Consumer demand, availability of batteries are some of the manufacturers’ concern
Trefor Moss and Mike Colias
SHANGHAI—The world’s top auto makers are gearing up to build electric cars in China, despite concerns about market demand and the potential their technology could be compromised in a market with weak safeguards for intellectual property.
Companies including VolkswagenAG , General Motors Co. and Toyota MotorCorp. set out plans for electric-car production in China at this week’s Auto Shanghai vehicle expo, bowing to pressure from Beijing.
China is the world’s largest market for electric vehicles, or EVs, and auto makers who don’t set up production here could find themselves shut out of it.
Even so, some admit privately to being anxious about opaque regulations governing battery production and technology transfer, and misgivings about near-term demand for battery-powered cars.
GM, for example, confirmed it would build a Buick version of the plug-in hybrid Chevrolet Volt in China with its local partner, SAIC Motor. But Mark Reuss, GM’s product-development chief, sounded less than bullish when asked if there was genuine demand for EVs in China.
“I think there could be,” Mr. Reuss said.
Ultimately, the indispensability of China’s auto market meant it was “manifest destiny” that foreign auto makers would agree to set up electric-car plants in China sooner or later, said Bill Russo, Shanghai-based managing director at consultancy Gao Feng Advisory.
TeslaInc., which didn’t attend Auto Shanghai, is now almost alone in having not yet lined up to confirm plans to manufacture electric cars in China. Even Toyota, which previously rejected the EV technology in favor of hybrids and fuel-cell vehicles, said it would ramp up EV development.
An estimated 350,000 EVs were sold here last year, roughly half the global total. Most analysts expect the market to grow especially quickly as China moves to reduce air pollution from gas-powered vehicles and offers incentives for consumers to buy EVs.
Auto makers are unsure about demand, however, fueling concerns that they may need to offer big discounts to move inventory. Automotive Foresight, a Shanghai-based research company, estimates 650,000 to 2 million electric and plug-in hybrid vehicles will be sold in China in 2020, out of an estimated 26 million car sales over all that year.
At the auto show, Toyota’s senior managing officer, Hiroji Onishi, told reporters he felt “skepticism [about] whether the consumers would still want to buy EVs” once subsidies disappear, which is expected to occur about 2020.
Industry caution isn’t Beijing’s concern, however. Starting next year auto makers expect they will be required to locally produce a specific number of electric or plug-in hybrid vehicles proportionate to their total output, according to foreign car firms involved in ongoing negotiations with the government.
Building cars locally makes it far easier to generate sales, since China slaps a 25% tariff on imported cars. But, profits from locally built cars must be shared with a Chinese joint venture partner.
Last month the European Chamber of Commerce in Beijing attacked Chinese industrial policies, questioning a new EV manufacturing law that calls for foreign auto makers to demonstrate their green-car technology before they can build them in China.
The law could just be a ploy to get foreign car makers to reveal technology secrets to their local Chinese partners, the chamber warned. China’s industry and information technology minister Miao Wei rejected that interpretation, and assured foreign manufacturers last month that they would not be compelled to hand over intellectual property.
Volkswagen China Chief Executive Jochem Heizmann said he was sufficiently reassured by Mr. Miao’s remarks to push ahead with an EV “offensive” involving the local production of eight plug-in hybrid or pure electric models, including a mass-market vehicle set to enter production next year through a new joint venture with Anhui Jianghuai AutomobileCo. Mr. Heizmann said Volkswagen aims to sell 1.5 million green cars in China by 2025.
GM’s target is more modest, at 500,000 by 2025. Even so, GM’s commitment now contrasts with the reluctance voiced by then-chief executive Dan Akerson back in 2011. Mr. Akerson said “technology risks” meant GM would hold back from building the then-new Volt in China, even if it meant missing out on government incentives.
Batteries are among the technology risks that some auto makers say still remain in China. Chinese regulations require that EVs built here use batteries made in China, but as yet no foreign maker of EV batteries has received certification.
Earlier this month Ford MotorCo. said it, too, would start building EVs in China. The company aims to use batteries produced by PanasonicCorp. , said Trevor Worthington, Ford’s vice president for product development in Asia. He dismissed concerns expressed privately by some auto makers that China might shut out foreign battery makers, saying that would contravene World Trade Organization rules.
Bill Russo, managing director at Gao Feng Advisory, discusses Ford introducing pickup trucks in China and the outlook for the Chinese auto market. He speaks to Bloomberg’s David Ingles on “Bloomberg Markets.”
