- Autoline TV
- Internet Premiere: Thursday, 6/23 @ 4:00pm ET
- Detroit Public TV air date: Sunday, 6/26 @ 10:30am ET
- Michael J. Dunne of Dunne Automotive, James Chao of IHS Automotive Asia-Pacific & Bill Russo from Gao Feng Advisory Company, join John McElroy on the floor of the Beijing Auto Show to discuss the, up to now, booming Chinese automotive market and where it goes from here.
The Financial Times, June 19, 2016
Under Geely, the carmaker is back in profit and selling well in China. But is it big enough to compete with its rivals?
There is nothing exceptional about the shiny grey chassis on display in western Sweden. Its wheels, suspension and engine are all where you would expect to find them. But it stands out because of what it represents: tangible evidence of progress in one of the most daring industrial stories of recent years.
Known as compact modular architecture, it is a shared platform destined to underpin the small vehicles made by both Volvo Cars, the Swedish premium manufacturer, and its owner Geely, the Chinese mass-market brand. “This is a bridge between the two companies,” says Mats Fagerhag, head of the joint venture that created the platform. “Everything is nice words before you start a common project and face hard facts.”
Bill Russo’s quote:
“The most important thing [Geely] has done is to help Volvo become a China-centric company,” says Bill Russo, a Shanghai-based consultant. “Geely has shifted Volvo from being a marginally global company situated in Scandinavia to being a global one centred in China.”
Shanghai, China, June 27, 2016
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.
Mr. Bill Russo, Managing Director, Gao Feng Advisory Company
Bloomberg News, June 1, 2016
SAIC Motor Corp. is putting finishing touches to a sport utility vehicle that features software developed with Alibaba Group Holding Ltd., marking the first foray into the connected-car business by two of China’s biggest companies.
The model will be available from September and be the first of a new category of vehicles for the automaker that’s fully integrated to the internet, according to Gu Feng, SAIC’s financial controller. Among its functions, the Roewe RX5 SUV will be able to suggest alternative routes with road closures or traffic congestion, provide directions to the nearest gas station when fuel is running low, and deliver music to one’s tastes, the company said.
“Connected cars are the inevitable trend of the auto industry,” Gu said in a phone interview, declining to give a price for the new model. “We worked with Alibaba instead of Google or Apple because the latter looks at the car as a piece of hardware to install their software. If they are successful, in future they may just get a Ford or GM to produce cars for them, so we don’t see as much synergy in working with them.”
The connected car is the latest battleground for automakers and technology companies such as Google Inc. and Apple Inc. for digital revenue and control of the vehicle dashboard. Customer spending on such technologies will reach an estimated 40.3 billion euros ($45 billion) this year, with safety and autonomous driving functions the biggest categories, according to a study by Strategy&, a consulting group of PwC.
In choosing Alibaba’s Yun OS, SAIC is promoting a Chinese alternative to connectivity systems offered by Google’s Android Auto and Apple’s CarPlay. While Hyundai Motor Co. introduced Android Auto to its Sonata sedan last year and will roll it out to other models, Toyota Motor Corp. is involved in the open platform SmartDeviceLink championed by Ford Motor Co. and another initiative called MirrorLink.
“SAIC and Alibaba hope to grow the pie with services and even if they share it, it’s a bigger pie for both,” said Bill Russo, Shanghai-based managing director at Gao Feng Advisory Co. “The car is becoming the third space, after home and office, where people expect to be connected to the internet — and an increasing number of such collaborations are happening among traditional automakers and internet technology companies.”
Among its other plans, SAIC Motor is considering:
- Listing some of the company’s units, such as its Chexiang.com platform, overseas with Hong Kong as the preferred market
- Starting a second venture fund in Silicon Valley after investing the first $100 million on projects such as new-energy vehicles and electronic commerce
- Building cars in India, possibly through acquiring existing plants
- Selling left-hand drive cars to other European markets besides the U.K.
- Building up its Hong Kong asset management unit over the next three to five years and issuing bonds
SAIC, which has manufacturing joint ventures with GM and Volkswagen AG, is seeking to boost deliveries of its own Roewe and MG brands and expand overseas even as it navigates the trend toward autonomous driving. The company’s sales have risen sevenfold in a decade to 5.9 million vehicles last year.
“The automobile is about to change fundamentally and it could run without an engine, gearbox, even a driver,” said Gu. “This is the most challenging moment for me and I feel the pressure every single day.”
The Financial Times, May 31, 2016
As China revs up its shift to a consumption-led growth model, policymakers are trying to get more mileage out of a sputtering part of the economy: the used car market.
In most developed economies, sales of second-hand cars outnumber those of new vehicles by about two to one but the opposite is true in China, the world’s largest market for new vehicles.
“The majority of the vehicles in China are still owned by the first owner; secondary-owned vehicles are the minority,” says Bill Russo, a Shanghai-based consultant. “That is unlike any other country.”
