China’s leaders are feeling frustrated regarding electric vehicles. They have set a target of 5 million battery-electric and plug-in hybrid electric (and hydrogen fuel cell but we will just forget about those for now) vehicles on the road by 2020 and are very far from that target. They have been taking the “crossing the river by feeling for the stones” approach to boosting EV (which for the purposes of this blog will refer to BEVs and PHEVs) sales, announcing a rash of incentives and policies to try to convince Chinese consumers to go electric. such as allowing EVs to drive on China’s congested highways all the time — unlike gas-powered cars, which face restrictions in some cities — and free licenses plates for EVs.
It hasn’t worked. To be sure, production of New Energy Vehicles, as China likes to call EVs, surged in November. China’s automakers can’t ignore more or less direct orders from the Central government to produce EVs. So production rose sixfold, to around 30,000 passenger BEVs, 7,509 passenger PHEVs, and a bunch of commercial PEVs as well. Sales figures haven’t been released yet, but I’m sure they will also show impressive growth.
But the numbers are still far short of what is needed to hit the magical 5 million by 2020. So Beijing has fallen back on what it knows best – a command economy. As my friend Yang Jian wrote in Automotive News China, the Central government has now assigned each province a sales quota for EVs. (go to http://www.caam.org.cn/zhengceyanjiu/20151216/1605181551.html and click on link at bottom of story).
Of course those quotas will be met. As Yang Jian points out, local government officials’ promotions are tied to meeting central government targets. Exactly how local government officials will achieve those sales quotas given the lack of enthusiasm for EVs is unclear. My bet is on some numerical slight of hand plus a lot of pressure on local government-owned companies to buy EVs.
This kind of policy isn’t entirely new. Beijing a few years ago issued a mandate for all local governments to buy NEVs and to make 30 percent of their new fleet purchases NEVs. That didn’t work. The same policy required 30% of those purchases to be from an auto manufacturer not in the same region. This was meant to prevent local government from just buying a bunch of EVs from the local automaker, which would have suddenly begun producing EVs. Or from the newly-formed EV manufacturer in town. Both would likely be invested in by the local government. So the money would stay local. But neither mandate seems to have been enforced.
Which brings us to a real problem with the most recent quota move — enforcement hasn’t been specified. Implementation is frequently the weak point in Central government policies in China because enforcement is weak. That is because of push back from vested interests. China’s central government has no problem enforcing a policy if it really wants the policy or regulation or law to be followed.
When enforced, these kind of command economy quotas haven’t worked so well for China in the past. Overcapacity, shoddy workmanship, and huge waste of resources is often the result. I predict that will also occur with EVs, and could have some dire consequences since a shoddily-produced car going even 50 km/hour is dangerous. Which reminds me to ask, will low-speed vehicles be included in the quota? If so, meeting the sales quota may be possible. But I doubt LSEVs will be included.
The other recent EV-related command is to build charging infrastructure. This is desperately needed and much less expensive. Plus, there isn’t a huge downside to too many charging stations (which will never happen anyway). But how different is this from the numerous earlier policies aimed at boosting EV charging infrastructure? In 2014 the government was going to spend 100 billion RMB on charging infrastructure and promoting EVss. That was supposed to happen in 2015, as well. Okay, that is the same policy, I suppose. But there isn’t anything very new about the recent pronouncements and they haven’t worked yet.
One thing I will say for China’s Central government, it hasn’t wavered in its commitment to EVs. (For an excellent overview of the entire history of China’s legislative and policy efforts to boost NEVs check out this report.)
China faces the same issues as the U.S. in expanding its EV fleet, mainly high cost, lack of charging infrastructure, and consumer uncertainty (produced by the previous two issues). Is commanding provinces to sell more EVs the answer? I don’t think so but I do understand why China is trying this approach. I am just skeptical it will work. But the it is better than just giving up, I suppose.
I was in Beijing from September 19-26 and did some on-the-ground research into the EV market situation. My conclusion? Beijingers are buying electric vehicles to avoid taking the subway to work. Okay that is an assertion that may not hold for 100% of those buying EVs. But a bunch of them are for sure buying EVs to be able to drive every day in China’s capitol. That’s one thing I learned in my recent visit to Beijing.
