Tencent-Backed Company Aims to Launch Smart-Electric Cars Before 2020

 The Wall Street Journal, July 12, 2016

Tencent-Backed Company Aims to Launch Smart-Electric Cars Before 2020 - WSJ Safari, Today at 1.01.49 PM

A BMW electric car at a Beijing car show in April; Future Mobility has hired about 50 engineers from car makers including BMW for its smart-electric-vehicle project. PHOTO: REUTERS

Chinese auto startup Future Mobility seeks eventually to sell several hundred thousand luxury vehicles a year

BEIJING—An auto startup backed by internet giant Tencent Holdings Ltd. plans to start selling premium electric cars globally by 2020, joining other Chinese car makers in taking aim at an increasingly crowded luxury market.

Four month-old Future Mobility Corp. seeks eventually to sell several hundred thousand fully electric, highly automated, China-built vehicles a year. The company is also backed by Chinese luxury-car dealer Harmony New Energy Auto and Foxconn Technology Group, which assembles iPhones for Apple Inc. Apple has been working on its own autonomous electric car.

Deep-pocketed tech companies have backed a wave of new auto companies in China, where a drive to cut fuel consumption and pioneer the auto industry of the future has encouraged startups. Analysts, citing increasing competition and uncertainty over a subsidy-fueled boom in electric vehicles, question how such ambitions can be turned into reality.

“Our target is to create the first Chinese brand which is premium and internationally successful,” Carsten Breitfeld, chief executive of Future Mobility, told The Wall Street Journal in an interview on Tuesday. He said the company aims to sell cars in China, Europe and the U.S. and to compete with Audi AGBMW AG and Daimler AG’s Mercedes-Benz, which combine for three quarters of China’s luxury-car market.

The company will soon complete its first round of fundraising, Mr. Breitfeld said.

Last year China’s industrial regulator amended rules to allow nonautomotive companies to invest in the electric-car industry, which Beijing has subsidized to the tune of tens of billions of dollars.

Internet giants jumped right in. China’s annual motor show in April showcased smart vehicles powered by software from online-shopping company Alibaba Group Holding Ltd. and search provider Baidu Inc. Last month, a Baidu executive said that the company plans to mass produce a driverless car within five years.

Tencent, China’s biggest social-network company, has a research team working on technology that can be used in automated cars, according to a person familiar with the matter. For now, its involvement in Future Mobility—beyond its minority stake as a financial investor—is limited, the person said.

Tencent is an investor in another electric-car maker, NextEV Inc., whose other backers include Sequoia Capital.

The companies are poaching talented engineers from global auto and technology giants, and setting up research centers in the West. Future Mobility has hired 50 engineers from BMW, Mercedes-Benz, Tesla and Google.com. Within 12 months it will have about 600 engineers globally, said Mr. Breitfeld, formerly the project manager for BMW’s i8 plug-in sports car.

He said the company will either build its own plant or partner with an existing auto maker to assemble cars. It has research and development units in Munich and Silicon Valley and is building its headquarters in Shenzhen, where Tencent is based.

Some analysts question how quickly such a new company can achieve its aims. “Several hundred thousand premium cars from an unknown brand sounds like a stretch,” said Bill Russo, managing director at Gao Feng Advisory Co. and former head of Chrysler’s North East Asia business. “Building a brand and competing with the likes of the premium car makers is very difficult. And the competition will not stand still.”

Robin Zhu, a senior analyst at U.S. research company Sanford C. Bernstein, noted that demand for electric vehicles in China is minimal except in big cities where they’re exempt from certain restrictions that apply to their gasoline-fueled counterparts.

The number of electric and hybrid cars and buses sold in 2015 was four times that of a year earlier—but at 331,000 vehicles was a small, subsidy-driven tally in a market where total sales exceeded 24 million.

The Race to Produce China’s Tesla

Bloomberg News, April 22, 2016

 
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William Li isn’t your typical, boundlessly optimistic Chinese tech entrepreneur. Yes, the founder of startup NextEV Inc. has big plans to disrupt China’s electric car market, the financial backing of venture capital powerhouses Sequoia Capital and Hillhouse Capital and considers Tesla Motors founder Elon Musk an inspiration.