The U.S. auto maker plans to build the Mondeo Energi plug-in hybrid and a new all-electric SUV in China
Ford Motor will start manufacturing electric vehicles in China next year. PHOTO: ANDREY RUDAKOV/BLOOMBERG NEWS
By TREFOR MOSS
SHANGHAI— Ford MotorCo.F -0.35% said Thursday that it would start building electric cars in China to tap into a state-sponsored boom in green-energy vehicles.
In doing so, the Detroit-based company signaled that it had swallowed industry concerns about bringing proprietary electric-car technology to China, despite misgivings among foreign auto makers about intellectual-property protection in the world’s largest auto market.
“It’s manifest destiny” for foreign car makers to get past those fears and start building electric cars in China, said Bill Russo, managing director of Gao Feng Advisory, a Shanghai consulting firm.
Mass uptake of electric vehicles is set to happen in China first, he said, “and none of those companies can afford not to be relevant to the future of their industry.”
Ford’s local joint venture Changan Ford Automobile Co. will start building the Mondeo Energi plug-in hybrid vehicle in China next year, with a new all-electric sport-utility vehicle set to follow within five years, the company said in a statement.
Electric powertrains will be manufactured locally by 2020, and by 2025 all of Changan Ford’s vehicles will come in electrified versions, it said.
“The time is right for Ford to expand our EV lineup and investments in China,” said Chief Executive Mark Fields.
China is already the world’s largest market for electric vehicles, with over half a million electric or hybrid cars sold there last year, according to the China Association of Automobile Manufacturers.
The government is encouraging their uptake by heavily subsidizing electric cars through payments to manufacturers, which are then able to sell EVs more cheaply. It is also far easier to obtain a license plate for an EV than for a traditional gasoline car in congested cities like Beijing and Shanghai.
Local authorities have also set ambitious targets for electrifying bus and taxi fleets over the next few years, and for the rollout of EV charging facilities.
There could be as many as 32 million new energy vehicles in China by 2025, according to Gao Feng Advisory—a total that is likely to be a substantial share of the global fleet, with uptake of EVs in the U.S. and Europe happening more slowly.
Yet while most gasoline cars sold in China are built by foreign auto makers operating through local joint ventures, almost all of the electric cars sold in China last year were made by Chinese companies operating without foreign input.
Silicon Valley electric-car maker TeslaInc. was the one notable exception: Without disclosing how many cars it had sold, the company said in a March 1 filing that its 2016 revenue topped $1 billion in China for the first time last year, leading auto-industry analysts to estimate China sales of around 11,000 imported vehicles. Chinese tech company Tencent HoldingsLtd. last week revealed it had taken a 5% stake in Tesla.
But Tesla, like most other foreign auto makers, has so far held back from building EVs in China. Beijing had sought to spur EV manufacturing by telling auto makers that a certain proportion of the cars they build in China would have to be electric in the near future, although officials have recently signaled that those moves may be delayed amid complaints from the industry and from foreign governments.
Imported cars incur a 25% tariff, making them less competitive, and so auto makers naturally want to build in China, said Michael Dunne of Hong Kong-based Dunne Automotive. But they have been holding out for some relaxation of China’s strict joint-venture rules before committing to large-scale EV manufacturing in China, he said.
Foreign car makers and the Chinese authorities have been “sitting around the poker table”, said Mr. Dunne.
It’s the foreign car makers who appear to have blinked.
In March, Buick, a unit of General MotorsCo. , announced plans to start building plug-in hybrid and electric vehicles in China. Last year, GM said it wanted to have 10 new energy vehicles in China by 2020, though it has yet to reveal any plans to start manufacturing its highest-profile EV, the Chevrolet Bolt, in the country.
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.
Chinese Internet giant LeECO Holdings Ltd unveils its internet electric battery driverless concept car ‘LeSEE’, during a launch event in Beijing, on April 20, 2016
Beijing: Chinese manufacturers and internet giants are in hot pursuit of their US counterparts in the race to design driverless cars, but the route to market is still littered with potholes.
While Google has been working on autonomous vehicles for at least six years, with the likes of BMW, Volvo and Toyota in its wake, more recently Chinese businesses have entered the race, from internet search giant Baidu to manufacturer Changan.
Last week, ahead of the Beijing Auto Show opening on Monday, two self-driving Changan cars made a mountainous 2,000 kilometre (1,200 mile) journey from Chongqing in the southwest to the capital in the country’s first long-distance autonomous vehicle test.
