent and JD.com, and (4) Alibaba and SAIC.

A Partnership to Reimagine Mobility

China is at the epicenter of a disruptive wave of automotive innovation and beyond.  The mobility experience is being redefined with innovative usage-based business models.  Incumbents and new players must re-evaluate their connected mobility strategies with a new lens for delivering the perfect connected mobility experience.  Past success in the old automotive game is not a guarantee for future success.  In fact, one would surmise that past legacy could often become a barrier for swift and innovative moves going forward.  It is time for the leading companies from China and Silicon Valley to join forces to re-imagine mobility and the marriage between Apple and Didi could offer the promise of doing just that.

CCTV Global Business: Bill Russo Interview on Electric Vehicles and Urban Mobility

China Central Television Global Business Program, April 25, 2016

A link to Bill Russo’s appearance on CCTV’s Global Business program.  Topics discussed were New Energy Vehicles and Urban Mobility.  Auto show news starts at 18:50. Mr. Russo’s interview starts at 27:55.

Click here to watch the program at CCTV.com

CCTV News: Bill Russo Discusses China’s Auto Market and New Energy Vehicles

China Central Television China 24 Program,, April 25, 2016

 

China 24 04-26-2016 03:15 - CCTV News - CCTV.com English Safari, Today at 10.38.42 AM

 

A link to Bill Russo’s appearance on CCTV’s China 24 program.  Topics discussed included New Energy Vehicles, China’s auto market outlook, and vehicle exports.  Beijing Auto Show story begins at 8:25, and Mr. Russo’s appearance starts at 11:42.

Click here to watch the program at CCTV.com

 

 

The Race to Produce China’s Tesla

Bloomberg News, April 22, 2016

 
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William Li isn’t your typical, boundlessly optimistic Chinese tech entrepreneur. Yes, the founder of startup NextEV Inc. has big plans to disrupt China’s electric car market, the financial backing of venture capital powerhouses Sequoia Capital and Hillhouse Capital and considers Tesla Motors founder Elon Musk an inspiration.

That said, he rates his chance of succeeding in China’s fast-moving car market at a whopping 5 percent. He also thinks most of the new business models for electric cars being bandied about by tech companies will end up in the junk yard.

“There’s an exponential gulf between creating a concept car and mass production, and then to actually sell them,” Li said. “Tesla has broken a lot of new ground and inspired a raft of Internet companies to follow, but most have no idea what they’re facing.”

Such hard-nosed realism is probably wise. As global auto executives gather for the 2016 Beijing Auto Show, a torrent of money is pouring into the nation’s alternative energy vehicle market, which includes electric vehicles, plug-in hybrids and fuel-cell cars. In a country with some of the worst urban air pollution on the planet and a rapidly urbanizing populace, the market’s upside potential seems big to conventional car companies and tech startups jumping in.

The Chinese government is promoting what it considers a strategic industry with big subsidies for companies and consumers. It wants new energy vehicle sales to top 3 million units a year by 2025, versus 330,000 in 2015. Premier Li Keqiang in February urged local government and industry players to speed up construction of charging facilities to accommodate 5 million electric vehicles by 2020.

Right now, the electric car business is dominated by BYD Co., a Shenzhen-based automaker, 9-percent owned by Warren Buffett’s Berkshire Hathaway Inc., that has a 18 percent share of China’s new energy vehicle market. At the Beijing show, BYD will be touting its new entry-level sports-utility vehicle called The Yuan, as in the 13th-century Chinese dynasty, that starts from 209,800 yuan ($32,368) for the hybrid version.

Tesla is a player, too, in China, where it sells its Model S and Model X, though the Palo Alto, California-based electric carmaker would like to be a far bigger one. For the first three quarters of 2015, the company sold 3,025 vehicles in China, which compares to 11,477 units of delivery by BYD. The Chinese company, also sells its electrics in U.S., Germany and Japan and surpassed Tesla in May to become the world’s biggest maker of new energy vehicles last year.

The success of Tesla in the U.S. and the development of driver-less car technologies by Apple and Google are also attracting all manner of technology companies into the Chinese auto market, the world’s biggest. Some envision cars developing into “mobility service platforms,” in which passengers receive data and services in addition to being moved from point A to B.

That could play to the strengths of technology companies and the huge and growing Chinese auto market could be the perfect laboratory in which to experiment with new services and business models, according to Bill Russo, managing director at Shanghai-based auto consultant Gao Feng Advisory.

Russo compares today’s autos to the mobile phones of a decade ago, when apps started to gain in popularity. “As cars become mobility service platforms, the technology on board will become more sophisticated,” he says. Technology companies could contract out auto production to make vehicles, but then earn recurring revenue by providing car owners with data products and Internet services. “Apple makes money not just on the device, but on all the services that flow through it,” he said.

It’s definitely a vision in search of details, but plenty of technology companies are jumping into the fray. Electronics contract manufacturer Foxconn Technology, Internet service portal Tencent and China Harmony New Energy Auto have set up a joint venture to build alternative energy cars. The partnership is designed to leverage different strengths: Foxconn’s component supply chain, Tencent’s infotainment and telematics systems that could improve vehicle’s connectivity and Harmony Auto’s after-sales network for electric vehicles. In January, Daniel Kirchert, head of Infiniti in China, joined the alliance.

Chinese tech billionaire Jia Yueting also has automotive ambitions. The chairman and founder of Le Holdings Co., which makes Web-enabled televisions and smartphones and offers cloud and e-commerce services, is a major investor in Los Angeles-based Faraday Future, which is building a 900-acre factory near Las Vegas, Nevada. LeEco, which has developed its own electric vehicles, is preparing to apply for a production license in China and also plans to manufacture its cars overseas.

Given all the new entrants, it is easy to understand why NextEV founder Li is wary of the competition, even with financial backers like Sequoia. Li has hired former Cisco Systems Inc. Chief Technology Officer Padmasree Warrior to lead development and U.S. operations and has inked a deal to outsource production to Anhui Jianghuai Automobile Co.

“They’re realistic, they’re seasoned, smart people with a lot of money and they’re unafraid of the challenge,” Michael Dunne, head of strategy and investment advisory firm Dunne Automotive Ltd., said of NextEV. “In fact, they seem to be embracing it.”

Li’s early life didn’t fit the profile of a tech entrepreneur. He spent his early years herding cattle in a mountain village in Anhui province, where he grew up with his grandparents. A talented student, he left the rural China to attend the prestigious Peking University, where he earned a degree in social sciences while supporting himself with part-time work like selling office supplies to Apple Inc.

Before starting NextEV, Li co-founded and built Bitauto Holdings Ltd. into the country’s biggest provider of online car pricing data for dealers. The company went public in New York in 2010. Li and Bitauto have invested in more than 40 companies in China including used-car business, financing services and car-sharing platform such as Didapinche.

Li says NextEV is an opportunity to rethink the electric car as not just a transportation vehicle but as a digital platform.

“Traditional auto manufacturers treat the car as 95 percent transportation tool,” Li said. “Tesla’s cars have perhaps 20 percent to 30 percent content that are not related to transportation,” he said referring to such things as mobile connectivity and touchscreens that access car maintenance services.  “My aim is to boost that to more than 50 percent.”

NextEV has produced an electric Formula E series racer, but hasn’t yet disclosed its plans for launching an electric car aimed at the consumer market. Meantime, the race is engaged by a gaggle of tech companies to prove they can be players in Chinese autos.

Click here to read the article at www.bloomberg.com