Bill Russo to Chair Automobility Panel at JP Morgan Global China Summit

Beijing China, June 5, 2017

How China is Shaping the Future of Mobility

Click here to watch the recording of the panel discussion

The China auto market is transitioning from a period of rapid growth and expansion of individual car ownership to a future where mobility needs are served via a more diverse stream of personal mobility solutions.   Personal mobility solutions now include new cars, an expanding supply of good quality used cars, as well as on-demand mobility (ODM) services (including bike sharing and ride hailing) for people who prefer a pay-per-use model over ownership. 

China’s market is also quite unique with its short history of car ownership, ultra-dense urban population, and high penetration of the mobile internet.  With an urbanization rate of 56%, China’s urban population now exceeds 750 million people, and the transportation needs of this increasingly urbanized population has driven the explosive demand for personal mobility.  With a car population of over 190 million vehicles at the end of 2016, individuals who own cars are still far outnumbered by those who do not, and mobility needs are increasingly served through mobility services “usership” beyond just individual car “ownership”.

In this context, automakers are expanding their focus from the product (the “automobile”), to the utility that is derived from the product (“automobility”), and are challenged to create a business model and digital ecosystem optimized to provide digitally-enabled solutions for both car owners and users.

We will discuss: How are these factors shaping the auto market in China?  What solutions are being developed to ease mobility “pain points” in China?  How do you see these solutions impacting and shaping our everyday lives today and in the future?  How will this impact the structure of the industry going forward?

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

Topics for discussion:

  • Defining the disruption in the China context – What are the disruptive trends in the world of mobility?
  • Big picture view of the competitive landscape – What does the new competitive landscape look like and how will it evolve?
  • How should incumbents respond? Disrupting or being disrupted? – What new internal capabilities are required? How to work with local start-ups:  compete or collaborate?
  • China for the world – Will China lead to world’s development and innovation in Connected Mobility?


Prof. Dr. Jochem Heizmann
, Member of the Board of Management, Volkswagen AG; President & CEO, Volkswagen Group China

Mr. Olaf Kastner, President & CEO, BMW Group Region China

Mr. William Li, Founder & Chairman, NIO

Dr. Daniel Kirchert, President & Co-Founder, Future Mobility Corporation

 

Moderated by:

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

Automakers see promise in China car-sharing

The Nation, April 19, 2017

This picture taken on April 18, 2017 shows EV Card share cars parked at a station in Shanghai. / AFP PHOTO

SHANGHAI- Unable to afford a car, Shanghai university student Long Yi endured an expensive taxi commute across his vast city until he started using one of the car-sharing schemes quickly gaining momentum in China.

Essentially an Internet Age twist on car rentals, car-sharing is attracting Chinese millennials who increasingly demand mobility but shun the burden of auto ownership.

Long, 20, drives himself to school for around 50 yuan ($7) using EVCARD, a service launched by state-owned automaker SAIC Motor that has compact electric vehicles sprinkled around the city, slashing his travel time and costing one-quarter the taxi fare.

“It is cheaper and more convenient and very flexible. I’ll choose EVCARD as my primary mode of transport almost every time,” said Long.

After years of skyrocketing China sales, the global auto industry is contemplating slower growth as it convenes this week for the Shanghai Auto Show, putting alternative sales channels like car-sharing in focus.

Long-established in Western countries, such services only began appearing in China in the past two years, but are part of an ongoing Chinese personal-mobility revolution.

Already bike-sharing businesses have exploded across China, flooding major cities with bicycles that are unlocked by GPS using an app, can be left anywhere and have become critical to countless commutes.

Similarly, drivers typically use a smartphone app to find and unlock shared cars, later parking them anywhere or at set locations.

Dozens of Chinese and foreign companies have now either launched or invested in car-sharing operations, with some making purpose-built cars.

Germany-based consultancy Roland Berger forecasts annual market growth of at least 45 percent.

“That is a significant growth opportunity (for manufacturers). There are only a few hundred thousand cars now, but it’s growing and it’s growing very quickly,” said Johan Karlberg, a Shanghai-based partner with Roland Berger.

– Driving new sales –

German giant Daimler launched a car-sharing service last year that has since expanded to seven cities, gaining more than 250,000 registered users, the company said.

Jochem Heizmann, China CEO for Volkswagen, the country’s top car brand, told reporters in Shanghai VW would partner with Chinese car-sharing operator Shouqi in multiple cities, partly to boost electric-vehicle sales.

