Go­ing ‘green’ to be clean

Auto man­u­fac­tur­ers in­side and out­side of China are in­tro­duc­ing new elec­tric-ve­hi­cle mod­els to the world’s big­gest au­to­mo­tive mar­ket where con­sumers have shown lit­tle in­ter­est in buy­ing them, re­ports from San Fran­cisco

China Daily (Canada) - - IN DEPTH -

It’s the world’s largest au­to­mo­tive mar­ket and ve­hi­cle mak­ers from the United States, Europe, Ja­pan, and Ger­many— and even in China — are rac­ing to grab their share. It’s “green time’’ — the push to sell elec­tric ve­hi­cles (EVs) in China spurred by the cen­tral govern­ment’s de­ter­mi­na­tion to dras­ti­cally re­duce pol­lu­tion and un­clog the streets of ma­jor cities.

New EVs on the Chi­nese mar­ket will in­clude the Model S sedan by US elec­tric-car startup Tesla, and Denza, man­u­fac­tured by the joint ven­ture of BYD, China’s largest elec­tric ve­hi­cle maker, and Daim­ler (MercedesBenz), which will be shown at April’s auto show in Bei­jing.

In a coun­try where auto sales last year surged 13.9 per­cent to 21.98 mil­lion units, ac­cord­ing to the China As­so­ci­a­tion of Au­to­mo­tive Man­u­fac­tur­ers, EV mak­ers will face a con­sumer who has not demon­strated much enthusiasm for their plug-in prod­ucts. And that’s de­spite the govern­ment re­cently re­new­ing its sub­si­dies of up to 60,000 yuan ($9,836) per car for EVs for the next two years to cut emis­sions.

Tesla’s Model S elec­tric lux­ury sedan doesn’t cur­rently qual­ify for sub­si­dies, but Tesla hopes that will change. The car is priced in China at 734,000 yuan ($121,000) com­pared with its US base price of around $80,000 due to taxes and ship­ping costs.

The price of Tesla’s Model S, a ver­sion equipped with a pre­mium 85 kilo­watt hour bat­tery pack, puts it in the same bracket there as Volk­swa­gen AG, Audi S5 sedan and BMW AG’s 5-se­ries GT sedan, ac­cord­ing to Au­to­home, a car-pric­ing web­site.

c‘ It ould be as big as the US mar­ket, maybe big­ger. I don’t want to get overex­cited about it.” ELON MUSK CEO AND CO-FOUNDER, TESLA MO­TORS

CEO and co-founder Elon Musk of Tesla, named for in­ven­tor Nikola Tesla, is op­ti­mistic about the prospects for elec­tric cars in China.

Musk told Bloomberg News in Fe­bru­ary that sales of elec­tric Model S cars in China should match US lev­els as early as next year, with de­mand from the world’s largest auto mar­ket even­tu­ally re­quir­ing a lo­cal plant. For Tesla, “it could be as big as the US mar­ket, maybe big­ger. I don’t want to get overex­cited about it,” he said.

That op­ti­mism about po­ten­tial EV sales in China was echoed by John Gart­ner, re­search di­rec­tor of smart trans­porta­tion at Boul­der, Colorado-based Nav­i­gant Re­search, a mar­ket re­search and con­sult­ing firm that pro­vides anal­y­sis of global clean tech­nol­ogy mar­kets.

“We ex­pect that the govern­ment of China will soon sta­bi­lize in a con­sis­tent pol­icy of in­cen­tives and re­quire­ments in or­der to grow the de­mand for do­mes­tic and im­ported EVs,’’ Gart­ner said. “Most EVs will be sold into the cities where air qual­ity con­cerns are the high­est, and the mar­ket for plug-in elec­tric ve­hi­cles will grow to 300,000 ve­hi­cles an­nu­ally by 2022.” Wish lists

All the elec­tric-car ven­dors in China have their wish lists when it comes to gain­ing sup­port from the Chi­nese govern­ment, es­pe­cially for help in build­ing charg­ing sta­tions.

Binyam Reja, the World Bank’s coun­try sec­tor co-or­di­na­tor, said sup­ply-side in­cen­tives pro­vided by the Chi­nese govern­ment can help as­sure high-qual­ity elec­tric ve­hi­cles.

