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 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 dynamics, government policies, and competitive landscape.
West Bund Art Center
2555 Longteng Ave, Xuhu
The Big Data Behind the Internet of Vehicles
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.
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
Mr. Bill Russo, Managing Director, Gao Feng Advisory Company
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.
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.
China Central Television China 24 Program,, April 25, 2016
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.
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.
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 revolutionizing mobility needs. The conventional hardware-centric business model is being superseded by an emerging connected, on-demand, and personalized mobility services business model. Many Russell Reynolds Associates’ clients are top industry players contending intersection of the Automotive and Internet industries where innovations is rapidly shaping the future of mobility.
This event was a collaboration between Russell Reynolds Associates and Gao Feng Advisory Company (www.gaofengadv.com), a pre-eminent strategy and management consulting firm with roots in China. Gao Feng has been helping clients solve their toughest business and management issues — issues that arise in the current fast-changing, complicated and ambiguous operating environment. The topic of this session is one of the most challenging issues facing the automotive industry, and China is rapidly becoming the incubator for disruptive business model innovations focused on mobility. However, most firms are at a loss about where to find the best talent to drive their disruptive ideas on innovation and transformation.
The discussion was focused on the future of mobility in China, and the implications for leaders who must cope with the disruptions in the China market. The event was held on 31 March 2016 in Shanghai China. This event series is designed to bring senior executive representatives of the China Automotive industry together to hear from and interact directly with the leaders in disruptive innovation and mobility transformation.
Topics for discussion:
Defining the disruption in the China context – What are the disruptive trends in today’s mobility world?
Helicopter view of the competitive ecosystem – What is the chaotic landscape look like and how will it evolve?
How should incumbents respond? Disrupting or being disrupted? – What are the internal capabilities to build? How to work with local start-ups?
China for the world – Will China lead to world’s development and innovation in Connected Mobility?
Mr. John Larsen, Director, Smart Mobility, Ford Motor Company Asia Pacific
Dr. Markus Seidel, Vice President, BMW Group Technology Office China
Ms. Christina Xie, Senior Director, Strategy Department, Didi Chuxing
Mr. Jack Cheng, Co-Founder, Executive VP, NextEV
Mr. Kevin Harris, Co-Founder, Russell Reynolds Associates
Mr. Bill Russo, Managing Director and Automotive Practice Leader, Gao Feng Advisory Company
In 2013, Mike McQuary, CEO of Wheego Electric Cars, was in a bind. The maker of small electric vehicles needed expansion funds.
But with high-profile electrified vehicle makers like Fisker and Coda struggling, the appetite in the U.S. for investing in electrified vehicle makers was slight.
Since he was visiting China regularly to work with suppliers, McQuary made an appointment with GSR Ventures, a venture capital company based in Beijing. It was a good move. GSR now helps fund Wheego.
“They have a long-term view of the new-energy sector and EVs in particular,” McQuary says of his Chinese investor.
Despite early optimism in the U.S., the market for EVs and the technology that goes into them never has really taken off. In 2015, U.S. sales of plug-in hybrids and EVs actually dropped 5.2 percent to 116,099 units, according to Inside EVs.
Government support for the sector has remained tepid. That has left companies that bet on steady growth in demand for electrified vehicles struggling to survive.
In China, however, the government remains committed to growing plug-in hybrid and EV production and sales. That has given Chinese investors and Chinese companies the confidence to sink millions of dollars into U.S. companies with electrification technology.
FDG Electric Vehicles, a Chinese company, built a 2.6 million-square-foot plant in China to produce medium-duty electric vans through its joint venture with Smith Electric Vehicles. The JV, called Prevok, plans to launch the vans in the U.S. this year.
Photo credit: PREVOK PHOTOS
Focus on China
Often, Chinese investors want to focus on the China market.
GSR was “happy to invest in us as long as we turned our eyes to China,” McQuary says.
Though it has dealers and sales in the U.S., the Atlanta-based company now focuses on selling its small EVs — used by municipal governments, at airports and as delivery vehicles — in China.
He can’t discuss sales volume or where the vehicles are manufactured, McQuary says. But the company is still in business, which it might not have been without the Chinese investment.
“China seemed like a much bigger chance for Wheego to be a big success,” he says. “The subsidies they offer over there, and the government support and pressure for EVs to be successful, really trumps what they are doing in the U.S.”
Smith Electric Vehicles also found a savior in China. The Kansas City, Mo.-based company manufactures medium-duty, commercial EVs. It sold around 800 EVs in the United States from 2010 to 2014 to customers including DHL and Coca-Cola, but it couldn’t make money at such low volumes.
It needed cash and a bigger market so it could scale up. That came from Hong Kong-listed FDG Electric Vehicles, a Chinese company with two EV manufacturing plants in China as well as battery production and r&d operations. Smith, whose electric vans have logged millions of miles on U.S. roads, could provide added EV manufacturing expertise.