Sales of plug-in electric vehicles are growing by leaps and bounds in China. But only because the central government and local governments are rolling out all kinds of incentives to entice China’s wary consumers to try the EV way of life. Its working for now, but like the sales boost the entire car market in China got in October from the tax cut for vehicles with 1.6 liter and less engines, this jump in EV sales is only a short-term fix. Longer term China needs the same thing we need here in the U.S. to boost EV sales – lots more charging stations and better battery technology/longer range/lower price (which are all connected).
Still, I must admit that Chinese are apparently buying some EVs now. According to the China Association of Automobile Manufacturers, some 126,733 plug-in electric vehicles were sold in China in the first nine months of 2015, an increase of 2.3 times. Battery electric vehicles accounted for more than half the sales, at 87,531 units. It is taking some pretty serious policy moves on the part of the central and local governments to produce these kinds of numbers, however.
Since I was just in Beijing, and talked to people about the Beijing market for a story for Wards Auto, let’s consider Beijing a representative of all local governments in China. Actually, more like most local governments. Shenzhen has a bit of a head start because BYD is based there and it has pushed BEV sales for longer than most local governments. Not surprisingly, China’s local governments prefer to boost sales of PEVs produced by local companies, of which they are often part owner (though not in BYD’s case, but Shenzhen surely benefits from BYD making more money).
The best-selling BEV in Beijing is made by BAIC, which is owned by the Beijing Municipal government. There’s also a bit of local pride involved in the burst of BAIC EV sales, apparently. I visited a dealership selling BAIC-brand battery electric vehicles while in Beijing. Jing Li, the manager, said some 30 percent of his sales were because people cared about the environment and/or wanted to support a local company.
But I am getting ahead of myself. Finding the dealership was tough. I had the telephone number, but my cab driver seemed to have trouble following the dealer’s directions, or perhaps the directions were bad. After some detours, we arrived. It was in a row of three EV dealerships by different automakers, I think. I was pretty jet-lagged. The manager of the BAIC EV dealership, Li Jing, said sales have been very good the last three months. That coincides pretty closely with a new government policy that allows PEVs to drive any day, any time, on Beijing’s crowded freeways. Otherwise, cars are restricted from driving one day a week. “They are buying EVs as a second car,” said Li. “They use them to drive to work.”
The vehicles Li sells are produced by a special BAIC subsidiary that produces battery-electric vehicles called BAIC BJEV. Prices for the handful of models it sells vary according to battery range. But, BAIC said recently it would extend the electric vehicle selection to its entire self-owned brand lineup i.e. BAIC Motor Co. will produce EVs as well. And, it will produce a PHEV model. Like all of China’s domestic auto manufacturers, BAIC is being pushed by the central government to produce electric vehicles, whether or not there are customers to buy those vehicles. I wonder if Mr. Li will get the PHEVs to sell as well. Or will they be sold through regular BAIC dealerships? My bet is on Mr. Li and others like him, at least initially. If sales grow, other BAIC dealers will clamor to sell PEVs, however.
For now, sales are growing but are still a tiny, tiny part of total passenger vehicle sales in China. Like drivers in the U.S., Chinese are wary of the price of an EV (and by EV I am referring to battery electric vehicles). They are worried about the cost – which is offset to some extent by local and central government subsidies – and, more importantly, they fear running out of “gas” i.e. they don’t want their battery to run out of electricity.
Beijing is a sprawling city with epic traffic jams. Such a fear is not unfounded. Despite some grand-sounding targets issued by the central government regarding charging stations, there are few charging posts in Beijing compared to the total number of drivers. A new regulation requires all public parking areas to have some chargers, and new residential complexes to allot 13% of new spaces to electric vehicles. BAIC isn’t waiting for that to happen. It offers a free charging post with every BEV purchase, says Li.
Thought charging posts are still a fairly rare sight in Beijing, I saw some evidence of public charging installation growing. After some sleuthing, I found a row of EV chargers in the underground garage of Taikoo Li, one of the huge shopping complexes that have arisen on Sanlitun Bar Street in Beijing. There was a row of chargers – electricity in China is 220V so they are effectively Level 2 chargers – and a Tesla charger. All were empty. But heh, they were there.
