Volkswagen in Talks to Make Electric Cars in China

The Wall Street Journal, September 7, 2016

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A VW dealership in Louisville, Ky., in August. PHOTO: BLOOMBERG NEWS

German auto maker plans joint venture with state-run China Anhui Jianghuai Automobile

SHANGHAI— Volkswagen AG is exploring a joint venture to make electric cars in China with a state-run company, part of its aggressive push into electric-vehicle production as the auto maker works to resolve its emissions cheating scandal.

The German car maker signed a memorandum of cooperation with China Anhui Jianghuai Automobile Co. for a potential partnership, the companies said in separate statements. Jianghuai said the two will be equal owners of the joint venture, and hope to reach a formal agreement within five months.

“As we aim to be at the forefront of e-mobility, Volkswagen Group is looking forward to explore all options to set up a close and mutually beneficial partnership with JAC,” said Volkswagen CEO Matthias Müller. The company is targeting sales of a million electric vehicles a year world-wide by 2025.

Volkswagen, which derives more than a third of its global vehicle sales from China after three decades of operations there, currently has two car-making partners in the country: SAIC Motor Corp. in Shanghai and FAW Group Corp. in the northeast. Under government rules, foreign car makers must tie up with local partners to produce cars.

China limits foreign auto companies to two local partners to make gasoline-powered vehicles. While the limit doesn’t apply to electric cars, most foreign companies choose to produce alternative-energy vehicles with their existing partners. Officials at SAIC and FAW didn’t respond to requests for comment. Analysts say Volkswagen may be able to strike a more favorable deal with Jianghuai than its current partners.

“You may get a better agreement from a company who values your technology more. SAIC and FAW may already have [electric-vehicle] technologies and do not need VW as much as JAC,” said Bill Russo, a Shanghai-based managing director at consultancy Gao Feng Advisory Co.

General Motors Co. plans to launch about 10 alternative-energy cars with its Chinese partners, SAIC and Wuling, by 2020. Nissan Motor Co. and its partner, Dongfeng Motor Corp., launched an all-electric car in China in 2014.

Wednesday’s disclosure follows Volkswagen’s purchase of a 16.6% stake in U.S.-based heavy truck maker Navistar International Corp. this week. Jianghuai, of Hefei in east China’s Anhui province, is a major truck maker in China. It also builds conventional and electric cars. Earlier this year, Jianghuai signed a 10 billion yuan ($1.5 billion) agreement with NextEV Inc., an electric-car startup backed by Tencent Holdings Ltd. and Sequoia Capital, to develop electric vehicles.

China is going all in on alternative-energy vehicles, as it seeks to cut dependence on oil imports and reduce air pollution. Beijing also regards electric cars as a shortcut for its companies to reach the forefront of an evolving global auto industry.

Chinese governments at all levels last year spent a total of 90 billion yuan ($14 billion) in the sector, including direct cash subsidies for electric-vehicle makers and construction of public charging stations, says UBS Securities.

Sales of electric and hybrid cars and buses quadrupled in 2015 from the previous year to 331,000 vehicles. In the first seven months of this year, sales of such vehicles rose 23% to 207,000 units.

Volkswagen’s current strategy review calls for accelerating development of electric vehicles. Over the next decade, Volkswagen plans to develop around 30 new battery electric-car models, which could account for as much as 25% of the car maker’s total sales.

The company has said it expects to launch the first fully autonomous vehicles by the end of the decade.

Alibaba, SAIC Motor launch internet car Roewe RX5, SUV with YunOS operating system

CNBC, July 6, 2016

BillCNBC

Click here to watch the video

Two of China’s biggest household brands have teamed up to create what they call “the world’s first mass-produced car on the internet.”

E-commerce giant Alibaba and SAIC Motor, the country’s biggest car manufacturer, will launch the Roewe RX5 on Wednesday, a sports utility vehicle (SUV) featuring smart technology from Alibaba’s operating system YunOS. First unveiled at the Beijing Auto Show in April this year, the RX5 is reportedly YunOS’ first auto partnership.

YunOS was created in 2011 and is used by several prominent Chinese smartphones brands, including Meizu and Duowei.

In April, Alibaba said YunOS was the third-biggest operating system (OS) in the world with 40 million users as of 2015, adding that it would soon replace Apple’s iOS as the second biggest in the mainland, according to local media reports at the time. Google’s Android remains China’s most popular OS.

Connectivity, electric power and autonomous driving were the three principal themes for the auto market as it increasingly merged with the internet industry, Bill Russo, managing director at Gao Feng Advisory Company, told CNBC’s “The Rundown“.

The RX5 is a clear example of how car makers are employing big data to improve driver’s daily needs and mobility habits.

SAIC and Alibaba have promised that the car’s data capabilities would transform stressful driver experiences, such as negotiating traffic or undertaking maintenance, into enjoyable moments.

“The RX5 will be able suggest alternate routes in the case of road closures or traffic as well as a more personalized experience in the car,” Russo said.

Already the world’s largest car market, China is set to become a key adopter of these trends, but there’s already heavy competition to win the hearts of mainland consumers.