“You have to see the development of such fleets as sales channels,” he stressed.

Lynk & Co — a new unit of Chinese automaker Geely, which owns Volvo — unveiled in Shanghai two SUVs with built-in touch-screen sharing software developed with Microsoft and Sweden’s Ericsson.

“Communities”, such as companies or residential developments, can jointly purchase vehicles to share, or owners can share their car for a fee with other drivers who join Lynk & Co’s network, said Alain Visser, the company’s senior vice president.

“It becomes an interesting concept because sharing can reduce the cost of ownership,” he told AFP.

Lynk & Co also is partnering with TripAdvisor and Tujia — China’s Airbnb — on a proposed system combining shared accommodation and cars.

“Instead of entering the (car-sharing) market once it becomes big, we want to make it big,” Visser said.

Bill Russo, head of Shanghai-based auto consultancy Gao Feng, said such services will guide auto manufacturing in future.

“You may build them to entertain people in the backseat, or to provide more connectivity so people can be productive. We’ll see this segment influence specifications,” he said.

China’s central government and many local authorities are keen to reduce congestion and air pollution and have dangled various incentives for car-sharing, such as eased licensing requirements and guaranteed parking.

Further supporting car-sharing’s potential, countless Chinese face significant car-ownership hurdles, including cost, scarce parking and limits on car use in several major cities.

By 2020, China will have just 195 million cars for 355 million licensed drivers, Roland Berger estimates.

“Many middle-class families that can afford a second car are opting not to. It’s a real hassle,” said Karlberg.

High start-up costs and other hurdles in the fledgling car-share industry mean no one is making money yet, analysts say.

But they expect the growing numbers of industry entrants soon to consolidate into a solid few able to run sustainable businesses, perhaps in partnership with government.

Click here to to read the original article

The Explosive Growth Opportunity in China’s Automotive Aftermarket

Gao Feng Insights Report, August 2016

We are pleased to share with you our paper titled: The Explosive Growth Opportunity in China’s Automotive Aftermarket.  In this report, we examine one of the major discontinuities shaping the future of the Chinese auto market:  the rapid expansion of the independent aftermarket (IAM).

China’s automotive market is transitioning from a period of rapid growth in new car sales to a slower pattern of expansion going forward.  While this slower pattern of growth is a concern for automakers and suppliers, the market remains at historically high levels of sales, and the car population continues to expand at double digit rates annually.  In addition, the average age of the vehicle population is rising.  Add to this a recent push by the Chinese government to allow sales of original equipment service (OES) parts by independent service providers, coupled with the emergence of digital platforms for accessing services, the conditions are ripe for discontinuous expansion of the independent aftermarket.

All of these factors are contributing to an explosive expansion of the automotive aftermarket services business in China.  In this environment, automakers and suppliers are seeking ways to offer a clear and differentiated value proposition in order to succeed in the aftermarket, and they must act quickly to compete with new entrants who are seeking to disrupt the traditional service model.

We welcome your comments and feedback on our briefing paper or in general about our firm. We would be glad to meet you in person to share our data and perspectives in a fuller manner. Please let us know if you are interested in meeting and discussing directly how we can help you to operationalize these insights.

Thought leadership is core to what Gao Feng does. We will, from time to time, share with you our latest thinking on business and management, especially as it relates to China and China’s role in the world.

Best Regards,

Bill Russo
Managing Director, Gao Feng Advisory Company
bill.russo@gaofengadv.com

Robert Zhang
Senior Associate, Gao Feng Advisory Company
robert.zhang@gaofengadv.com

Emily Wang
Senior Consultant, Gao Feng Advisory Company
emily.wang@gaofengadv.com

Chinese firms accelerate in race toward driverless future

AFP Newswires, April 23, 2016

 

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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.

Robot taxis

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?”

Read more at: http://phys.org/news/2016-04-chinese-firms-driverless-future.html#jCp

China shifts gears to drive electric car development

The Financial Times, February 25, 2016

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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.”

Click here to read this article at FT.com

Reimagining Mobility in the China Context

Gao Feng Insights Report, February 2016

We are pleased to share with you our paper titled: Reimagining Mobility in the China Context. This article builds on the themes from our previous article titled Digital Disruption in China’s Automotive Industry, and offers a perspective at how 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 present new and innovative “Connected Mobility” services to users, and in the process challenging the business model of the automotive industry. The century old hardware-centric business model of individual car ownership and product-based segmentation is transforming into a new form which leverages 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, where the size and scale of the urban population and the sheer numbers of mobile internet users are much greater than other markets.