I always stay in the Holiday Inn Express Dongzhimen when I am in Beijing. It is in my old ‘hood – I could see my old apartment when I looked out my hotel room window! – and is very convenient to many things, including the Great Leap Brewery, which is just around the corner. Newer hotels in Beijing – including the Holiday Inn Express — now have underground parking garages, a reflection of how times have changed. I went down to the HIE parking garage and was surprised to find not only a charger, but an advertisement for a GoGreen program that allows one to rent an EV! It may have been just a tease, however, as you will read below.
Beijing Hengyu Electric Vehicle Rental Co. Ltd., which was the company behind the Go Green offer, is jointly owned by BAIC and Foxconn. Foxconn aka Honhai Electronics Precision Co. Ltd. is a contract manufacturer of electronics, most famously Apple mobile phones. The EVs can be rented by the hour and many different brands are, or were offered for rental, apparently. There are reportedly 1,000 EVs for rent and 196 charging spots (i.e. parking spots with charging) available around the city. The rental car program is a great idea. But I’m not sure how successful it has been given that the site where one is supposed to register to rent a car — greengo.cn – produced a “domain name for sale” announcement.” It was initially a Spring Festival program, perhaps it no longer exists.
A ZEV program for China?
While in Beijing, I met with An Feng, co-founder and president of the Innovation Center for Energy and Transportation (iCET). iCET, a non-profit with offices in Los Angeles and Beijing, is working with local officials in Beijing and the south China city of Shenzhen to implement rules similar to the California’s Zero Emission Vehicle, or ZEV program.
I don’t want to develop a migraine, so I’m not going to try to go into any detail about the ZEV program. Suffice it to say that under California’s ZEV rules, automaker must produce a certain number of zero-emission vehicles to be sold in California or be fined. Automakers earn credits for each ZEV vehicle produced, and if an automaker doesn’t earn enough ZEV credits, additional credits can be bought from other automakers who have excessive credits, such as Tesla. So, ZEV sales can also be a source of income for automakers beyond the profit on the vehicle.
An figures a program like this might encourage automakers in China to produce more EVs, giving Chinese consumers more choice. The ZEV program in California has resulted in a larger selection of EVs here than in other states. California also accounts for a huge majority of all EV sales in the U.S. Though that is mostly because of subsidies and High-Occupancy Vehicle lane access, the larger selection does help boost sales. It may also encourage Chinese automakers to “get serious” about producing EVs, An told me.
iCET wants to establish four pilot cities in China to try out the ZEV program, says An. Beijing, Shenzhen, Chongqing, and Shanghai. It is currently working with Beijing and Shenzhen. “Government subsidies are going to come down as the volume of EVs increases,” he says. “The ZEV program is the best way to promote EVs.”
The caveat, he says, is enforcement. “California has worked because it has a very high penalty,” says An “In China, who has the authority to introduce the penalty and manage it?”
According to the China Association of Automobile Manufacturers, in the first eight months of 2015 118,020 new energy vehicles were produced in China, a 2.6-fold increase related to the same period in 2014. Sales rose 2.7-fold to 108,654 units.
NEVs refers to battery-electric (BEV), plug-in hybrid electric (PHEV), and hydrogen fuel cell vehicles. But no one is producing hydrogen fuel cell vehicles in China right now.
The breakdown of the January through August NEV production, according to CAAM, was 74,727 BEVs produced and 68,316 sold. For PHEVs, 43,293 were produced and 40,338 sold.
Those numbers are a big jump over the previous year, to be sure. They are a tiny percentage of all vehicles sold in China, and a far cry from the 500,000 unit goal China’s central government has set for 2015. But things are moving in the right direction. Aren’t they?
Well, that depends on whether or not the goal is to have Chinese automakers produce EVs or to have Chinese consumers actually buy EVs (I will use EV to refer to both BEV and PHEV) There are powerful incentives for domestic automakers to produce EVs. And producing EVs that no one buys doesn’t look good, so there is also powerful incentive to report EV sales, regardless whether or not they reflect consumer demand.
It has been reported over and over that China’s central government, and some municipal governments as well, offer incentives to consumers to purchase EVs. What has been less well-documented is that China’s domestic automakers receive government subsidies to cover EV R&D and production costs, as well as the high cost of the battery. Those subsidies can boost an automaker’s bottom line, an important task at a time when passenger car sales in China have slowed to a crawl.
A friend of mine who is a top executive at a multinational supplier with substantial operations in China first alerted me to this phenomenon. A day later, he received a Bernstein report putting numbers to his assertion, and forwarded that report to me.
