MADE-IN-CHINA CARS START THEIR ENGINES
Billionaire launches master plan to help nation’s firms dominate the next era of driving
On a bright spring day in Amsterdam, car buffs stepped inside a blacked-out warehouse to nibble on lamb skewers and sip rhubarb cocktails courtesy of Lynk & Co., which was showing off its new hybrid SUV.
What seemed like just another launch of a new vehicle was actually something more: the comingout party for China’s globally ambitious auto industry. For the first time, a Chinese-branded car will be made in Western Europe for sale there, with the ultimate goal of landing in U.S. showrooms.
That’s the master plan of billionaire Li Shufu, who has catapulted from founding Geely Group as a refrigerator maker in the 1980s to owning Volvo Cars, British sports carmaker Lotus, London Black Cabs and the largest stake in Daimler AG — the inventor of the automobile. Li is spearheading China’s aspirations to wedge itself among the Big Three of the global car industry — the U.S., Germany and Japan — so they become the Big Four.
“I want the whole world to hear the cacophony generated by Geely and other made-in-China cars,” Li said. “Geely’s dream is to become a globalized company. To do that, we must get out of the country.”
He’s not alone: At least four Chinese carmakers and three Chinese-owned startups — SF Motors Inc., NIO and Byton — plan to sell cars in the U.S. starting next year. At the same time, Warren Buffettbacked BYD Co. is building electric buses in California; Baidu Inc. is partnering with Microsoft Corp., TomTom NV and Nvidia Corp. on a self-driving platform; and Beijing-based TuSimple Inc. is testing autonomous-driving big rigs in Arizona.
The industry is set for more upheaval as China unravels a twodecade policy that capped foreign ownership of carmaking ventures at 50 per cent. The change may energize companies such as Volkswagen AG and Ford Motor Co. to seek a bigger piece of the world’s largest car market and allow Tesla Inc. to set up a fully owned unit. Carmakers may get better visibility of their futures, and those Chinese companies that fear losing sales at home may sense a greater impetus to go abroad.
“They are in a better position now than they ever have been,” Anna-Marie Baisden, head of autos research in London with BMI Research, said of Chinese carmakers. “They’ve had so much time working with international manufacturers and have become a lot more mature.”
We’ve seen this movie before from China — in the smartphone industry. The nation used the shift in technology from basic flip phones to hand-sized computers to dominate the manufacturing industry, trouncing then-dominant makers from Finland, Sweden, the U.S., Japan and Germany.
Last year, three of the top five smartphone handset makers in the world were Chinese, according to Gartner Inc.
Yet the sequel may take longer to become a hit, given the brand loyalty that has existed since Henry Ford debuted the Model T in 1908. How will Chinese automakers convince Midwesterners to give up their Ford F-150 pickups or Tokyo residents to switch from their Toyotas?
“Chinese carmakers intend to come over, but what need will they fill?” said Doug Betts, senior vice-president of global automotive practice at J.D. Power. “What is the reason to buy their cars?”
Chinese cars probably would compete more directly with Japanese and Korean models, said Bob Lutz, the retired vice-chairman of GM. American consumers mostly cross-shop Asian brands.
“If they start coming in, they won’t be any more competent than Korean and Japanese cars,” Lutz said. “They would probably take share from other Asian brands because the vehicles will be more Asian in character. They’re not going to get much market share.”
And then there’s U.S. President Donald Trump. Trade tensions between the U.S. and China are simmering as both nations move to slap tariffs on each other’s products. Last month, China said it would levy an additional 25-per-cent levy on about US$50 billion of U.S. imports, including automobiles and aircraft. The move matched the scale of proposed U.S. tariffs, with Trump threatening an escalation.
That’s not to say the road is impassable. A few decades ago, South Korea’s Hyundai Motor Group was knocked for fragile engines and rust-sensitive body panels. Now it’s one of the five biggest manufacturers in the world, selling about 1.25 million cars in the U.S. last year, according to Bloomberg Intelligence.