In such an environment, 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.  Coupled with the Chinese government’s regulatory push on new-energy vehicle adoption and sustainable transportation infrastructure, China has demonstrated strong potential to become the breeding ground for the Connected Mobility revolution.   As a result, Automotive OEM and supplier CEOs must learn to reimagine mobility in the China context in order to secure a strong position in this new competitive landscape.

We welcome your comments and feedback on our briefing paper or in general about our firm. We would be glad to meet you in person to share our data and perspectives in a fuller manner. Please let us know if you are interested in meeting and discussing directly how we can help you to operationalize these insights.

Thought leadership is core to what Gao Feng does. We will, from time to time, share with you our latest thinking on business and management, especially as it relates to China and China’s role in the world.

Best Regards,

Bill Russo
Managing Director, Gao Feng Advisory Company
bill.russo@gaofengadv.com

Edward Tse
Chairman and CEO, Gao Feng Advisory Company
edward.tse@gaofengadv.com

Tel: +86 10 5650 0676 (Beijing); +852 2588 3554 (Hong Kong); +86 21 5117 5853 (Shanghai)

Bill Russo to Speak on “Reimagining Mobility in the China Context”

Click here to sign up for the event at Meetup

Date:  March 17, 2016

Location:  naked Hub  3F, 1237 Fuxing Road (corner of South Xiangyang Road), Shanghai (map)

Price:   $25.00 /per person  Refund policy

ADVANCE ONLINE PAYMENTS AT ONLY RMB 150/US$ 25!
Alipay/UnionPay:  https://yoopay.cn/event/Mobility

Meet people from other professions/sectors, share new ideas on how to run your business in a more challenging environment that is Shanghai today.  

For this new entrepreneurs’ event, we have invited Bill Russo, Managing Director of Gao Feng Advisory Company, who will talk about China’s Automotive Industry.

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.

Reimagining Mobility in the China Context VFF Microsoft PowerPoint, Today at 1.18.39 PM

For a copy of our new paper on this topic please email bill.russo@gaofengadv.com

Augmentum and Gao Feng Advisory Company Form a Strategic Partnership

Photos Photos, Today at 5.12.50 PM

Bill Russo, Managing Director from Gao Feng Advisory Company
and Dr. Leonard Liu, Chairman & CEO from Augmentum, Inc.

Shanghai, China – February 15, 2016 – Augmentum, Inc., a provider of software services for products and solutions that can digitally transform enterprises, today announced that it has signed a strategic partnership agreement with Gao Feng Advisory Company (“Gao Feng”), a global management consultancy with roots in China.  Both firms will seek to join forces to deliver a unique and comprehensive set of services to their clients in China and worldwide.

The “connect with anyone, anywhere, anytime” world we live in today requires us to re-imagine and transform the journeys that enterprises and their customers take with each other. These transformations have shown us that enterprises need to build, over time, a holistic unified view of their customers, internal teams, and partners.   The delivery of such innovative services to customers is only the tip of the iceberg.  Behind these services there are many more services facing their customers, internal teams and partners to orchestrate the end to end activities necessary to meet the immediate service expectation. Existing islands of systems and information need to be connected in order to effectively respond to the immediate gratification expectations of their customers.

Augmentum & Gao Feng will bring a globally experienced team to collaborate with their clients to co-innovate, architect, design, build and operate digital ecosystems that deliver competitive advantage with a deeply-rooted in-China perspective.   This will encompass providing digital transformation services, digital marketing & ecommerce services, and software development services.

“Throughout the years, we have worked with many large companies as well as startups here in China and worldwide. Our clients together with us have achieved speedy phased incremental transformation within the context of an overall strategy, robust architecture, and product-level quality implementation. We look forward to leveraging our strong partnership with Gao Feng to accelerate the transformation for our clients”, said Dr. Leonard Liu, Chairman & CEO of Augmentum.

“Gao Feng is a pre-eminent strategy and management consulting firm”, said Dr. Edward Tse, founder and CEO of Gao Feng.  “The partnership with Augmentum allows Gao Feng to offer our clients a broad set of capabilities beyond those typically found among strategy consultancies, leveraging deep expertise in the area of digital hardware, software and big data solutions”, he added.