According to the Bernstein report, domestic automaker BAIC booked RMB652 million in government subsidies for sale of EVs in the first half of 2015, allowing it to report a net income of RMB2.17 billion in that period, “in-line with our recently lowered (and below consensus) expectations,” said analyst Robin Zhu in the report. I emailed Zhu and he said this was the first time he had actually seen an automaker quantify the subsidy so clearly.
If BAIC is doing it, you can bet that all of China’s automakers are doing it. What does that mean for the impressive EV sales growth figures that China is reporting? To me, it says they are suspect. My supplier executive friend said his company has “no great insight” into who is buying the EVs. “It is certainly not Joe Public,” he said, “But if not we don’t see Mr. Wang from the Shanghai Government chasing around town looking for a place to charge them, either!”
I will be in Beijing Oct 20-26. I will be moderating at an EV innovation summit on the 23rd tied to the Formula E race being held in Beijing on Oct 24. Will be interesting to note how many EVs I see toodling around the streets in Chaoyang and Dongzhimen, where I’ll be staying. And how many charging stations I can locate. I will report back. Meanwhile, hope to see some of you at the EV summit!
Though the growth numbers for China’s passenger electric vehicle market are impressive, they are deceptive. As my friend and former colleague Yang Jian pointed out in a column in Automotive News China in early August, the numbers hide the lack of any real enthusiasm for EVs among Chinese consumers.
In Beijing, which is one of the hot spots for EV sales, consumers are buying EVs because it is the only way to drive any kind of car for many. Beijing limits new license plates to 20,000 a month, obtained through a lottery. Many have tried for months without success to win that lottery. No lottery required for an EV registration.
In Shanghai, another hot spot, most of the sales were of the BYD Qin PHEV. And there are reports that many Qin owners aren’t using their electric drivetrain much, relying instead on the gas engine. Oh, and EVs get free plates in Shanghai, where there is a monthly auction for registration and the cost for a license plate can top $12,000.
That doesn’t mean electric vehicle sales to consumers won’t continue to rise in China. Indeed, the Chinese automakers are relying on that subsidy income, so they will find a way to report sales one way or another. More on that in my next blog post.
But don’t be fooled by those numbers into thinking Chinese drivers are any keener to drive electric than, say, U.S. drivers.
Chinese companies are another matter. There are some niche areas in China where companies truly desire electric vehicle technology. UQM Technologies, a Colorado-based developer and manufacturer of power-dense, high-efficiency electric motors, generators, and power electronic controllers, has discovered one such niche – mining vehicles.
In February it signed a 10-year agreement to provide motors and inverters for explosion- proof underground mining vehicles to Changzhou Keshi Group. Located in Jiangsu province in eastern China, Keshi develops and manufactures coal mine explosive-proof underground equipment.
UQM will supply the core component parts for the electric drive train for the mining vehicle. Keshi will source the “unique explosion-proof components” and do the final assembly and test in Changzhou under a license agreement with UQM. The amazing thing is that these vehicles do not qualify for a government subsidy. Keshi just thinks EVs make sense.
“We have started shipping product to them,” Adrian Schaffer, UQM’s vice president of business development, told me. UQM figures that the volume will reach 1,000 per year eventually.
“It is basically our heavy-duty unit encased in a lot of steel,” said Schaffer.
The coal industry in the U.S. is shrinking. In China, though the government aims to boost clean energy usage a lot, coal is still the main power source. So this market could be “huge,” said Schaffer. It is also a new market segment for UQM.
According to its website, Changzhou Keshi Group is China’s largest producer of underground, explosion-proof mining vehicles. UQM got to know Keshi through another UQM customer, EVI, or Electric Vehicles International, a California-based company. After the introduction, Keshi was interested in working with UQM.
“We visited China to meet with the company. It was a good relationship, and this was a great opportunity to get into another market,” said Schaffer.
UQM, like many electric vehicle supplier companies, is still operating at a loss. In the first quarter of 2015, the New York Stock Exchange-listed company had a net loss of $2.2 million on revenue of $741,000. The loss was bigger, and the revenue smaller, than the first quarter of 2014.
In a press release, Joe Mitchell, COO and interim President and CEO, sounded an optimistic note, referring to an increased pace and progress with potential Chinese partners and production orders “from existing and new customers anticipated in coming quarters.”