Another Chinese internet giant, LeECO, is also venturing into autonomous technologies, unveiling Wednesday in Beijing an electric car that can park itself and be summoned to its owner’s location via smartphone.
And late last year Baidu tested China’s first locally designed driverless vehicle, a modified BMW, with a 30 kilometre ride through the streets of Beijing.
Despite China’s relatively late entry to the field, analysts believe the country could become a key market for driverless vehicles thanks to a more favourable regulatory and consumer environment.
The Boston Consulting Group (BCG) forecasts that global sales of driverless cars will reach 12 million by 2035, with more than a quarter sold in China.
Vehicles which automatically adjust their routes in response to real-time traffic information could solve chronic gridlock in China’s major cities, BCG’s Xavier Mosquet told AFP.
“If they believe this would ease traffic, Chinese authorities will do all they can to promote the development of this technology and then its use,” he said.
Public concerns over the safety of driverless cars are far lower than elsewhere, according to a survey by Roland Berger consultants in 2015, which found 96 per cent of Chinese would consider an autonomous vehicle for almost all everyday driving, compared with 58 per cent of Americans and Germans.
In a country notorious for accidents, the promise of better safety through autonomous technologies could also be appealing.
The ultimate prize, say analysts, will be when mass transport firms such as taxi-hailing giant Uber, or its Chinese rival Didi, can deploy huge fleets of robot taxis.
“The real payoff for truly driverless technology will come when cars on the road are no longer owned by people, but are owned by fleet management services,” said Bill Russo, managing director of the consultancy firm Gao Feng.
“That’s where you want to think about taking the driver out of the equation. Mobility on demand is hugely popular here.”
In the Roland Berger survey, 51 per cent of Chinese car owners said they would prefer to use robot taxis rather than buy a new vehicle themselves, compared with 26 per cent of Americans.
With a ready market, China may soon become the top location for companies to refine driverless technology.
Swedish manufacturer Volvo, owned by China’s Geely since 2010, this month announced plans to test drive up to 100 of its vehicles on Chinese roads this year.
Changan, a partner of Ford, is set to roll out commercial autonomous vehicles for motorways from 2018, while mass production of driverless city cars is projected to begin in 2025.
‘Does the car choose?’
Baidu, meanwhile, says it will launch self-driving buses by 2018, which will operate on fixed routes in select cities in China.
Like Google, the internet giant already owns detailed road maps and has experience in electronic security, and a company spokeswoman told AFP it had had “very positive feedback” from the government.
But analysts are more cautious, predicting slow-moving autonomous vehicles will not appear in towns until at least 2020.
Production costs were still too high to make a robot taxi fleet viable, BCG’s Mosquet said.
“There are still many questions to be resolved” before fully autonomous vehicles can be put into public use, said Jeremy Carlson, a senior analyst for IHS.
He pointed to “chaotic traffic situations” on roads shared with cyclists and pedestrians, and less-than-adequate infrastructure.
Technology will be the first to see solutions, he said, but that still left regulation and issues around liability and insurance to be addressed.
For some, there are moral dilemmas as well.
“If you have someone jumping out in front of an autonomous car, does the car have to choose between killing that person, or swerving and crashing and killing the passenger?” asked Robin Zhu, senior analyst at Sanford C. Bernstein.
“If your car could choose to kill you, would you get in it?”
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
The Future Perfect Series: Urbanization and Mobility
Urbanization. A Growing Middle Class. Pollution. Grid Lock. How are these factors shaping mobility in China? What solutions are being developed to ease mobility in China? How do you see mobility impacting and shaping lives today and in the future?
Beijing Bookworm, in cooperation with Ford Motor Company, invites you to participate in a discussion with experts from across industries on the future of mobility in China and beyond. It will be an evening of learning, discussion and idea sharing.
Topics for discussion:
China’s rapid urbanization and innovative urban mobility solutions for Chinese megacities
China’s growing new middle class and new white space of urban mobility
China’s ambitions for a sustainable future
Mr. John Larsen, Mobility Director for Ford Motor Company in Asia Pacific
Dr. Hai Jiang, Associate Professor of Industrial Engineering at Tsinghua University
Dr. Kevin Mo, Managing Director of Climate and Sustainable Urbanization at The Paulson Institute.