The Chinese company “had the resources, the money, the engineers [and] the government support, but they had no practical working knowledge” of how to produce an EV, says Bryan Hansel, former CEO of Smith.
China-U.S. joint venture
In 2014, FDG invested some $20 million directly in Smith, says Hansel. Then in May 2015, it invested another $15 million to form a joint venture, named Prevok. Hansel is Prevok’s CEO.
The JV is producing a jointly designed, medium-duty electric van at a 2.6 million-square-foot plant in the east China high-tech hub of Hangzhou. Prevok plans to launch the van in the U.S. this year.
It will be imported initially, moving to local production as volume increases, Hansel says. Demand eventually will be global, he predicts.
Smith likely would not have had the luxury of such an undertaking if it worked with U.S. investors, Hansel says. With FDG, “they said, “Get started guys, and have fun.'”
The Chinese government’s consistent financial support and policy push for development and sale of plug-in EVs underpins Chinese investors’ longer-term view.
China has declared that it will have 5 million “new-energy” vehicles — a category including battery-powered EVs, plug-in hybrids and hydrogen fuel cell EVs — on the road by 2020. In practice, the recent focus has been on battery-powered EVs.
“In China, I went from a period of no interest to one of a lot of interest.”KY Chan
CEO, Protean Electric
China’s central and local governments have combined to offer consumers subsidies that can surpass the equivalent of $16,000 per vehicle.
That is more than half the price of the best-selling plug-in hybrid EV in China, the BYD Qin PHEV, which starts at the equivalent of $31,192. The best-selling pure EV in China, the Kandi Panda, costs $23,139, says Yale Zhang, managing director of consultancy Automotive Foresight in Shanghai.
In the U.S., federal subsidies top off at $7,500. Some states offer additional subsidies.
The Chinese government’s largesse is not bottomless, however. Subsides for electric passenger vehicle purchases are scheduled to decrease, ending in 2021.
And despite subsidies, Chinese drivers have not enthusiastically embraced EVs. The lack of charging stations is one reason.
Sales of EVs did surge in 2015, however, more than quadrupling to 331,092 vehicles.
The growth in sales was largely due to local government purchases, says Zhang.
The central government in Beijing ordered Chinese cities to meet new-energy vehicle purchase targets, he says. That caused a surge in production and sales. The percentage of new-energy vehicle sales accounted for by commercial vehicles rose to 45.5 percent in 2015 from 38.4 percent in 2014, according to Automotive Foresight.
Also, Beijing in February ordered local governments to make 50 percent of all new fleet vehicle purchases new-energy vehicles, up from a 30 percent mandate.
There are other possible policy boosts for passenger EV sales. On-demand ride-hailing companies are growing quickly in China. Didi Kuaidi, China’s largest, completed 1.43 billion rides in 2015.
At some point, Beijing will require those companies to use EVs, predicts Bill Russo, a managing partner at Gao Feng Advisory Co. in Shanghai.
“If you want a higher penetration and market share of electrification, you can require these on-demand companies to electrify their fleets,” he says. “I can see a quick acceleration of electrification.”
Regardless of demand, automakers in China will need to produce EVs to meet fleet fuel economy mandates, which call for 5 liters of fuel consumed per 100 kilometers driven, or 47 mpg, by 2020.
KY Chan, CEO of Protean Electric Inc., says that is one reason he found a lot of interest in China for his company’s in-wheel electric-drive systems. Protean, which has offices in Troy, Mich., the U.K. and Shanghai, has investors including GSR and Jiangsu New Times Holding Group, located in eastern China.
“No matter what, even if they are losing money [producing EVs], the OEMs will have to produce a number of new-energy vehicles in order to lower the overall [fuel economy] below 5 liters,” Chan says.
The central government’s EV push has made China a fertile market for fundraising. “The amount of resources flowing into [the EV sector] is just unimaginable,” he says. “In China, I went from a period of no interest to one of a lot of interest.”
Chan figures Chinese investors have a stronger stomach for the cash burn rate of a startup like Protean. It has talked to U.S. companies about being acquired, but “we would become a burden to their balance sheet,” he says.
Perhaps the highest-profile Chinese investment in U.S. electrification companies is Wanxiang’s acquisitions of battery-maker A123 Systems and luxury plug-in hybrid manufacturer Fisker Automotive, renamed Karma Automotive.
Privately owned Wanxiang Group Corp., one of China’s largest automotive suppliers, comes from a very traditional background; it got its start producing driveshafts and roller bearings.
Why did it acquire the two U.S. companies?
“China is committed to producing more and more electric vehicles,” says Pin Ni, president of Wanxiang America Corp. “Wanxiang wants to participate in that growth, and we saw an opportunity to do so by acquiring A123 and Fisker.”
If Wanxiang hadn’t acquired Waltham, Mass.-based A123 in 2013, says CEO Jason Forcier, “the technology would have been sold off to the highest bidder.”