This is not the first agreement UQM has signed with a Chinese company. In 2012, it announced an MOU with a “major Chinese company.”
“What’s up with that?” I asked Schaffer. “We are still working with that customer,” he said. There are a couple of demo projects going on, but the company has asked not to be named, he added.
The agreement with Keshi is a supply agreement, not just an MOU, however. And as noted, UQM has already started shipping product to China.
UQM is also eyeing the specialty market in the U.S., if you consider delivery vans specialty vehicles that is. It is working with Proterra on electric buses, and Zenith Motors on electric shuttle and cargo vans.
“We see the immediate market (in the U.S.) as delivery vehicles,” said Schaffer.
Evolving China strategy
In China, UQM’s focus on fleet vehicles is a change from its original strategy. Like many companies, it figured the automotive market, and passenger EVs, would be where the opportunity lay.
“Four years ago, we were down a track that was not the same track we are on now,” said Schaffer. “Directionally, we were pursuing automotive applications. We continue to approach the automotive OEM market, but our efforts are focused on commercial fleet, industrial and truck applications.”
Now to see if that change in direction will pay off.
Plug-in electric vehicle sales in China seem to be picking up. Well, sales may or may not be. But production certainly is. According to the China Association of Automobile Manufacturers, in June some 10,500 battery-electric passenger vehicles were produced, double the amount in June a year ago.
As for PHEV passenger vehicles, 6,663 units were produced, a seven-fold rise. In the commercial vehicle sector, 6,218 battery-electric vehicles were produced, a five-fold increase, while PHEV production rose 148 percent to 1,645 units.
At the time I am writing this, sales figures haven’t been published. But they will likely show similar huge increases. Of course, it is easy to show big rises when numbers are small. And PEVs still represent a tiny percentage of China’s overall vehicle market. The trend is at least in the right direction, however.
That is good news for Evatran, a Richmond, Virginia-based company with inductive (wireless) charging technology.
In late June, Evatran announced it has received a $1.6 million investment from a Chinese company, Zhejiang VIE Science and Technology Co. Ltd.
VIE mainly develops and manufactures brake products for commercial vehicles, but it has greater ambitions. The investment in Evatran is a way to achieve those ambitions, I gathered during a conversation with Evatran CEO Rebecca Hough.
Hough referred to VIE, which is listed on the Shenzhen stock exchange, as “family-owned,” which is entirely possible since only a tiny percentage is likely listed. Two generations are now working at VIE, she said, and they “want to build a hundred-year company. They believe they need to move from standard manufacturing to R&D and design.”
The investment in Evatran is a “nice fit,” she said, “because they see EVs as taking off in China.” Concurrently, a lot of global automakers are now looking at wireless charging, she said.
That word “global” is important. VIE’s ambitions are to expand outside its current client base, which is mainly domestic automakers. It believes an investment in Evatran is a pathway to working with the international brands.
For Evatran, the investment is an entryway into what Hough predicts will be the largest PEV market in the world within a year, given the PEV market growth rate in China compared to the U.S.
“We expect (China) to be much less dependent on gas prices because the sector is being so pushed by the government,” she said. “It will have a much less volatile growth rate.”
Of course, commercial vehicles are an important part of China’s PEV market. Evatran mainly worked with passenger vehicle use of its technology. Hough said she couldn’t comment on the focus of the talks with VIE, but “we are looking outside passenger vehicles.”
A mutual friend
Evatran was introduced to VIE by an intellectual property attorney who has ties to both firms. The two companies talked for six months before the $1.6 million investment occurred.
If things go as planned, this is only the first of more investment tranches. It is a “place holder,” said Hough, which shows VIE is serious about working with Evatran. The cash was helpful as well, of course.
The two are now talking about forming a joint venture; those discussions will take at least two months, said Hough.
VIE now has a seat on the Evatran board and will help form company strategy. “We have done quite a bit of work on what a relationship would look like but both sides are doing more research” on that point, said Hough.
Is Evatran worried about intellectual property theft, I asked Hough? No, because VIE also has an interest in protecting any shared IP, she said. “One of our biggest points around understanding and learning and growing a relationship with VIE was to understand their IP policy,” said Hough.
Plugless Power, as Evatran’s wireless charging technology is known, is sold as an aftermarket product. Among automakers, Plugless Power works with Nissan and Cadillac brands; BMW and Tesla Model S will be able to use it in the future.
