Wang Chuanfu, chairman of BYD Co. should be a happy man. Wang complained in 2010 that the central government was not offering enough consumer incentives for purchasing electric vehicles. Now, Beijing has extended rebates for battery electric and plug-in hybrid electric vehicles beyond 2015 and exempted buyers from paying a purchase tax, among other measures.
But it gets better, much better. BYD’s “dual mode” plug-in hybrid electric vehicle technology recently received an endorsement from Wan Gang, China’s Minister of Science and Technology.
Speaking at a recent conference in Tianjin, Wan used the technology to rebut those who say that range anxiety – the fear of running out of “fuel” – will stop Chinese from buying EVs. Range anxiety won’t be a big problem, said Wan, because of plug-in hybrid technology.
He illustrated his point with a story: I have a friend who owns a BYD F3 Dual Model electric vehicle, said Wan. He said that in half a year he has hasn’t even used one tank of gas because he recharges at home. “Why do you need to use gas sometimes?” Wan asked his friend. “If I need to go to Tianjin,” his friend explained, “when I run out of electricity I use gas.”
Wow! Could BYD have created a better commercial for its technology? No, because BYD’s commercials are pretty lame. But I digress. Why pay for advertising when the nation’s top science guy gives your company’s EV technology a free plug?
Wang Chuanfu didn’t miss a chance to tout BYD’s PHEV technology and why should he? At the same conference he mentioned that sales of BYD’s current generation Dual Mode vehicle, known as the Qin, sold close to 8,000 units in the first half of 2014 (the F3 is the older generation Dual Mode model.).
Next year, he said, monthly sales of the Qin could reach 3,000 units. These buyers were consumers, not government or corporate fleets, said Wang. And, he added, later this year BYD will launch a Dual Mode SUV model.
So will 2014 be the “First Year” of electric vehicle commercialization in China, as some at the conference apparently predicted (thanks to AutoHaus China for its story on the conference, which provided many of the Wang details.)?
To be sure, plug-in electric vehicle sales in China this year will be much larger than last year. Perhaps by the 300 percent some are predicting. They will still, however, represent a tiny percentage of total sales. And despite Wan Gang’s big talk on China issuing standard related to batteries and charging, there is still has a long way to go in that area.
As for Wang and Wan’s apparent belief that PHEVs have the magic technology to convince Chinese consumers to buy an electric vehicle, I prefer to wait until BYD’s Qin has been on the road a bit longer to crown it the range anxiety savior. Problems may arise with the technology. More PHEV models will also need to come on market so consumers will become more familiar with the technology and have more choice. And those will need to be at the right price point.
Also, consider the U.S. market’s cautionary tale. Sales of PHEVs rose 44.3 percent in the first eight months of 2014 to 40.748 units. But in August they fell 7.4 percent compared to the same month in 2013 to 5,935 units, according to Edmunds.com.
PEV sales in the first eight months accounted for less than 1 percent of the overall market of 11.2 million vehicles, pointed out Edmund’s analyst Jessica Caldwell.
“Electric vehicle sales were basically a rounding error in terms of the overall market,” said Caldwell.
The market share of all-electric drive vehicles in the first eight months – including BEVs and PHEVs – fell by 4.8 percent compared to 2013.
Remember, a few years ago analysts were predicting that PEVs, including PHEVs and BEVs, would at least have market share of single digits.
So in China is the glass half empty of half full? For Wang Chuanfu and Wan Gang it appears to be half full. But how quickly it moves past the half-way mark – if it does — remains to be seen.
The law of unintended consequences is at work in China’s somewhat haphazard formation of electric vehicle policy. I call it haphazard because let’s face it, the plan has some holes in it and has progressed by fits and starts and occasional backward moves.
Talking recently with a friend whose company works with bus companies in China on EV technology, I heard about an unintended consequence of the section of the EV subsidy policy that defines the all-electric distance needed to qualify for some government largesse.
If you are from California you are very familiar with the “compliance” car. Automakers produce and sell in small volumes various types of zero-emission vehicles to meet the state’s strict emission control standards. In California, the compliance cars are produced to avoid fines. My friend told me that local governments in China are producing “compliance” EV buses to get subsidies!