Gao Feng Advisory Company is a pre-eminent strategy and management consulting firm with roots in China and global vision, capabilities, and a broad resources network.

Augmentum started operations in year 2003 and is strategically focused on leveraging the convergence of web, mobile, social media, targeted big data analytics, Internet of Things (IoT) and cloud computing to produce products and solutions.

# END #
About Augmentum

Augmentum was established in the Silicon Valley in 2003 with Global Delivery Centers in Shanghai, Wuhan, and Yangzhou. Our clients include members of the Fortune 500, mid-sized companies and startups in various industry sectors.

We have been fortunate enough to work with many leading edge enterprises to leverage the convergence of web, mobile, social media, targeted big data analytics, Internet of Things (IoT) and cloud computing.

For our clients, we have always delivered product level systems and solutions with high quality, reliable, scalable and extensible.

Connect with us on www.augmentum.com

For Further Queries:
Ping Zhou | Vice President | Email: ping.zhou@augmentum.com

 

About Gao Feng Advisory Company

Gao Feng Advisory Company is a pre-eminent strategy and management consulting firm with roots in China and global vision, capabilities, and a broad resources network. We help our clients address and solve their toughest business and management issues — issues that arise in midst of fast-changing, complicated and ambiguous operating environment. We put our clients’ interest first and foremost. We are objective and we view our client engagements as long-term relationships rather than one-off projects. We commit to helping our clients to not only “design” the solutions but assist in implementation, often hand-in-hand with the clients. We believe that every member of our team can contribute to problem solving for our clients, from the most senior to the most junior.

Our seniors are former senior consultants at leading management consulting firms and/or senior executives at large corporations. We believe clients would benefit the most from a combination of consultants with substantive experience in consulting coupled with line management professionals.  In addition to our team in the Greater China offices of Beijing, Hong Kong and Shanghai, we have a global network of collaboration partners with a wide range of experience, capabilities and resources.

Connect with us on www.gaofengadv.com

For Further Queries:
Bill Russo | Managing Director – Shanghai, China | Email: bill.russo@gaofengadv.com

Tel: +86 10 5650 0676 (Beijing); +852 2588 3554 (Hong Kong); +86 21 5117 5853 (Shanghai)

Gao Feng website: www.gaofengadv.com

Gao Feng social media:

Dr. Tse’s New Book: China’s Disruptors

Website: www.chinasdisruptors.com

Digital Disruption in China’s Automotive Industry

Gao Feng Insights Report, January 2016

We are pleased to share with you our paper titled: Digital Disruption in China’s Automotive Industry. Recent advances in mobile connectivity, big data and social networks have infiltrated the traditional automotive industry and are beginning to redraw the competitive landscape among traditional hardware companies and digital “disruptors”.

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 business model of the auto industry. The conventional hardware-centric, sales-driven, asset-heavy, and ownership-based business model with sporadic customer interactions is being superseded by more connected, on-demand, cost-effective, personalized mobility services. This new form of “connected mobility” is driving new technologies in the areas of navigation, analytics, driver safety, driver assistance and information virtualization.

China’s automotive industry is at the forefront of digital disruption as this transformation is happening much faster in China than the rest of the world, and China will leapfrog to a new era of personalized and electrified mobility.  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 smart, connected car technology and related services.  These conditions may permit China to “leapfrog” to towards a new era of personalized and electrified mobility.

We welcome your comments and feedback on our briefing paper or in general about our firm. We would be glad to meet you in person to share our data and perspectives in a fuller manner. Please let us know if you are interested in meeting and discussing directly how we can help you to operationalize these insights.

Thought leadership is core to what Gao Feng does. We will, from time to time, share with you our latest thinking on business and management, especially as it relates to China and China’s role in the world.

Best Regards,

Bill Russo
Managing Director, Gao Feng Advisory Company
bill.russo@gaofengadv.com

Edward Tse
Chairman and CEO, Gao Feng Advisory Company
edward.tse@gaofengadv.com

Tel: +86 10 5650 0676 (Beijing); +852 2588 3554 (Hong Kong); +86 21 5117 5853 (Shanghai)

China Seen Laying Down $15 Billion Bet on Electric Vehicles

Bloomberg News, December 16, 2015

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.

Local Winners

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.

Battery Suppliers

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.

‘Foreigners Coming’

“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.

Funding Plan

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.”