Evatran claims 200,000 plugless charging hours, which isn’t that much really. Hough says that wireless charging has been slow to spread because it costs more than corded EVSEs and there is no common standard. Selling through the aftermarket was the quickest way for Plugless Power to become an integrated option on many models, she said. Plus, “we believe getting product in the field is the quickest was to learn what the market wants,” she said.
China also lacks a wireless charging standard. But there is a lot of interest in wireless charging among Chinese automakers, Yunshi Wang, director of the China Center for Energy and Transportation at the University of California at Davis Institute for Transportation Studies, told me.
It would seem to resolve the problem of a lack of private parking spaces in China that can be equipped with charging stations, he said. The wireless stations could be installed on the roadside and cars could charge overnight, said Wang.
Evatran’s JV strategy may work, he said. With a caveat. “The best way for a Chinese company (to get into wireless charging) is to form a JV with a small company,” he said. But, he added, the JV would “need good government connections.”
VIE has the cash. It may or may not have the connections.
I recently spoke with Bryan Hansel, CEO of Smith Electric, just as he was about to get on a plane to China. We discussed his company’s new joint venture with a Chinese partner, FDG Electric Vehicles Inc. This JV is very interesting for a number of reasons. For one, Smith Electric is still alive. I last spoke with Bryan in August of 2012. Many of the companies that I wrote about back then are now gone. More interesting, however, is that this JV will be based in the United States. And most interesting, to me anyway, is the nature of FDG Electric Vehicles, the Chinese partner.
Smith Electric, based in Kansas City, Missouri, manufactures and markets electric commercial vehicles. Its lineup is currently limited to two models, the Edison and the Newton. You can find out more about it by reading the company website.
When I wrote about Smith in 2012, Smith had announced a $25 million investment from Chinese supplier Wanxiang, and had signed a Letter of Intent to form a joint venture with Wanxiang to produce electric school buses in China. That clearly didn’t work out. I asked Hansel about the Wanxiang JV. “We spent a lot of time (but) we never got to a point where we thought it was a win-win,” he told me. I also asked a Wanxiang executive, who only said, “We invested in the JV. It did not get launched.”
In early May, Smith announced a new JV with another Chinese company, FDG. So why should we believe Smith’s latest joint venture will work out, I asked Hansel? He told me: “We spent a year and half getting here. FDG has already put investment in Smith and also in the JV. FDGs entire existence is based on electric vehicles. We are completely committed to making this happen. Smith also does only EVs. Our reality is we need to make this a success.”
A few details: The JV is incorporated in Delaware and will, according to the Smith press release, “offer a combined portfolio of all-electric vehicles and fleet electrification solutions for customers in the U.S. and its protectorates.”
Smith Electric is putting its core products i.e. its electric drivetrains and its U.S. customer base, into the JV. Hansel said he isn’t concerned that Smith’s intellectual property will be compromised. “None of our technology is going to China,” he said. “This JV is all about demand in the U.S. We are very comfortable about maintaining control over our IP.”
The JV will assemble the existing Smith electric van, the Newton, as well as a new truck-based van designed by FDG, said Hansel. The new van will be built on a truck chassis. Hansel figures it will meet what he sees as an unmet need in the market.
The vans on the market today, such as the Mercedes Benz Sprinter, are more consumer- vehicle based, he said. The new van that the JV will produce is really a truck, said Hansel, in “a weight category above Sprinter, and below Newton.” The Newton weighs from 14,000 to 26,400 lbs.
The chassis will be produced in China and shipped to the U.S. as semi-knocked down kits. Smith will be “putting the metal together then putting in the drivetrain,” said Hansel. How confident is he that the chassis is high-quality. I asked Hansel? FDG spent three years and $300 million developing the platform, he said.
Plus, “we have done a tremendous amount of due diligence making sure this is truly a global platform with both U.S. and European capability,” added Hansel.
The battery will likely come from FDG as well. It will be produced by Sinopoly, a Hong Kong-based battery company with plants in China. Actually, FDG is Sinopoly and Sinopoly is FDG. More on that below.
Hansel couldn’t say what the range of the new electric van will be, but “I don’t know that range is going to be an issue,” he said. “We can put a fair number of batteries on it. The Newton (range) is 120 miles per vehicle. This could get 150 or more miles.”