Apple’s recent $1 billion investment into ride-hailing app Didi Chuxingled many to question whether the two companies would produce an internet-based vehicle, while South Korea’s Kia Motors has partnered with Google to tap the latter’s Android Auto operating system. Meanwhile, Chinese online video firm LeEco has developed a self-driving concept car, called the LeSEE.

In fact, the real rivalry in the car market was no longer between car makers, Russo said.

“It’s a battle for the connected-car operating system,” he said, pointing to YunOS, iOS and Android Auto as examples.

When it came to China, Alibaba and SAIC’s biggest competitor was Apple, he added.

Apple’s investment in Didi was a strategic move to position a potential Apple car in China, Russo continued, noting that while Google had invested in Uber, it was not a threat because the search engine remains blocked in the mainland.

—Follow CNBC International on Twitter and Facebook.

CORRECTION:

This report has been updated to reflect that YunOS is an operating system, while Aliyun is a cloud computing system.

Click here to read the story at CNBC.com

SAIC, Alibaba to Mark Chinese Foray Into Connected Cars

Bloomberg News, June 1, 2016

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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.”

Alibaba said it didn’t have additional comments on the collaboration with SAIC Motor.

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.”

Click here to read this story at bloomberg.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)

GM’s Cadillac Opens China Factory to Target Luxury Market

The New York Times, January 21, 2016

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SHANGHAI — General Motors Co. opened a Cadillac factory in China on Thursday to target the country’s growing but crowded luxury car market.

The 8 billion yuan ($1.2 billion) factory operated with its main Chinese partner, Shanghai Automotive Industries Corp., will have an annual production capacity of 160,000 vehicles, GM announced.

Cadillac began selling in China in 2004, coming late to a luxury market dominated by BMW, Mercedes Benz and Volkswagen’s Audi.

China is the biggest auto market by number of vehicles sold but last year’s sales growth slowed to 7.3 percent, jolting an industry that looks to this country to drive revenue.

“We do firmly believe that there is a strong potential for luxury (cars) in China,” said Matt Tsien, president of GM China. “Last year, obviously it’s been a challenging market overall, not just for luxury but the overall market has moderated.”

The factory is due to begin producing Cadillac’s CT6 model next week. Cadillac makes two other models, the XTS and ATSL, at factories in Shanghai.

Tsien said China’s luxury vehicle sales could grow to 3.5 million vehicles a year by 2020, which would make it the biggest luxury market.

Cadillac says its sales in China rose 17 percent over the previous year to just under 80,000 vehicles.

“At some point you have to make the decision to be in the premium segment in China because it is going to be the, still, the highest growth opportunity in the world,” said industry analyst Bill Russo of Gaofeng Advisory Co. “It’s, frankly, a segment that offers a lot of margin opportunity in spite of the fact that there is pricing pressure.”

___

AP researcher Fu Ting contributed.

Click here to read the article at NY Times 

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.”

Qoros Names Former Head of GM China Operations as CEO

The Wall Street Journal, February 3, 2015

Chinese Startup Car Maker Appoints Former GM Exec in Bid to Revive Fortunes
By Colum Murphy

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Phil Murtaugh in Los Angeles on March 16, 2012. PHOTO: REUTERS

SHANGHAI—Chinese startup car maker Qoros Automotive Co. appointed the former head of General Motors Co.’s China operations as its new chief executive in a bid to revive its fortunes in the world’s largest car market.

Phil Murtaugh ’s appointment is effective immediately, a statement on the company’s website dated Monday said. He succeeds Guo Qian, who resigned in December as chairman and chief executive to return to Qoros partner Chery Automobile Co., according to a Qoros spokesman. Mr. Guo couldn’t be reached for comment, and a Chery spokesman said he had no immediate comment.

Qoros produces cars in China and is a 50-50 joint venture between China-based Chery and Israeli investment firm Israel Corp. It had hoped to woo customers in China with a mix of quality and affordability. But the brand sold just under 7,000 cars in China last year, the company’s first full year of sales, according to data from consultancy Automotive Foresight.

In October, Mr. Guo told The Wall Street Journal that awareness of the new Chinese auto brand in China was falling below company expectations. Anning Chen, a Chery executive, has succeeded Mr. Guo as chairman.

Stefano Villanti, head of sales, marketing and product strategy, has also recently left the company. He told The Wall Street Journal last October the startup period for the company had been “tougher than expected.” Mr. Villanti couldn’t be reached for comment Tuesday.

In November, Israel Corp.’s controlling shareholder, billionaire Idan Ofer, reaffirmed his support for Qoros. This followed reports in Chinese media that the firm was considering pulling out of the venture.

Mr. Murtaugh is credited in the automotive industry with being a pioneer of GM ’s earlier successes in China and has spent almost 16 years in the country. Most recently, Mr. Murtaugh headed the now-defunct Chinese-invested electric-car manufacturer Coda Automotive Inc.

Bill Russo, managing director of consulting firm Gao Feng Advisory, who worked briefly with Mr. Murtaugh at Chrysler in China, said Mr. Murtaugh’s challenge will be to create a car that appeals to buyers, whether they are in China or elsewhere.

“The question is whether the world is waiting for a high-end Chinese car? So far the market is saying ’no,’” Mr. Russo said.

Write to Colum Murphy at colum.murphy@wsj.com