Mr. Bill Russo, Managing Director, Gao Feng Advisory Company
Many car makers posted declining sales in China in February. Above, a SAIC-GM-Wuling Automobile manufacturing plant in Qingdao, Shandong Province. Photo: European Pressphoto Agency
By Christina Rogers
General Motors Co.and Ford Motor Co.both posted steep sales declines in China last month on a year-over-year basis, part of a wider slowdown attributed in part to a drop-off around the Lunar New Year holiday.
Sales for both U.S. car makers fell 9% in February, the companies said, following a string of monthly gains driven by new government subsidies introduced late last year to stimulate demand for fuel-efficient cars.
China’s auto market has bounced back from a slump in the summer of 2015 due to the incentives, which can be applied to 70% of cars sold in the country. But the recent sales declines raise a potential red flag, signaling the world’s largest new-car market could be permanently cooling amid the country’s slowing economic growth.
Through the first two months of 2016, GM and Ford sales rose 11% and 18%, respectively, the companies said. Analysts typically look at January and February sales together to account for the disruption caused by the New Year holiday. The China Association of Automobile Manufacturers will report official February new-vehicle sales in China for all car makers later this month.
Other auto makers also posted declines in February, including Hyundai Motor Co.and Mazda Motor Corp.Sales for SAIC Corp., China’s largest domestic auto maker, dropped 7%, dented by declines reported by joint-venture partners GM and Volkswagen AG, both market leaders in the country.
China car-sales reached a new high in 2015, rising 7.3% from a year earlier to 24.6 million. But the growth rate was slower than the double-digit gains recorded in 2013 and 2014.
The China auto makers’ association projects passenger-car sales in 2016 will expand 7.8% to 22.76 million. Car makers have rushed to build factories and boost production in China, hoping to tap surging demand for new cars created by a rising middle class and rapid urbanization in what is considered one of the industry’s most profitable markets outside the U.S.
January was a particularly strong month for auto makers in China, with sales up 9.3% from a year earlier, as buyers snapped up new-cars before the holiday. Travel tends to be heavy around the holiday, contributing to a decline in showroom traffic last month.
“It’s like a vacuum effect in February,” said Nigel Griffiths, chief automotive economist for researcher IHSAutomotive. March results will be the real test to see whether demand created by the government stimulus is starting to fizzle, Mr. Nigel said.
IHS Automotive has issued a cautious forecast for new-car sales in China this year, with growth likely to benefit only certain auto makers. Demand is also starting to shift to local brands with a number of global auto makers posting weaker sales of late.
Ford has 4% of the market in China and recently completed a $5 billion expansion to build new factories and add models. The Dearborn, Mich., auto maker also plans to spend another $1.8 billion on research and development there. GM, Ford’s crosstown rival and among the largest sellers in China, is also trying to increase market share with new models and an expanded lineup of Cadillac luxury vehicles.
“It is a very densely crowded market,” particularly on factory capacity, that can dent sales and profits across auto makers, said Bill Russo, a managing partner with consultants Gao Feng Advisory.
Government tax incentives are helping to prop up new-car demand in China this year but the subsidies only last through December, analysts say.
The traditional value chain of the automotive industry is being fundamentally transformed by a new wave of “digital disruptors”. Unlike traditional automotive OEMs and suppliers, these digital disruptors are leveraging mobile internet technology to deliver a broader range of services to address mobility needs. Such changes are happening faster in China than in the rest of the world, and China’s Internet giants (Baidu, Alibaba, Tencent) along with mobility disruptors such as LeEco and NextEV are vying to deliver an increasingly connected, electrified, smart and personalized mobility experience. China has demonstrated strong potential to become a breeding ground for Connected Mobility innovation. Automotive OEM and supplier executives CEOs must learn to reimagine mobility in the China context in order to secure a strong position in this new competitive landscape.
About Speaker: Bill Russo is the Shanghai-based Managing Director of Gao Feng Advisory Company and Head of the firm’s Automotive Practice. He has over 30 years of industry experience including 15+ years as an automotive executive, and had been in China since 2004. In his corporate career, he has worked for IBM, Chrysler and Harman International. He is a highly sought-after opinion leader on China’s Automotive Industry, with frequent appearances on Bloomberg and China Central Television.
Fee: RMB 150 online in advance – RMB 180 at the door
Includes dinner, unlimited flow of beer and soft drinks.
China to be `epicenter of electrification,’ analyst says
BYD, Zotye among biggest sellers of electric cars in China
China has found electric cars a tough sell even after lavishing consumers with subsidies and privileges. After almost certainly failing to meet a target to have half a million of such vehicles on its roads by year end, its next act is to achieve a 10-fold increase by the end of the decade.