He didn’t have a cost estimate for van the JV will produce for the U.S. market. That is one reason for this trip to China, he said. “We will walk the shop floor for the first time,” he said. But, he added, “We’re confident that we can be very competitive in this space.”
Smith Electric wants to start selling the new van in 2016. But, “until I get through this week, I can’t be accurate,” Hansel told me.
Smith Electric isn’t currently producing EV here in the U.S. It decided to stop producing the Newton in April of 2014 because the cost structure wasn’t working, said Hansel. “Our strategic decision was to stop shipping money with every truck,” he told me.
There’s plenty of demand for the Newton, he said. Customers are still asking for it, he said, but at a lower price. Smith has sold about 800 in total. In the future, the battery for the Newton will also be sourced from China – probably from Sinopoly. That should start in the third quarter of this year.
If Smith Electric sells a few hundred Newtons this year, “we are happy,” said Hansel. “As we look forward, we know we can make money building the Newton with the battery from China and the Malaysia supply chain,” he said.
The new Chinese partner
Smith Electric was approached by FDG to form a joint venture, said Hansel. FDG saw opportunity in the U.S. market and figured working with Smith Electric would be a way to access that opportunity.
Listed in Hong Kong (729HK), FDG Electric Vehicles Ltd. was formed by joining various electric vehicle-related assets under one corporate roof. Those include two EV manufacturing plants in China, an R&D company in Beijing, and Sinopoly, which has two battery manufacturing plants in China as well as an R&D center.
Companies such as FDG aim to take advantage of China’s Central government push to expand the production and use of new energy vehicles, which includes battery electric and plug-in hybrid electric vehicles as well as hydrogen fuel cell vehicles. FDG’s new chairman and CEO (appointed March 2014) Mr. Cao Zhong has an excellent government pedigree including working at the NDRC. These kinds of connections are important for a Chinese company.
It is a good bet that the capital to form FDG came from provincial governments. Look at the company website. The two EV manufacturing sites, in Zhejiang Province and Yunnan Province, exist to help the provincial governments meet requirements to buy electric vehicles. And of course it’s always better to buy a vehicle from a company in which you are an investor.
Though FDG listed on the HK exchange in 1991, it was not FDG at the time. It has gone through many iterations, and got into the EV business in 2009 when it acquired Thunder Sky Battery, soon to be known as Sinopoly. FDG has operated at a loss for the last five years, but that isn’t a surprise as electric vehicle sales in China have been slow to take off. Investing in Smith Electric allows FDG to diversify into other markets. There is no guarantee that the U.S. market will prove any more fruitful, of course. But at least Smith Electric does have an existing customer base.
I think this joint venture will be more successful than Smith’s last effort because, as Hansel pointed out, both companies only do EVs and they need to make it work. And though PEV sales in the U.S. aren’t exactly burgeoning, I think the backers of FDG have deep pockets. I’ll follow its development with interest and my usual dose of skepticism.
I recently interviewed Bryan Hansel, CEO of Smith Electric. I will write up that interesting interview in the next few days. Of the many companies I have written about in this blog over the last five years or so, Smith Electric is one of the few that is still up and running. It just announced a JV with a Chinese company. More on that when I have time to write it up later this week.
Meanwhile, I wanted to post a column I wrote for a Chinese publication I write for monthly, Automobile and Parts, published by Orient Auto.
Tesla versus BYD in the public relations arena: the winner is clear
Elon Musk is a master of public relations. Who else can raise a company’s stock price with a simple tweet? Now, Musk, the CEO of Tesla Motors, has used Twitter to create the impression that energy storage systems are a new thing. After weeks of tweets about a new product line, on April 30, Tesla launched the Powerwall home energy storage system. It is a lithium-ion rechargeable battery for daily use and for storing backup power. Tesla also makes a larger versions of the system for business and utility use.
Within days Tesla said it had 38,000 reservations for the Powerwall, with installation beginning this summer. Tesla said it also received 2,500 reservations for power packs, the large business and utility systems. It already has contracts for pilot projects with businesses and utilities including Target, a large low-cost department store chain, and Southern California Edison, a utility in Southern California, according to its website. In all, Tesla has around $800 million in potential sales for a technology that has been around for a long time. But this is the first time Elon Musk has been selling it.