“Elec­tric ve­hi­cles are de­signed and the man­u­fac­tur­ers are com­mit­ted to mar­ket­ing these ve­hi­cles to the pub­lic in in­creas­ing num­bers. On the de­mand side, cash in­cen­tives can re­duce the higher price of EVs un­til a sus­tain­able mar­ket is de­vel­oped. Other in­cen­tives such as pref­er­en­tial park­ing or oper­a­tion can im­prove the eco­nom­ics and in­crease the de­sir­abil­ity of own­ing an elec­tric ve­hi­cle as well,” said Reja.

Tesla’s up­com­ing launch, ac­cord­ing to Diar­muid O’Con­nell, vice-pres­i­dent of busi­ness de­vel­op­ment, is strate­gi­cally planned to “serve ev­ery cus­tomer in China, no mat­ter where he or she is”.

“Elon has for­bid­den any­body within our com­pany call­ing ‘tier 1 or tier 2’ cities in China when it comes to de­scrib­ing coastal or in­ner cities. He be­lieves we should treat all cus­tomers equally, whether it’s a cus­tomer from Shang­hai or from Chengdu in Sichuan prov­ince, and that’s the phi­los­o­phy Elon wants to carry on.”

With a mar­ket cap­i­tal­iza­tion of nearly $25 bil­lion, slightly less than half of Gen­eral Mo­tor Co’s $57.7 bil­lion, Tesla’s on­line pre-book or­der in Bei­jing and Hong Kong opened last Novem­ber, and O’Con­nell said Au­gust has been “very promis­ing”. He de­clined to re­lease any num­bers, but said the com­pany is “very pleased with the progress, es­pe­cially af­ter the price was re­leased.

“In the past cus­tomers in China have made a de­posit for a reser­va­tion with­out even know­ing how much the car is go­ing to cost, it’s been a leap of faith for them. Now they can go to the web­site to or­der di­rectly, con­fig­ure the de­tails of their or­der from color to seat cover ma­te­rial,’’ said O’Con­nell. “We would like to go as quickly as pos­si­ble in the China mar­ket and are work­ing hard to fa­cil­i­tate ser­vices needed to serve our cus­tomers. We may not have a ser­vice cen­ter in the city a cus­tomer lives in, but will sup­port ev­ery cus­tomer who buys a ve­hi­cle to make sure it’s ser­viced.” BYD’s fo­cus

Stella Li, se­nior vice-pres­i­dent of BYD, said she an­tic­i­pates huge mar­ket growth for elec­tric cars in China in the next few years. BYD’s main fo­cus is pub­lic trans­porta­tion and plug-in hy­brid elec­tric ve­hi­cles.

Founded in 1995 and head­quar­tered in Shen­zhen and known for Amer­i­can bil­lion­aire War­ren Buffett’s 10 per­cent own­er­ship, BYD has 177,624 em­ploy­ees, 15,000 en­gi­neers, 2,099 valid patents, with global rev­enue of $7.25 bil­lion in 2012.

“Many people don’t know that we are a world leader when it comes to elec­tric pub­lic trans­porta­tion,’’ Li said.

“The pri­or­ity of the Chi­nese govern­ment is to elec­trify some 400,000 diesel buses and 1.2 mil­lion taxis in China, which will de­crease 25 per­cent fuel us­age, and so far our test­ing re­sult has been great,” Li said.

BYD’s sec­ond fo­cus is a plug-in hy­brid car, Qin, which runs 43 miles on its elec­tric en­gine and 500 miles on gaso­line. The eco­nomic ver­sion of the Qin is priced at $30,919 and its lux­ury ver­sion at $34,177, be­fore govern­ment in­cen­tives are ap­plied. The other model, e6, sells at $50,468 and $60,242 for its lux­ury ver­sion.

In De­cem­ber 2013 and Jan­uary 2014, 815 of BYD’s plug-in elec­tric ve­hi­cles were sold, ac­cord­ing to Raby Yan, BYD’s mar­ket­ing man­ager.

“This will serve most of the people who are city trav­el­ers who drive short dis­tance to work and come home,’’ Yan said. “Most of us don’t drive that far if we cal­cu­late our daily rou­tine and plug-in hy­brid serves the per­fect pur­pose for daily use on elec­tric part for the first 30 miles and on gaso­line if they travel fur­ther.”

Li, a grad­u­ate of sta­tis­tics from Fu­dan Univer­sity in Shang­hai who joined BYD in 1996, said the 2010 joint ven­ture be­tween BYD and Daim­ler or Mercedes-Benz — known as BYD Daim­ler New Tech­nol­ogy or BDNT — has bet­ter po­si­tioned both com­pa­nies for the EV mar­ket.

