When following the EV story in the Western press, you would be forgiven for thinking that it is solely a story about Tesla. Having such a flamboyant and charismatic head in Elon Musk obviously helps the narrative. Another reason for the neglect of the Chinese EV market is that it is just bloody difficult to discern what is going on there.
The ownership structure of Chinese automakers is complicated, with public-private partnerships, joint ventures with foreign makers, and cross- and subsidiary-holdings galore. Moreover, new entrants into the EV market are announced almost every day, fresh alliances are formed, units are spun out or merged and foreign parters are brought in or dropped.
The fragmented and somewhat chaotic nature of the Chinese auto-manufacturing marketplace was viewed as a disadvantage in the Harvard-Kennedy study I referred to in a previous post. Yet out of this chaos has grown increasing Chinese market share: 10 of the top 25 best-selling EV models globally in Q1 of 2018 were Chinese brands (Chart from EVvolumes.com).
The situation contrasts markedly with what is going on in the overall Chinese market where ICE vehicles still dominate. There, Volkswagen sits supreme at the top, with only 1 Chinese maker in the top five. I’ve marked in red those Chinese producers who have EV models featuring in the table above (note Zhi Dou is a subsidiary of Geely).
Moreover, there appears to be a distinct difference in strategy between foreign and Chinese makers with respect to EVs. The few foreign firms that have invested heavily in EVs (Tesla excepted) have just promoted one or two EV models to champion in this space: think GM’s Chevrolet Volt and Bolt, Nissan’s Leaf, BMW’s i3 and Mitsubishi’s Outlander (although as I posted on here, over the last six months that has changed radically).
Many Chinese makers, by contrast, have been setting up or spinning out dedicated EV subsidies whose aim is to launch a range of models and who are less worried about cannibalising successful and profitable existing ICE lines. The Chinese makers also have the advantage of access to risk capital through multiple public-private channels under China’s unique form of Wild West capitalism. So the Chinese majors a) have large equity stakes from state-owned enterprises, b) are able to borrow from state-owned banks, and c) are also accessing global capital markets through listing on stock exchanges in China and Hong Kong.
Let’s dig a little deeper into those Chinese names who have had initial success in the Chinese EV marketplace, and some of the larger auto makers who are yet to show up in the EV rankings. We should note, however, that at this early stage of the S curve, rankings are very fluid and names can suddenly appear at the top of the sales charts from out of nowhere, or, for that matter, drop off.
In the US, most observers would nominate Elon Musk of Tesla, Jeff Bezos of Amazon, Mark Zuckerberg of Facebook and Larry Page and Sergey Brin of Google as visionary leaders. Jack Ma of Alibaba has also made it into the Western consciousness but not so Li Shufu of Geely. A hybrid oligarch entrepreneur, Li has personally bought a 9% stake in Daimler and a 6% stake in Volvo Trucks. That comes after Geely (Li is chairman) bought Volvo cars outright in 2010. More recently, Geely took a controlling stake in supercar maker Lotus in January 2018.
With the announcement that Volvo will only sell EVs or hybrids from 2019, Geely has a dedicated EV brand at the top of the market and also one at the bottom of the market with Zhi Dou. It is also rapidly electrifying its mid-market offerings that it sells in its own name, with a major announcement of a new plug-in version of its flagship Bao Rui Sedan at the Beijing Motor Show in April 2018. The company’s intention is clear: it wants to extend the Volvo EV commitment across all its offerings at breakneck speed as spelled out by its CEO and President An Conghui:
“China will ultimately become the global centre of a new energy revolution that will reinvent the car as we know it, hence making its automotive industry stronger and more resilient. As a leading Chinese automotive brand, we’ve realised that competition in this new era will come in the form of a technology war and that we must lead through technological innovation to become the vanguard of this new age.”
While none of Changan Motors models are present in the top 25 table above, the company already is marketing a range of EVs in the SUV, mid-market sedan and compact car segments of the market.
The company also launched its “Shangri-La Plan” in September 2017, which includes a $15 billion investment in EVs, and 33 EV models to be added to its existing line-up of 4 EV models,by 2025; at that time, all its models will be offered as EVs. An interesting part of the plan was the announcement of strategic partnerships with the German parts maker Bosch, the dominant Chinese search engine Baidu, the ride-hailing company Didi Chuxing and the lithium-ion battery producer CALT (the largest lithium-ion battery maker in the world).