Here is how it works. In order to qualify for the central government’s subsidy, which is up to RMB 250,000 for PHEV buses, a vehicle must be able to travel at least 30 kilometers on pure electricity. That distance, and the necessary battery size, was chosen, it seems, because it is not too expensive. Not cheap, but at a cost the central government figured was bearable. Another large expense associated with a fleet of plug-in electric vehicles is, however, a network of charging stations.
Some local governments have found an easier and cheaper way to qualify for the subsidy, a method that does not involve any pure electric propulsion or the need for a network of charge posts. Here is how it works: The local governments install a battery and a super capacitor on their diesel-powered buses. A super capacitor can store and discharge energy very quickly. They are often used on hybrid buses for storing energy created by regenerative braking.
On these compliance buses, the battery pack is built to the minimum spec to go 30 km on a charge. There is a connector socket on the side, or at least what appears to be a connector socket. That is never used, however. The bus is driven like a regular hybrid bus, never on pure electric power. “The main thing the battery does is allow the engine to be downsized,” my friend said. That cuts costs.
The battery is recharged while the bus is in operation, but that occurs using the diesel fuel. The battery can, as my friend put it, last forever. And while the fuel economy does improve on the hybrid bus, it is still running mainly on diesel.
Why did the government make the all-electric bar so low – 30 kilometers – that it could be met by in effect cheating? Because the policy was made using the crossing the river method. The battery is the major cost in an electric vehicle. The 30 kilometer battery was a compromise. It wasn’t that costly and still replaced liquid fuel use (when used properly). Of course, adding the super capacitor was an additional cost. But the super capacitor was small enough that the additional cost wasn’t that great, my friend figures.
Charging stations also hit by LOUC (Law of Unintended Consequences)
Another big area of cost savings under this scheme is the elimination of the need for a charging network. Charging stations for buses have to be very powerful, roughly four times the power of Level 2 charging in the U.S., my friend said. They are expensive. By producing the “compliance” buses the local governments eliminate the need for that expense, at least for now.
My friend is optimistic, however. He figures that the central government will eventually see that its current policy is ineffectual and will make the requirements for pure electric range much stiffer (that will be the next stone…).
“The thinking in the bus companies,” he figures, “is that someday, if the government changes its regulation and ups the range requirement, at some point it is going to be cost effective to use the battery. Otherwise they are hauling around 4,000 pounds of dead weight.”
That is charitable. The local governments have saved themselves money by fudging their PHEV buses and also by not building out a charging network. If they need to produce buses that have a longer pure electric range, they will cross that bridge when they come to it. Or throw down that stone.
Of course, the news lately is that the central government will throw 100 billion RMB towards funding a charging infrastructure. That may encourage some of the local governments to build out charging networks since they can nab some government funds to do that. Then they can continue to use their compliance E buses as hybrid buses and save costs on recharging.
According to the Ministry of Information Industry Technology, in June 673 commercial plug-in hybrid vehicles were produced in China, a more than four-fold increase compared to the same month in 2013. Production of commercial battery electric vehicles in June rose 85 percent to 362 units. How many of those were true PHEVs, however, and how many were in fact compliance PHEVs?
Meanwhile, true hybrid production plummets….
The latest EV policy does not subsidize regular hybrid vehicles. A consequence, perhaps unintended, perhaps not, of this omission, is that production of actual hybrid commercial vehicles has virtually ceased. And while foreign and Chinese company executives told me last year that they expected hybrid subsidies to eventually be announced, that has not occurred.
The slowdown in hybrid bus production has had a huge impact on the China sales of Maxwell Technologies, Inc. The San Diego-based company produces super capacitors, which is another name for an ultra-capacitor. Its China sales of super capacitors are down 50 percent to $25 million in the first half of 2014 compared to the same period in 2013, Mike Sund, vice president of communications and investor relations at Maxwell, told me.
Now wait a minute, you say, shouldn’t Maxwell’s sales go up if what Frank is saying is true? My best guess is that there is no need for a super capacitor of the quality that Maxwell produces to make a hybrid bus appear to be a PHEV. Also, the number of compliance buses being produced is no doubt small.