That said, he rates his chance of succeeding in China’s fast-moving car market at a whopping 5 percent. He also thinks most of the new business models for electric cars being bandied about by tech companies will end up in the junk yard.

“There’s an exponential gulf between creating a concept car and mass production, and then to actually sell them,” Li said. “Tesla has broken a lot of new ground and inspired a raft of Internet companies to follow, but most have no idea what they’re facing.”

Such hard-nosed realism is probably wise. As global auto executives gather for the 2016 Beijing Auto Show, a torrent of money is pouring into the nation’s alternative energy vehicle market, which includes electric vehicles, plug-in hybrids and fuel-cell cars. In a country with some of the worst urban air pollution on the planet and a rapidly urbanizing populace, the market’s upside potential seems big to conventional car companies and tech startups jumping in.

The Chinese government is promoting what it considers a strategic industry with big subsidies for companies and consumers. It wants new energy vehicle sales to top 3 million units a year by 2025, versus 330,000 in 2015. Premier Li Keqiang in February urged local government and industry players to speed up construction of charging facilities to accommodate 5 million electric vehicles by 2020.

Right now, the electric car business is dominated by BYD Co., a Shenzhen-based automaker, 9-percent owned by Warren Buffett’s Berkshire Hathaway Inc., that has a 18 percent share of China’s new energy vehicle market. At the Beijing show, BYD will be touting its new entry-level sports-utility vehicle called The Yuan, as in the 13th-century Chinese dynasty, that starts from 209,800 yuan ($32,368) for the hybrid version.

Tesla is a player, too, in China, where it sells its Model S and Model X, though the Palo Alto, California-based electric carmaker would like to be a far bigger one. For the first three quarters of 2015, the company sold 3,025 vehicles in China, which compares to 11,477 units of delivery by BYD. The Chinese company, also sells its electrics in U.S., Germany and Japan and surpassed Tesla in May to become the world’s biggest maker of new energy vehicles last year.

The success of Tesla in the U.S. and the development of driver-less car technologies by Apple and Google are also attracting all manner of technology companies into the Chinese auto market, the world’s biggest. Some envision cars developing into “mobility service platforms,” in which passengers receive data and services in addition to being moved from point A to B.

That could play to the strengths of technology companies and the huge and growing Chinese auto market could be the perfect laboratory in which to experiment with new services and business models, according to Bill Russo, managing director at Shanghai-based auto consultant Gao Feng Advisory.

Russo compares today’s autos to the mobile phones of a decade ago, when apps started to gain in popularity. “As cars become mobility service platforms, the technology on board will become more sophisticated,” he says. Technology companies could contract out auto production to make vehicles, but then earn recurring revenue by providing car owners with data products and Internet services. “Apple makes money not just on the device, but on all the services that flow through it,” he said.

It’s definitely a vision in search of details, but plenty of technology companies are jumping into the fray. Electronics contract manufacturer Foxconn Technology, Internet service portal Tencent and China Harmony New Energy Auto have set up a joint venture to build alternative energy cars. The partnership is designed to leverage different strengths: Foxconn’s component supply chain, Tencent’s infotainment and telematics systems that could improve vehicle’s connectivity and Harmony Auto’s after-sales network for electric vehicles. In January, Daniel Kirchert, head of Infiniti in China, joined the alliance.

Chinese tech billionaire Jia Yueting also has automotive ambitions. The chairman and founder of Le Holdings Co., which makes Web-enabled televisions and smartphones and offers cloud and e-commerce services, is a major investor in Los Angeles-based Faraday Future, which is building a 900-acre factory near Las Vegas, Nevada. LeEco, which has developed its own electric vehicles, is preparing to apply for a production license in China and also plans to manufacture its cars overseas.