The electric vehicles in service will fall about 26 percent short of its year-end target, according to estimates from the science ministry and state-backed auto association. To meet its 2020 goal of five million EVs, the government will speed up the construction of charging stations, reducing a major inconvenience for urban residents who don’t have personal garages to charge their cars.
“China will be the epicenter for electrification of the auto industry globally,” said Bill Russo, Shanghai-based managing director at Gao Feng Advisory Co., who estimates that China would have invested 100 billion yuan ($15.5 billion) by 2020 on new-energy vehicles.
President Xi Jinping has designated electric vehicles as a strategic initiative in a bid to upgrade the auto industry and create challengers to Toyota Motor Corp. and General Motors Co. The government is increasing spending after signs that the combination of research grants, consumer subsidies and infrastructure investments is starting to yield results. New-energy vehicle production surged fourfold to 279,200 units in the first 11 months, even as oil traded near levels last seen during the global financial crisis.
That has benefited automakers like BYD Co., Zoyte Auto and BAIC Motor Corp., which have led sales of electric cars. BYD, backed by Warren Buffett’s Berkshire Hathaway Inc., would have turned a loss in 2014 and this year if not for EV subsidies from the central government, according to Barclays Plc. Geely Automobile Holdings Ltd. said last month that it would target new-energy vehicles to make up 90 percent of sales by 2020.
The government incentives have lured consumers like Zhang Peng, 30, who decided to buy BAIC’s EV200 electric car after trying without success for two years to win a license plate in the bimonthly lottery held by the Beijing government. EVs are exempt from the ballot, which has worse odds than roulette.
Zhang also received 90,000 yuan in matching grants from the central and local governments, or almost half of the 208,922 yuan sticker price for BAIC’s EV200 electric car. The model costs about 7.5 yuan to run every 100 kilometers (62 miles), compared with an estimated 39 yuan for an equivalent gasoline-powered 1.6-liter Toyota Corolla, according to calculations based on the published fuel-economy rating and Beijing pump prices.
The burgeoning demand has also helped battery suppliers such as South Korea’s Samsung SDI Co. and LG Chem Ltd., which supplies SAIC Motor Corp. and Chongqing Changan Automobile Co. Panasonic Corp. said it is considering building a car-battery factory in China to supply lithium-ion batteries.
Among local component makers, Wanxiang Qianchao Co. and Hunan Corun New Energy Co. have more than doubled in Shanghai trading this year as investors bet the surge in electric vehicle demand will boost demand. BYD has climbed 34 percent this year and Geely Automobile has surged 79 percent in Hong Kong trading, compared with the 8.4 percent decline in the benchmark Hang Seng Index.
Global automakers are beginning to get into the act. Volkswagen AG, the largest foreign carmaker by sales, has said it will introduce 15 locally produced new-energy vehicles in the next three to five years in the country. Ford Motor Co. said this month it’s investing $4.5 billion globally in electrified vehicles.
“In the initial stage it was mainly local automakers competing with each other in the electric-car segment, but now the foreign players are coming,” said Ouyang Minggao, director of the Tsinghua New Energy Vehicle Center. “All kinds of electric cars will be here soon, including plug-in hybrids, which will lead to very big challenges to local automakers.”
The Chinese government is not alone in setting aggressive targets for alternative-energy transportation. President Barack Obama in 2011 called for one million electrified vehicles in the U.S. by 2015, a target that the administration scaled back in March after low gasoline prices reduced the cost advantage of plug-in and hybrid vehicles.
China, though, has stood out in terms of the scale of the state’s financial support. The country has invested about 37 billion yuan into the new-energy vehicle segment over the past five years, according to Gao Feng’s Russo, who estimates the government will devote another 63 billion yuan by 2020.
The central government released a plan on Wednesday detailing funding for local governments to construct charging facilities, tied to the number of new-energy vehicles they sell.
Automakers will have to play by China’s rules if they want a piece of the market, even if they don’t believe in electric cars. The government has mandated the lowering of average fuel consumption to 5 liters by 2020, from 6.9 liters per 100 km this year.
“There is really no choice for the automakers, if they are required to meet the more stringent emission standards by 2020,” said Steve Man, an analyst with Bloomberg Intelligence. “Other technologies with the stringent emission standards won’t get you all the way to target.”