“Our part­ner­ship with Daim­ler has helped us learn from each other in terms of man­age­ment, de­vel­op­ment of the core tech­nol­ogy, qual­ity con­trol, planned de­vel­op­ment, and the sta­bil­ity as­sur­ance of the tech­nol­ogy,” Li said.

The joint ven­ture also aims at launch­ing high-end elec­tric ve­hi­cles in China. Its first model, Denza, will be sold through deal­ers and dis­tri­bu­tion cen­ters be­ing es­tab­lished in Bei­jing, Shang­hai and Shen­zhen.

BDNT COO Arno Rohringer said China, as the big­gest au­to­mo­tive mar­ket in the world, will play a key role in the pub­lic’s ac­cep­tance of elec­tric cars.

“Lo­cal de­vel­op­ments re­gard­ing the en­vi­ron­ment and mo­bil­ity will have a cru­cial role in the mar­ket as well as the lo­cal de­vel­op­ment of the elec­tric ve­hi­cle it­self,” Rohringer said.

While BYD is part­ner­ing with the State GRID cor­po­ra­tion of China and China South­ern Power Grid to work on charg­ing sta­tions for its res­i­den­tial and commercial cus­tomers, Tesla is also work­ing on build­ing home charg­ing sta­tions and su­per charg­ing sta­tions in China, a project which needs sup­port from lo­cal Chi­nese govern­ment, util­ity com­pa­nies and land­lords.

Home charg­ing as the pri­mary charg­ing so­lu­tion is some­thing Tesla is spend­ing a lot of time on be­cause of two is­sues, said O’Con­nell of Tesla.

“The first is to make sure Tesla cars work well in a Chi­nese en­vi­ron­ment by hav­ing the right adap­tors, charg­ers, the right pro­tec­tions and pro­to­col in place,’’ he said. “The other is­sue, which is not unique to the Chi­nese mar­ket but is per­haps the most pro­found to the Chi­nese mar­ket, is China has a lot of high den­sity dwellings in large cities such as Bei­jing and Shang­hai where people live in high-rise prop­er­ties and do not con­trol their charg­ing.

“If you have a villa there is no prob­lem, in a high-rise you have to work with the land­lord, we are work­ing out so­lu­tions so that ev­ery Tesla owner can bring a car home and charge it eas­ily.”

Tesla is also look­ing at su­per charg­ing sta­tions for long-dis­tance driv­ers be­tween ma­jor cities such as Shang­hai and Bei­jing.

“We are not the only folks who are work­ing on these is­sues; there are Chi­nese man­u­fac­tures, for­eign e-ve­hi­cle ven­dors such as BMW and Gen­eral Mo­tors as well,” O’Con­nell said. In­fras­truc­tural re­quire­ments

Rohringer said the chal­lenge in China, as in other mar­kets, is to ad­dress the in­fras­truc­tural re­quire­ments, and to unite cus­tomer’s ex­pec­ta­tions in terms of par­tic­u­lar range and will­ing­ness to pay with the cost struc­tures for the new tech­nolo­gies.

BYD’s Li said work­ing with the govern­ment sec­tors is per­haps the most im­por­tant is­sue any elec­tric car maker needs to fo­cus on.

“It’s im­por­tant that the Na­tional De­vel­op­ment and Re­form Com­mis­sion (NDRC) en­sures a good pol­icy for elec­tric ve­hi­cle ven­dors so that once a cus­tomer buys an elec­tric ve­hi­cle, he or she has no trou­ble to charg­ing it at home. If a cus­tomer wor­ries about charg­ing and main­te­nance of any kind, they are un­likely to be mo­ti­vated to buy.”

The cost of an EV’s bat­tery is also a stum­bling block to elec­tric car adop­tion. The higher price of the ve­hi­cle is largely due to the bat­tery price, and this has been a chal­lenge to spurring con­sumer adop­tion in China.

Li said BYD’s lithium-iron-phos­phate bat­tery, in­cor­po­rated in e6 en­ables a 186-mile range, and a 155-mile range for its 40-foot elec­tric bus. The bat­tery’s en­ergy ca­pac­ity re­tains 70 per­cent of its orig­i­nal strength af­ter 10,000 miles.

Tesla’s O’Con­nell said the com­pany has put re­sources into bat­tery re­search, de­vel­op­ment and test­ing and will con­tinue to do so to drive the price down in five to seven years for its up­com­ing mod­els.