Given all the new entrants, it is easy to understand why NextEV founder Li is wary of the competition, even with financial backers like Sequoia. Li has hired former Cisco Systems Inc. Chief Technology Officer Padmasree Warrior to lead development and U.S. operations and has inked a deal to outsource production to Anhui Jianghuai Automobile Co.

“They’re realistic, they’re seasoned, smart people with a lot of money and they’re unafraid of the challenge,” Michael Dunne, head of strategy and investment advisory firm Dunne Automotive Ltd., said of NextEV. “In fact, they seem to be embracing it.”

Li’s early life didn’t fit the profile of a tech entrepreneur. He spent his early years herding cattle in a mountain village in Anhui province, where he grew up with his grandparents. A talented student, he left the rural China to attend the prestigious Peking University, where he earned a degree in social sciences while supporting himself with part-time work like selling office supplies to Apple Inc.

Before starting NextEV, Li co-founded and built Bitauto Holdings Ltd. into the country’s biggest provider of online car pricing data for dealers. The company went public in New York in 2010. Li and Bitauto have invested in more than 40 companies in China including used-car business, financing services and car-sharing platform such as Didapinche.

Li says NextEV is an opportunity to rethink the electric car as not just a transportation vehicle but as a digital platform.

“Traditional auto manufacturers treat the car as 95 percent transportation tool,” Li said. “Tesla’s cars have perhaps 20 percent to 30 percent content that are not related to transportation,” he said referring to such things as mobile connectivity and touchscreens that access car maintenance services.  “My aim is to boost that to more than 50 percent.”

NextEV has produced an electric Formula E series racer, but hasn’t yet disclosed its plans for launching an electric car aimed at the consumer market. Meantime, the race is engaged by a gaggle of tech companies to prove they can be players in Chinese autos.

Click here to read the article at www.bloomberg.com

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

Bill Russo to Brief Investors on New Energy Vehicles Market in China

TOPIC:

The Path to Electrification of China’s Automotive Industry

Date: Thursday, February 12, 2015

Time:  10AM EST, 11PM China

Venue:  Conference Call

Click here to register (sponsored by Coleman Research Group)

  • Recent performance of electric vehicles manufacturers in China
  • Tesla’s growth plans and the impact on dealership dynamics
  • Traditional auto ownership model re-shaped by rapid urbanization
  • Disruption of the automotive value chain
  • New mobility concepts changing traditional business models
  • Unique context of China’s urban transportation challenges
  • China’s 12th 5-year plan identified seven strategic emerging industries including electric vehicles, energy efficiency & environmental protection, new generation information technology, bio-technology, high-end equipment manufacturing, alternative energy and new materials
  • Need for OEMs to develop strong relationships with telcos and technology players
  • Companies: Ford (F), General Motors (GM), Volkswagen (VOW), Toyota(TM), Honda (HMC), Fiat Chrysler (FCAU), Nissan (NSANY), Hyundai (HYMTF), Daimler AG (DDAIF), BMW AG (BMW), Continental AG (CON), Valeo (EPA), TRW Automotive (TRW), Mobileye (MBLY), Uber, Yidao, Relay Rides, Baidu (BIDU), Alibaba (BABA) and Google (GOOG)

As the balance of world market and economic power shifts from West to East, China has emerged as the key location in the battle for dominance of the 21st century’s global auto industry. Due to increasing pressure from air pollution, oil consumption and urban congestion, the focus of the country’s auto industry will increasingly switch from internal combustion engine vehicles to alternative propulsion technologies, particularly those powered by electricity. Already many observers believe that the government’s ambitious series of programs and policies designed to accelerate the development of new energy vehicles run over the last decade will lead to the emergence of China as the key location for a global “green” mobility revolution. As this happens, the eventual electrification of the automotive powertrain will transform the automotive industry.
ABOUT OUR EXPERT:

Bill Russo is Managing Director at Gao Feng Advisory Company, Ltd. He has more than 25 years of experience in the industry. He was previously VP of Chrysler Northeast Asia, where he successfully negotiated and secured government approval for six vehicle programs with three different Asian partners. In this time period, he launched a regional holding company as well as two distribution companies and oversaw the industrialization of the first Chrysler and Dodge-branded vehicles in Asia. He holds a U.S. patent for his innovative efforts towards reducing automotive new product development cycle time and is a published author and opinion leader whose viewpoints have appeared throughout several media outlets.