Again, I am not sure how many observers of the EV market realise the type of technology and capital Changan is accessing through these alliances. Didi is the largest ride-sharing company in the world, far outpacing Uber and Lift. It has a market capitalisation of $50 billion, larger than Tesla. Baidu is the largest search engine the world after Google and one of the leading companies in artificial intelligence (AI). Its market cap at $75 billion is larger then any car maker in the world except for Toyota and Volkswagen.
Not surprisingly, Changan Motors wants to lever these relationships with Didi and Baidu so as to become a leader in autonomous driving technology.
SAIC (Shanghai Automotive Industry Corporation ) Motor
As is typical in the Chinese auto industry, the state-owned (and thus deep-pocketed) SAIC pops up in my top 50 sales ranking of the Chinese auto market in a number of different places. In seventh place is its Baojun marque, which is a joint venture between SAIC and General Motors at the budget end of the market competing against Geely and Chery. It does have EV aspirations and a dedicated EV plant was established in 2017.
For more high-end vehicles, however, we need to turn to SAIC Roewe, SAIC’s luxury marque. In my last post, I quoted Ken Brinsden of Australian lithium-mining company Pilbara Minerals. Ken said this at a presentation to the Melbourne Mining Club:
“For those of you who have a picture in your mind that the Chinese cannot build a quality outcome, I’m telling you they are already there.”
If you don’t believe him then check out SAIC Roewe’s EV SUV the eRX5 and their i6 saloon, which feature in the Chinese sales table above at ranks 16 and 18. Even more impressive is that SAIC have teamed up with Jack Ma of Alibaba to incorporate every aspect of digital technology into future car production (quote from here):
“In July 2016, Alibaba Group and SAIC (Shanghai Automotive Industry Corporation), one of the largest auto manufacturers in China, teamed up to launch the Roewe RX5, a brand new SUV that incorporated Alibaba’s ALIOS operating system and that was dubbed “The world’s first mass-produced internet car.” Just one year later, in July 2017, the Roewe RX5 was already the 6th best-selling SUV in its category in China.
And, most importantly, when asked about their buying decision 75% of customers said they purchased the RX5 because of its connectivity. In other words, what they valued most of all was not the car’s design or its comfort, its engine performance, or its safety standards, but the fact that it gave them the connected mobility that would integrate them seamlessly with the rest of Alibaba’s ecosystem, where smartphones, shopping sites, payment systems, video services, IOT-enabled home appliances, wearable devices, and – yes – cars, are all linked together as part of one comprehensive digital immersion experience.”
Dongfeng Motor Corporation
Another state-owned enterprise like SAIC, Dongfeng has been somewhat of a laggard in the EV space. Currently, it main avenue to incorporating more EVs into its line-up is through its joint venture with Nissan, the Dongfeng-Renault Automotive Company (DRAC). Yet don’t count Dongfeng out due to its access to huge amounts of capital.
The FAW Group is another state-owned enterprise; along with Changan Motors, SAIC and Dongfeng, FAW is part of what are called the ‘Big Four’ in Chinese automotive circles. In FAW’s case, its joint venture with Volkswagen Group has made it one of the largest players in the Chinese automotive market.
In December 2017, recognising that the Chinese automotive market was entering a new era centred around EVs, FAW entered an agreement with two other of the Big 4 state-supported enterprise Changan and Dongfeng to pool resources. The agreement had the following goals:
- Establishment of a national innovation centre for intelligent connected vehicles.
- Creation of an advanced technology innovation centre that will develop in the fields of new energy, internet connectivity and lightweight materials.
- Joint investment and development of core technologies and shared platforms.
I would expect a number of well-financed new EV initiatives to come out of this alliance.
Great Wall Motor Company
In number eight in the overall (ICE plus EV) sales chart is Haval, which is a marque of Great Wall Motor Company specialising in SUVs. In my last post, I mentioned that Great Wall has also set up an EV specialist operation under the Wey marque.
A hiring spree for top European auto talent resulted in Jens Streingrabber, who was responsible for SUV development at Audi, coming to the group as CEO for the Wey brand. He was later joined by the chief designer from BMW. Great Wall’s aspirations are evidenced by initiatives to incorporate Level 5 autonomous driving capability and contactless charging in future Wey models.
Beijing Automotive Holdings (BAIC)
BAIC is 60% owned by the Chinese government and 12% by Daimler of Germany. In January, 2018, Beijing Electric Vehicle Company (BJEV) was spun out of BAIC as a pure play EV company and currently boasts the top-selling EV in China, the BJEV EC180/200.