China is down on regular hybrid buses because Toyota owns most of the intellectual property associated with hybrids and China doesn’t figure it can make any breakthroughs in that area. Plus Chinese companies might end up paying to use Toyota-owned technology. So why subsidize them?
Another law of unintended consequences result. Regular hybrids do improve fuel economy and thus could be a stepping stone to China’s goal of reducing dependence on imported fuel. Indeed, some Chinese officials even called hybrids an interim step to full-electric vehicles. That step wasn’t big enough to warrant government support, apparently.
Let’s see if the latest subsidy bone the government is throwing the PEV sector has positive results i.e. more charging networks. And if that actually increases the number of PEVs on the road, both commercial and private.
Ever wonder where the 100+ electric vehicles that Coda delivered ended up? Well, I found five of them in a warehouse in Davis, California. Efficient Drivetrains Inc., a company with plug-in hybrid electric vehicle and continuously variable transmission technology bought five of the Coda all-electric sedans for a China-related project. Full disclosure: I do some business development work for EDI.
EDI is doing some other interesting China-related stuff as I discovered when I visited a few weeks ago. It seems all manner of Chinese companies and even research institutes are looking to benefit from the government’s electric vehicle policy. As I discuss in a blog I’ll post after this one, however, some elements of that policy are not very well-thought out.
But I digress. EDI’s warehouse is filled with vehicles in various stages of having some form of electric drivetrain or CVT installed. Imagine my surprise to see some familiar faces on the lifts! EDI has been asked by the Dongguan Research Institute to produce some pure electric vehicles that also have CVTs. This research institute, contained within one of Dongguan’s many universities, is surely owned by the local government.
EDI procured the five Coda’s for this project. Why? “They are cheap,” said Andy Frank, EDI founder and chief technical officer. Frank explained that the Institute wants an EV that is inexpensive but also shows good performance (doesn’t everyone?). It “wants to design something different than the conventional EV manufacturer,” said Frank. “They have to show some uniqueness.”
Pure electric vehicles aren’t the ideal application for CVTs, admitted the engineers at EDI. A CVT allows a car to change gears without steps, and electric vehicles do that anyway, I believe…. But the Research Institute is the customer, so EDI will install a CVT in the Coda sedans’ pure electric drive, which will add cost. EDI has a cost-cutting strategy, however: Source parts from China.
Coda sourced most of the components for original EVs from multinational suppliers. Think UQM motors and Borg Warner transmissions. EDI is replacing those high-cost components with less-expensive components sourced in China. EDI will then add its secret sauce — software and a management system that will make all the parts work together in a superior way.
The replacement CVT is from Hunan Jianglu Rongda.Vehicle Transmission Co. On the company’s website is a Chinese saying that, according to Rongda’s English translation says: “Ocean holds precipitation; acceptance makes greatness.” A better translation might be “The ocean accepts a hundred rivers, and that makes it great.” It is a saying that urges tolerance for diversity because diversity produces greatness. I guess that is meant to promote acceptance for a CVT. And it is a play on the characters in Rongda’s name.
Rongda is China’s only volume CVT manufacturer. Since its CVT can be bought off the shelf, EDI is using one in the prototype. How good are the Rongda CVTs? “We don’t really know; we have to build one and test,” said Frank. “In order to get real economics (in fuel economy) we (will) have to design a special CVT for this application,” he added. If the vehicle goes into volume production, EDI will design a CVT specifically for the vehicle, either on its own or with Rongda, said Frank.
The motor will come from Beijing-based Jing-Jin Electric. The company, founded by a General Motors China alum, supplied motors to the ill-fated Fisker Karma. It produces motors of all sizes for electric vehicles, said Frank. And its motors may show up in the Fisker-based car that Wanxiang produces.
Another interesting project in the EDI garage was a Ford F550 truck that is a PHEV with exportable power being produced for Pacific Gas & Electric. In a blog last year, I talked about how exportable power is what PG&E, one of the largest utilities in the U.S., really wants in its PHEV trucks. It can use that power, said Dave Meisel, director of transportation for PG&E, to light up a neighborhood while it does repairs, or during emergencies such as hurricanes when power has been lost.