5 Reasons Why Tesla Is Struggling In China

Business Insider, January 15, 2015

elon-musk

Tesla got crushed on Wednesday, partially due to Elon Musk breaking the news that Tesla sales in China were “unexpectedly weak” in the fourth quarter.

Echoing Musk’s explanation, Tesla communications chief Ricardo Reyes told Business Insider that “misperceptions about the ease of charging Model S were the main reason for the dip” in Chinese sales.

“To clear up those misperceptions, we are explaining the ease and convenience of charging and continue expanding the charging network in the country,” he said in an email.

While Reyes said that “overall China constitutes a small percentage of our sales for now,” the stakes for Tesla’s venture into China look large. Already the world’s biggest auto market, over 22 million cars were sold there in 2013 — accounting for over 25% of the global total.

Former Tesla China chief Veronica Wu said in January 2014 that China would account for 30 to 35% of Tesla’s global sales in 2014. She resigned in December.

The number of charging stations is indeed increasing. Quartz reports that the Chinese government has built 19,000 charging sites across China, while Tesla has placed 23 of its Supercharger stations in 10 Chinese cities.

To ramp up that infrastructure, Musk has struck deals with telecom operator China Unicom and real estate developer Soho China to build over 700 charging stations in 70 Chinese cities, reportedly giving China the second-largest charging infrastructure after the US.

In talks with Chinese auto industry analysts, Business Insider has learned that Tesla has a host of commercial and cultural hurdles to overcome if it’s going to succeed in the Chinese auto market.

They include:

The early adopters have already bought their cars. “In any new product intro, you get a lot of buzz early, where early adopters run out and put their money down, and then you have a period where it’s not new anymore” explained analyst Bill Russo, who served as the VP of Northeast Asia for Chrysler before moving into consulting. “The numbers are always skewed — the easy sales are the ones you get early on.”

The early adopter pool is comparatively small. “For the people in China who bought the Model S, it’s not their first car,” argued analyst Jochen Siebert. “It’s their third or fourth car, the same set of people who would buy a Porsche 911 — there’s only a certain percent of people who want to buy this car.”

Early numbers may be inflated by “scalper” intermediaries. In the same way that scalpers re-sell football game tickets at a markup, Russo explained that a scalper economy persists for auto imports in China. “When you have a limited quantity available, scalpers run in an buy a quantity of cars early on, they flip them to end users or buyers,” he said. “You see high numbers in the early stage, but you’re not getting a clear run rate until the market reaches level of maturity.”

There’s still lots of electric car anxiety. Siebert says that with any electric vehicle in China, there’s the anxiety of “when and where will I charge my vehicle.” Plus it’s harder to do personal charging stations in the China. Quartz reported that 74% of urbanized Chinese live in apartments instead of detached homes and “park their cars in shared garages where parking operators have deemed charging stations a fire hazard.”

The consumption isn’t conspicuous enough. While it seems strange, Siebert say that one of the biggest complaints about the Model S is that it’s not sufficiently braggable. “When Chinese rich buy cars, they want to show off,” he said. The Model S is 56.5 inches tall, so it’s a fairly small vehicle. He said that “the car that Chinese love” is the muscular Porsche Cayenne SUV, which stands at 67.4 inches. Porsche sold 37,425 cars in China in 2013, and a full 26,666 of them were the Cayenne SUV — accounting for over 70% of sales.

Tesla needs to learn from that.  “The Tesla is an advertisement, but it’s not tall enough,” Siebert said. “the showoff value is too low.” Tesla has a better shot with the Model X SUV, slated to arrive in China in 2016, he said. With those upward-opening “Falcon” doors and a 64 inch height, it looks like a stronger bid to catch the eye of China’s newly rich.

Click here to read this article at businessinsider.com