“One of the great rev­o­lu­tions that Tesla has gone through is the ad­vance­ment of bat­tery tech­nolo­gies. Some of the smartest people are work­ing from dif­fer­ent an­gles to­ward the same di­rec­tion, and we are con­stantly look­ing at the in­no­va­tion, and try­ing to fig­ure out the most promis­ing tech­nol­ogy,” he said. Tesla’s mar­ket

With Tesla’s Model S tar­get­ing the high-end con­sumer mar­ket in China, BYD tar­get­ing pub­lic trans­porta­tion with buses and taxis, its Qin for plug-in hy­brid’s con­sumer mar­ket, and Denza tar­get­ing the mid-end elec­tric ve­hi­cle mar­ket, the man­u­fac­tur­ers are go­ing af­ter dif­fer­ent seg­ments of the mar­ket and not com­pet­ing against one an­other.

“The elec­tric car mar­ket needs a lot of com­pa­nies to play as a force to­gether to move for­ward as a green in­dus­try, no­body can re­ally dom­i­nate the mar­ket, it’s a joint ef­fort to­gether,” Li said.

O’Con­nell, an MBA grad­u­ate of North­west­ern Univer­sity who worked for the US State Depart­ment for three years be­fore join­ing Tesla in 2006, said Tesla is not com­pet­ing with other elec­tric ve­hi­cles.

“Our Model S and model Road X are de­signed and de­vel­oped with a cer­tain pro­file and price point to di­rectly com­pete with gaso­line ve­hi­cles of the same class, such as the Mercedes-EX class, Audi and BMW, Bent­ley, Rolls Royce and other lux­ury cars, and we have been very suc­cess­ful in the US mar­ket,’’ he said. “We are try­ing to take share away from those ve­hi­cles, not the elec­tric ve­hi­cles.”

O’Con­nell said Tesla is not just com­ing to China to sell cars, but to ac­cel­er­ate the mar­ket for elec­tric ve­hi­cles. If it suc­ceeds, “other com­pa­nies like BYD and for­eign com­pa­nies will also be suc­cess­ful in sell­ing the e-ve­hi­cles,’’ he said.

“What we are try­ing to do is to put the best pos­si­ble tech­nol­ogy there in the most com­pelling pack­age pos­si­ble and get the gen­eral pub­lic ex­cited about elec­tric ve­hi­cles.” • BS, sta­tis­tics, Fu­dan Univer­sity

(1992) • CEO, BYD Mo­tors Inc (2010) • Se­nior Vice-Pres­i­dent, BYD Co Ltd

(2012) • Board Mem­ber, ITS-UC Davis

(2013) • Board Mem­ber, Asia So­ci­ety of

Soth­ern Cal­i­for­nia (2013) • MS, me­chan­i­cal en­gi­neer­ing,

Univer­sity of Karl­sruhe (1977) • As­sis­tant Pro­fes­sor, civil en­gi­neer­ing, Univer­sity of Ken­tucky (1977) • DUERR Co (1978-1981) • Daim­ler AG (1981) • COO, Shen­zhen BYD Daim­ler New

Tech­nol­ogy Co Ltd (2010-Present)

Nav­i­gant Re­search’s Gart­ner said it is too early to tell who is even­tu­ally go­ing to have the big­gest slice of the elec­tric-ve­hi­cle mar­ket in China, “but the Ger­man auto com­pa­nies are well po­si­tioned to ap­peal to Chi­nese con­sumers’ tastes”, he said.

“Com­pa­nies need to en­sure that their brand recog­ni­tion is fa­vor­able with Chi­nese con­sumers, source ma­te­ri­als lo­cally when pos­si­ble, and ap­peal to con­sumers’ ex­pec­ta­tions for pas­sen­ger and cargo space,” Gart­ner said.

“Elec­tric ve­hi­cles will be suc­cess­ful once they are priced to meet con­sumer ex­pec­ta­tions and ve­hi­cles are pro­duced in the size (SUV, large sedan) that higher-end con­sumers want.” Con­tact the writer at kel­lyzhang@chi­nadai­lyusa.com

PRO­VIDED TO CHINA DAILY

Vis­i­tors look at an elec­tric car at Shan­dong In­ter­na­tional Elec­tric Ve­hi­cle and Parts Ex­hi­bi­tion in Ji­nan, cap­i­tal of East China’s Shan­dong prov­ince, on March 1.

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