To help stimulate the nascent market, Beijing recently introduced a policy that allows old cars from big cities to be resold in smaller ones, a move that will take full effect at the end of May. Previously, to protect local businesses, government regulations prevented cars being sold across provincial borders.
This will “open the pipeline”, according to Mr Russo. “Cars [in China] may be born in upper-tier regions but they tend to retire in lower-tier regions,” he said.
Though huge, China’s car market is in its infancy. Until 1984 it remained technically illegal for individuals to own a car and low personal wealth meant sales did not take off until the mid-2000s.
The country’s transition into a “new normal” of annual economic growth below 7 per cent following years of double-digit rises is potentially painful for carmakers accustomed to breakneck demand for new models. For used-car sales, however, newly thrifty consumers and a growing number of ageing vehicles are a promising combination.
Rising supply, combined with government support and moves by manufacturers to encourage car-owners to upgrade sooner, promises to see the second-hand market grow at more than double the speed of that for new cars, according to Alex Klose, founder of JZWcars.com, a used car website.
The entrepreneur, Volvo’s former chief executive for China, set up his company in 2014 with the aim of becoming a trusted platform for a nascent market. “One thing holding people back from buying a used car is not knowing whether they can trust it,” he says.
Mr Klose is not alone in seeing the potential for second-hand cars. A flock of online platforms and technology start-ups have recently entered the sector.
“Everyone thinks that the space for growth in second-hand cars is very big — they think the sector is a very big cake,” says Li He, founder of Limiku.com, a used-car financing platform.
The government sees the used-car market as a way to boost consumption among those with lower incomes.
Mr Li, a tech industry veteran, believes online platforms are helping to improve the supply chain — a job he says big distributors are failing to do.
“The vast majority [of major distributors] have a second-hand car department but in reality they don’t have standards for the whole supply chain, including pricing and evaluation,” he says.
Big carmakers are now encouraging their dealerships to stop dragging their feet, however, as they seek a new source or profit for dealers.
Over-dependence on a single stream of revenue has sparked tensions between manufacturers and dealers in the past, when distributors asked for compensation for their losses during slow sales periods.
As dealerships look to evolve their business models, there is one set of people who are watching with trepidation: the original used-car salesmen.
Dong Wei has been selling used cars from his shoebox office at Beijing’s oldest and largest “old car market” since the 1990s.
“Before they [big dealerships] didn’t bother with second-hand cars, because the profits for new cars were so high,” he says. “Now they are starting to change their model.”
Mr Dong is nervous that disruption in the sector means the glory days for small-time salesmen are over.
“Before, the market would be full of people,” he says waving a hand at the unattended rows of shiny cars roasting in the heat. “These days, people prefer to go online.”
Forbes Asia, May 23, 2016
by Bill Russo, Edward Tse and Alan Chan
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.
AFP Newswires, April 25, 2016
Maserati Levante sport-utility vehicles are offloaded in Hangzhou, eastern China’s Zhejiang province ©- (AFP/File)
Chinese drivers are rushing to buy sport-utility vehicles in an “arms race” for safety on the country’s hair-raising roads, analysts say, as SUV sales hit the gas despite a slowing economy.
SUV purchases in the world’s number one car market surged more than 50 percent in the first quarter of 2016 from a year earlier, while sedan sales fell 9.3 percent, according to industry data.
“The primary reason is a fairly primitive one,” says Robin Zhu, auto analyst at Sanford C. Bernstein in Hong Kong. “It’s about survival.
“It’s about people’s desire to feel safe on the roads. Because [SUVs] are bigger, and in low-speed collisions, from a consumer psychology point of view, you’d rather be the one in the SUV.”
Another 50 models new to the Chinese market will go into production in the country this year, according to consultancy IHS Automotive, many of them to be showcased at the Beijing Auto Show opening Monday.
China’s roads have a reputation for danger, with footage of horrific traffic accidents from the country’s ubiquitous surveillance cameras broadcast daily on television.
The World Health Organization estimates that more than a quarter of a million people are killed on the country’s roads every year — over four times official government statistics.
Death rates remain comparatively high because of inadequate rescue systems and poor treatment, according to a study by Chinese researchers published last year in medical journal The Lancet.
A businessman in an SUV in Beijing, who asked not to be named, told AFP he chose it “because it makes me feel safe when I drive”.
Bill Russo, automotive chief of advisory Gao Feng in Shanghai, said the appeal of an SUV comes from a feeling of “command” and the perception “you can deal with anything the road throws at you”.
Rising road rage on China’s congested streets has also made SUVs more popular, said Zhu. Traffic police handled more than 17 million cases of driver aggression last year, according to public security ministry statistics.
“There’s a bit of an arms race going on,” he explained.
– ‘Sedans on stilts’ –
Analysts say that while consumers in the US and other countries may be drawn by the image of SUVs going off-road in rough conditions, in China most of them are based on ordinary cars.
“The so-called SUVs today are sedans on stilts,” said Zhu.
More Chinese buyers have turned to SUVs as their fuel economy has improved and a drop in oil prices have made the vehicles more affordable to run.