In March 2018, BAIC opened a brand new dedicated EV factory in Changzhou, Jiangsu province, which at full production will be capable of making 300,000 vehicles per year. BAIC has promised to end the sale of all fossil fuel cars by 2025.
The parent company BAIC, together with other state-entities, own a majority share of BAIC Motors, which is an auto company listed in Hong Kong (the listed piece of BAIC whose market cap I have included in the chart above; but don’t confuse it with the valuation of the wider group). The principal business of BAIC Motors are joint venture operations with Daimler (Beijing Benz brand) and Hyundai (Beijing Hyundai brand), as well as its own-brand vehicles (Beijing Brand).
BYD (Build Your Dreams)
Considered the closest Chinese equivalent to Tesla, BYD is a pure EV player, built out of a battery business rather than an ICE business. Its model the Song ranked fourth by sales in China in the first quarter of 2018. Warren Buffet and Charlie Munger’s investment in BYD way back in 2009, so the company has had some publicity overseas. Listen to Charlie Munger talk about BYD’s CEO Wang Chuanfu:
BYD remains just as much an electronics company as an automotive company as can be see from its latest annual report:
Wang Chuanfu, visionary CEO, started the company as a specialist in lithium-ion batteries for cell phones and has expanded from there. A major difference between BYD and Tesla, however, is that BYD’s core competence has been in lithium-iron phosphate battery chemistry. Such battery cells are very stable but lack the specific energy (energy stored per unit of volume) of batteries (like Tesla’s) that make use of cobalt compounds. This is an important topic, but I will return to it as a post in its own right down the road.
The company also has a strategic alliance with Daimler, and in September 2017 Daimler announced a large expansion of both battery production and EV sales in China working with BYD.
JAC (Anhui Jianghuai Automobile) Motors
Another state-owned company though with a stock market listing. JAC also has an alliance with Volkswagen (along with FAW and SAIC) and in 2017 they announced a joint project to build 100,000 pure EVs per year. The JV will see $12 billion invested over the next 7 years through to 2025, with the aim of producing 40 EV models locally.
To date, its EV offerings in China, such as the iEV6e have been at the compact end of the spectrum like those of Geely and Chery.
Chery is an independent non-state company like Geely. It is the only Chinese company that, to date, has had some success marketing its products abroad, with over one million units exported.
Simultaneous with the Frankfurt motor show, Chery announced its intention to start selling all-electric models in Europe in 2017. While the Chery eQ EV is a SMART-type city compact car, the new offerings being promoted and unveiled at recent motor shows are are at higher sticker price tags including the compact SUV Exeed TX. They incorporate high-end electronic systems similar to Tesla, such as a 10-inch touch screen.
Jiangling Motors (JMC)
In the past, JMC was mostly associated with a joint venture with Isuzu of Japan, selling compact cars. More recently, however, it has been expanding its EV offerings in larger model sizes. In addition, Ford has been negotiating with JMC to set up an EV operation in China aimed at producing commercial vehicles. This is in addition to Ford’s EV joint venture with another Chinese auto maker Anhui Zotye.
I could go on with this blog post since I have yet to cover the EV aspirations of a whole host of other Chinese EV makers, both incumbents and brand new entrants. The above, however, gives you a sense of the fever pitch activity going on in the Chinese market. Out of this rather complex mess of car-maker acronyms and complicated holding structures, I will, nonetheless, pull out some key points:
- The Chinese market hosts a vibrant ecosystem of disruptors who wish to leapfrog western dominance of auto markets through jumping directly into high spec advanced EVs. These include BYD, Changan Motors, SAIC Roewe, BJEVs and Wey.
- Like the US, China has access to leading edge digital technologies like AI through its huge tech firms such as Baidu and Alibaba. These deep-pocketed tech firms are forming alliances across the board with auto makers and in the process changing cars into consumer electronics items as much as a means of transport.
- You shouldn’t count out the large laggards like FAW and Dongfeng. They have what a company like Chrysler doesn’t: massive state support. The support consists of a) vast pools of capital composed of both state-originated equity and loans and b) the means to transfer in technology through the state’s control of overseas makers access to the Chinese market (in effect limiting access to joint ventures only).
- Lastly, take a looks at this video (which has a rather annoying computer-generated interpreting system from Chinese into English, but bear with it) You will get to see BYD’s 4 wheel drive EV the SEED, with a 600km range on one charge and an acceleration of zero to 100 km in 3.9 seconds. Tesla: eat your heart out.
For those of you coming to this series of posts midway, here is a link to the beginning of the series.