To give Elon Musk his due credit, the Powerwall is a very sexy-looking home battery. Thin and white, the wall-mounted unit resembles a work of modern art. Tesla offers two versions, 10kWh weekly battery for backup energy storage or 7kWh model for daily energy needs. They cost $3,500 and $3,000 respectively, excluding the inverter and installation. Several batteries can be installed together for energy-hungry homes. And, the batteries are charged with solar panels installed by Solar City, a company Musk co-founded.
Now it’s not that I have anything against Tesla selling home energy storage systems. I’m all for renewable energy. What bothers me is that the press has covered this as if Musk invented the idea. In reality, many companies offer batteries for home energy storage. But they don’t have the Musk name, or the Musk public relations machine, behind them.
One company in particular came to mind when I saw the Tesla announcement—BYD. Back in 2010 I attended the showing of a model house in the City of Lancaster, a few hours east of Los Angeles. Built by KB Homes, the house had BYD solar panels on the roof, a BYD battery to store energy from those solar panels, BYD’s LED lighting, and a recharge unit for the BYD F3DM and e6 electric vehicles in the driveway.
At the time. I wrote that BYD might be more successful with its home energy storage business than with its electric vehicles. And the model home’s technology worked, Lancaster Mayor R. Rex Parris said. “They partnered with KB home and proved the concept. As far as Lancaster is concerned, BYD did great job,” he recently told me.
Great, but I haven’t read anything about BYD’s home energy storage batteries in years. And most of the press its electric vehicles have received here in the U.S. has been negative. What happened? Was BYD way ahead of its time, were its products no good, or is BYD really bad at public relations? All three are a little bit true, I think.
At that time, the idea of using batteries to store energy generated by renewable sources such as wind and solar was just beginning to enter the public consciousness. So there wasn’t much thought about having a home that could generate and store its own energy. And BYD was already in the press here, in what would turn out to be an increasingly negative way.
In January of 2010 BYD announced it would sell its e6 battery electric vehicle in the U.S. by the end of the year. Unfortunately, the e6 wasn’t a very good car – though the electric vehicle technology was okay, the interior was sub-standard. So the media was more focused on the EV than the energy storage products. And when the plans to launch the EV fell through over a period of months that left a bad taste in the mouth of many journalists who had initially believed BYD.
Meanwhile, BYD did itself no favors on the public relations side. It didn’t allow independent evaluation of its electric vehicles, and was over-confident of the vehicles’ quality. So it continued to talk about launching the e6 over the next three years, but the launch still didn’t happen. Finally BYD abandoned that plan, but the public relations damage was done.
BYD also had problems introducing its electric buses to the U.S. market. Those buses are being built in a plant in Lancaster. BYD placed a few electric buses in test fleets in various cities, including Los Angeles. But then it had a problem with the contract to sell buses to the California city of Long Beach. No problem with the buses, but the contract was cancelled, which looked like yet another failure on BYD’s part. BYD fixed the contract problem, won the contract in a re-bid, and is now set to sell electric buses to Long Beach. But I haven’t read about that in the press.
BYD told me that it isn’t interested in the energy market, and that it is successful in another field that Tesla just made news about — selling large energy storage systems to utilities and businesses here in the U.S.
“We haven’t done home systems,” Michael Austin, vice president of BYD America, told me. “Most of our (energy storage) deals are $12 million to $15 million apiece.” That includes sales to Puget Sound Energy, Duke Energy, and Chevron.
Those kinds of deals don’t get much coverage in the consumer media, however, unless Elon Musk is talking about them.
I asked Austin what he thought of the Powerwall announcement. Elon Musk “has a sexy product, priced right,” said Austin. Tesla entering the home energy storage market was good for the whole industry, said Austin. If the market really started to grow, BYD might consider entering it, he said.
Before it does that, I urge BYD to allow some independent testing of its home energy storage batteries. Sure, it may have tested them itself. But some outside validation can provide assurance and generate some positive public relations. It should also hire some industrial design experts to improve the look of its home batteries. Going up against the Elon Musk marketing juggernaut will be tough; any challenger better be both high quality and beautiful.
In any case, it is too soon to say that Elon Musk and Tesla are a success in the home energy storage area. The reservations didn’t require a deposit. Let’s wait to see how many people actually spend money to buy a Powerwall.