Instead, Chinese ownership enabled A123 to double its capacity, and the company is generating positive cash flow, Forcier says.
A123 is focusing on low-voltage batteries and working with all the major European automakers on 48-volt systems. But China still accounts for a big chunk of the battery-maker’s growth.
“That speaks to the focus of the Chinese government to incentivize these vehicles,” says Forcier. “We haven’t seen that in the U.S.”
“A lot of trust’
Wanxiang acquired A123 customer Fisker, whose problems imperiled A123, in 2014, paying $149.2 million. Wanxiang beat out Hong Kong investor Richard Li, who also was bidding for the electric automaker. The now-Karma Automotive is trying to revive itself from a headquarters in Southern California.
Karma sees the most opportunity in China, which is the world’s largest luxury car market. But it will sell cars in the U.S., as well, says Chief Marketing Officer Jim Taylor.
That kind of U.S. presence is important. Chinese consumers know their country’s long history of shoddy and copied products. Plus, China’s early EV efforts often focused on low price rather than high quality.
“You need to bring in technology that has been certified as non-Chinese,” Gao Feng’s Russo says.
Even in luxury-hungry China, Karma could be a tough sell. “Luxury [EVs] do not have strong potential, because rich people need the premium car’s brand first,” Automotive Foresight’s Zhang says.
But Chinese investors don’t mind taking “long bets” on their investments, Taylor says.
Wanxiang Chairman Lu Guanqiu “has put a lot of trust in our executive team,” he says. “If we were American-owned, that rope would be a lot shorter.”
China’s efforts to take the lead in electric vehicle development will focus on battery technologies and public vehicle fleets, in a bid to kick an over-dependence on subsidies, according to officials.
Premier Li Keqiang vowed to “step up support” for the electric vehicle industry at a meeting of the State Council on Wednesday by shifting funds from supporting EV production to rewarding companies that produce new technologies and hit sales targets, according to the government website.
Principal targets include achieving a “revolutionary breakthrough” in battery technologies and using EVs for taxi and bus fleets in major cities.
China considers the development of its EV market a key strategic goal, and policy has encouraged auto producers to focus on fuel replacement in the hope that such technologies will allow them to be competitive abroad while reducing air pollution at home.
Subsidies for producers and buyers alike helped sales rocket to more than 330,000 vehicles in 2015, up fourfold from 2014 but still shy of Beijing’s goal of half a million.
Growth-by-subsidies cuts both ways, however, and reports in Chinese media of widespread “fraudulent” claims by companies that take government money without redirecting their efforts towards the expensive process of EV technology development prompted the Finance Ministry to announce in January that it would phase out subsidies by 2021.
“The age of subsidising manufacturers is whittling away,” said Bill Russo, managing director at Gao Feng, a Shanghai-based advisory. The government has “decided to focus the development down to areas where China can develop some degree of competitive leadership,” he said.
Sourcing and manufacturing battery-related technology, a key component of electric vehicles, is one area in which China has a natural advantage due to its large — and carefully guarded — store of rare earth metals such as lanthanum, which is used to make hybrid batteries.
The success of companies such as US-based Tesla Motors has been as much due to battery technologies as to motors and recharging components, and China is keen to create homegrown champions that can compete in this crucial area. Currently most major EV producers in China are joint ventures with foreign carmakers.
Mr Li’s statements also included a push to use public transport and institutions as a conduit for boosting EV sales, with the mandated percentage of new energy vehicles purchased by public institutions rising to 50 per cent from a previous 30 per cent.
The prospect of updated public transport fleets being encouraged to use only electric vehicles also raises the possibility of an uneven playing field developing, with local manufacturers given priority in bidding for deals.
“When you look at the taxi fleet in any city, they are pretty much buying for the home team,” said Mr Russo. “The local manufacturer has the advantage.”
The very British car manufacturer — best known for its association with that other perfectly proportioned British export, James Bond — just inked a deal with China’s LeEco to make an electric version of the luxury car by 2018.
Aston Martin made the announcement Thursday at a press conference in Frankfurt, adding that the cars would be manufactured at the company’s flagship plant in Gaydon, England.
LeEco, a Beijing-based tech company, said in a statement, “We have been targeting the highest standard in the auto industry in terms of design, R&D and manufacturing of our electric cars.”
China is proving to be a driving force in the creation of electric vehicles, not just providing the parts but also the innovative technology. Analysts predict that “China will be the epicenter for electrification of the auto industry globally,” said Bill Russo of Gao Feng Advisory Co., who estimates that China will invest 100 billion yuan ($15.5 billion) on new-energy vehicles by 2020.
The new RapidE car will be based on the Rapide S model, which currently retails at around $200,000. No details were disclosed as to the projected price point for the RapidE. No word either on whether it will include revolving license plates, front-wing machine guns, or an ejector seat.