The most popular models are “small, car-based crossover types”, said Russo, noting that “the vast majority” have engines smaller than 2.0 litres.
“They’re economical SUVs, they’re not big, gas-consuming environmentally unfriendly vehicles,” he said.
Chinese buyers are content with small engines in large bodies, said Michael Dunne, CEO and strategist at Dunne Automotive in Hong Kong.
Ten years ago educated urbanites preferred sedans because larger vehicles were associated with rural people and construction workers, he said. But in the last two years, SUVs have become “fashionable”.
“They’re not that interested in acceleration, passing, speed. They’re more interested in the look,” said Dunne.
But the boom may not last, executives warn. “Even if now the SUV is popular, in the future there will probably be a change,” said Toyota China head Hiroji Onishi, suggesting that minivans could see their appeal widen.
At the same time, while higher margins in the SUV segment have made the vehicles a driver of profits for foreign automakers, increasingly popular cheaper local models have made significant inroads in claiming market share.
Chinese companies such as Great Wall, Changan and Wuling have become national brands, Russo said, and in March six of the 10 top-selling SUVs were from Chinese firms.
According to association data, Chinese carmakers accounted for 60 percent of SUV sales in the first two months of the year, compared to only 20 percent of sedans.
The best-selling SUV in China, the Haval H6, costs from 88,000 yuan ($13,600) according to the company’s website. The best-selling foreign-brand SUV, the Volkswagen Tiguan, go for 200,000 yuan and up on major car sales portal Autohome.
The Financial Times, April 24, 2016
Carmakers are gearing up for a year of intense competition in China as the world’s largest auto market by sales faces both slowing growth and changing tastes in the form of electric cars and sports utility vehicles.
This time last year, global executives were bracing for a potential slowdown and a “new normal” of moderate sales growth to match a slowing mainland economy.
Fears became reality when the stock market rout last summer in China sent consumer sentiment into a nosedive. Sales dropped year on year from June to August, before a tax cut for small-engine vehicles in October propped up sales to finish 2015 with a growth rate of 4.7 per cent year-on-year.
After a bumpy run, global carmakers at the biennial Beijing International Automotive Exhibition, which opens on Monday, are keen to prove they are well positioned in China’s rapidly maturing market.
Shifting consumption patterns have made SUVs one of the country’s most promising growth segments, with sales surging by more than 50 per cent in the first quarter of 2016 compared with the same period last year, in contrast to sedan sales which declined 1 per cent.
That mirrors the growing popularity of gas-guzzling SUVs elsewhere in the world as fuel costs have followed the price of oil lower.
The shift has helped established a beachhead for local automakers, according to Bill Russo, a Shanghai-based consultant.
“For sedans, multinationals had the advantage but for utility vehicles seven out of the top 10 models are Chinese brands” thanks to their lower costs, he says. The trend is here to stay, he adds: “Utility is like a drug — once you have it, you’re hooked”.
The move has put pressure on foreign brands as local carmakers have also improved their quality significantly in recent years, according to analysts.
“Multinationals are in a dilemma over whether to cut costs to compete,” says Yale Zhang, a Shanghai-based consultant.
Domestic automakers are looking to expand on their newly privileged position. IHS Automotive predicts production of 50 new SUV models to be launched in China this year and says that 78 per cent of these will be domestic brands.
Global automakers are already revving up efforts to regain ground by bringing their most successful top-end models from home. Ford, for instance, will use the Beijing Expo to launch its F-150 Raptor in China, a popular pick-up truck in the US, as part of efforts to “inspire a generation of off-road enthusiasts,” says John Lawler, chief executive of Ford Motor China.
But bigger is not the only way carmakers hope to do better in the Chinese market: electric cars also remain a priority for any auto brand looking to get ahead.
While they are still only a small segment of the overall market, greater numbers of “new energy vehicles” are a strategic goal for Beijing even if the demand is not yet there.
The government is aiming for yearly sales to top 3m units by 2025, after growth of nearly 300 per cent in 2015 to 330,000.
Li Keqiang, China’s premier, said in February that the government would step up support for the electric vehicle industry by shifting funds away from subsidies for production to rewarding companies that come up with new technologies and hit sales targets.
“Everyone is under pressure to show their latest NEV [new energy vehicle] models” at the Beijing Expo, says Janet Lewis of Macquarie. But margins will remain low for electric vehicles for a few years to come, she adds. “Right now, selling NEVs is not a profitable proposition.”
A survey from McKinsey suggests that electric vehicles are gaining traction, helped by government policies that make it easier to get a licence plate for electric vehicles in China’s largest cities.
As in the SUV segment, foreign leaders still face local competition. LeEco, a Chinese tech company, became the latest to enter the space, last week announcing a new all-electric concept car christened LeSEE.
“These [technology] companies are almost on par with Silicon Valley,” says Clemens Wasner at EFS, a consultancy. “In a western country their entry into the market would not be economically viable, but in China it might be.”
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