“Competitors emerging from China must be taken seriously,” said Matthias Mueller, former chief executive of Volkswagen, Europe’s biggest carmaker. “I visited China for the first time in 1989, and the development that has happened there since then is just impressive.”
The creeping global influence of China’s industry isn’t limited to getting their wheels on U.S. and European roads. Equally important, the Chinese are getting under the hoods of foreign brands by buying up parts suppliers, making batteries for the world’s EV fleet and corralling supplies of the metals that give those batteries life.
Automakers such as Geely, Chery Automobile Co. and BYD started talking a decade ago about cracking the U.S. auto market with an array of low-cost passenger vehicles. Those efforts stalled, so the industry built a global presence through acquisitions.
Chinese companies have announced at least US$31 billion in overseas deals during the past five years, buying stakes in carmakers and parts producers, according to data compiled by Bloomberg.
The most prolific buyer is Li, who spent almost US$13 billion on stakes in Daimler and truck maker Volvo. Tencent Holdings Ltd., Asia’s biggest internet company, paid about US$1.8 billion for five per cent of Tesla.
As software and electronics become just as critical to a car as the engine, China is ensuring it doesn’t lag behind in that market, either. Baidu, owner of the nation’s biggest search engine, announced a US$1.5 billion Apollo Fund to invest in 100 autonomous-driving projects during the next three years.
Baidu and Tencent are among the Chinese corporations racing Alphabet Inc.’s Waymo, Uber Technologies Inc. and the major automakers to develop autonomous driving, with an aim for mass adoption by 2021.
The government’s aspiration to deploy 30 million autonomous vehicles within a decade is seeding a fledgling chip industry, with startups like Horizon Robotics Inc. emerging to build the brains behind those wheels.
Then there’s Ningde-based Contemporary Amperex Technology Ltd., the maker of electric-vehicle batteries that’s planning a US$1.3billion factory with enough capacity to surpass the output of Tesla and dwarf the suppliers for GM, Nissan and Audi.
To juice those batteries, Chinese companies are leading the way in securing necessary raw materials like cobalt and lithium. Chinese companies make about 60 per cent of the world’s refined cobalt, according to trading firm Darton Commodities Ltd.
China Molybdenum Co. is the world’s second-biggest cobalt miner after Glencore Plc. The company, with a market value of more than US$24 billion, became a major force in battery metal in 2016 after buying control of the cobaltrich Tenke Fungurume mine in the Democratic Republic of Congo.
The Chinese government sees EVs as its best chance to seize global leadership in an emerging powertrain technology. Cleaning the notoriously smoggy air and reducing a dependency on foreign petroleum are bonuses.
China, already the world’s biggest vehicle market, overtook the U.S. as No. 1 for EVs in 2015. This week’s Beijing auto show is featuring 174 EV models, with 124 of them developed domestically.
China’s knack for speedy adaptation has put the country in a position to lead the auto industry in new technologies, Toyota Motor Corp.’s China chief executive Kazuhiro Kobayashi said.
President Xi Jinping showed his determination towards that goal during a 2014 trip to Shanghai. “Developing new-energy vehicles is the only way for China to move from a big automobile country to a powerful automobile hub,” he said when visiting SAIC Motor Corp., a Shanghai government-owned company that partners with GM and Volkswagen in China.
That set off a chain reaction. SAIC, the country’s largest automaker by unit sales, invested more than 20 billion yuan in new-energy vehicles, or NEVs, which include electric cars, plug-in hybrids and fuel-cell vehicles.
Western companies dominated for almost a century because they refined the internal-combustion engine. The electric motor threatens to erase that disadvantage, said Hu Xingdou, an economics professor at the Beijing Institute of Technology.
“NEVs can help China to become a global leader in the auto industry,” Hu said. “China and the rest of the world can now start from the same starting line.”