I talked with Meisel recently about the PHEV that EDI is producing for PG&E. It has exportable power, it seems, and a lot of it. PG&E will test it soon. Why has EDI apparently been able to achieve levels of exportable power that others haven’t, I asked Meisel? “It is technology related,” he said. “EDI’s software and onboard management system has done a really good job.” I guess we will know if that proves true in a few weeks as PG&E is planning to test the EDI truck then.
China could certainly benefit from some exportable power. Although the brown-outs that were common when I lived in China in 1984, and even when I was there in the early 1990’s, they aren’t so common now. The grid in China is strained, however. Imagine if a fleet of trucks could serve as power plant in a pinch.
So that’s what I saw during my EDI visit. I’m still laughing at the Coda sedans. Never thought I would run into them in such a place. And they’re going home! The body came from China, after all, and now the components will, too. Is the fact that such disparate entities – such as a research institute — are looking into producing electric vehicles good news for China? Or is it a waste of resources? Will it produce innovation that doesn’t emerge from the big automakers? That is what China is hoping. The government thinks that by giving non-automotive entities licenses to produce EVs, a Chinese Tesla could emerge. That seems a stretch. But there may be a Chinese Elon Musk out there.
They are also excited about the news that a Chinese businessman decided to build his own charging network when he couldn’t drive his Tesla Model S from Guangdong to Beijing because of a lack of charging stations.
The businessman, Mr. Zong, bought 20 220V charging stations from Tesla and installed them at businesses on the roads to Beijing. http://tinyurl.com/n7zxx5l Now he can drive to Beijing in his new Tesla, it seems. Other Tesla owners can use the chargers too, he says.
Tesla http://www.teslamotors.com thanks him for his contribution to China’s charging network. “We welcome any efforts from the private or public sector that promotes the widespread adoption of electric vehicles,” a Tesla spokesperson here in the U.S. wrote to me in an email.
This has little significance where widespread adoption of electric vehicles in China is concerned. It may promote more sales of Telsa vehicles in China. That’s about it. The stations can’t be adapted to charge other EVs, though the press has mistakenly reported that Mr. Zong will adapt them so other EVs can use them. Per the Tesla spokesperson: “Mr. Zong did not modify the wall connectors to fit other EV brands. He installed the Tesla ones for Tesla only.”
Even if Mr. Zong had wanted to modify the connectors to fit other EV brands, he couldn’t have. Well, perhaps he could, but they might only fit one other EV brand, in one city. That’s because, despite all the stories that China puts out (and the foreign press eats up) about producing and selling millions of EVs, and about all the charging standards it has issued, and the mandates to make local governments buy EVs and install charging posts, there are still no finalized standards in China for the connector configuration, the communication standard, or DC charging. Without those, China is creating a huge problem by urging widespread adoption of EVs. Instead of a nationwide industry, it is creating many local industries.
Here’s the lowdown on the state of charging standards in China:
First, the AC standard. That’s the slower charging method, and the one that will be used most widely. Chinese voltage is already 220V (versus the common 110V and less common 240V here in the U.S.) so plugging into a wall socket gets you Level 2 charging in China.
China in 2011 released an AC standard, GB/T 20234.2-2011. GB stands for “Guobiao” or “national standard.” T stands for “tuijian,” or “recommended.” How does that really translate? China hasn’t settled on a final standard yet. The Tesla spokesperson put it well. She wrote: “It lacks definition of some important parameters, resulting in the incompatibility of EV products with different brands and charging facilities in different cities. So it is still a voluntary standard, not mandatory.”
The central government is pushing automakers in China to produce EVs. People won’t buy them without a charging network. So localities come up with their own charging station parameters including connectors and communication. Local automakers produce EVs that can use those charging stations but can’t safely charge anywhere else.
And what about that mandates that 30% of local government fleet purchases must be EVs? And that that 30% of their purchases be made from manufacturers outside their area? (Which are not new, by the way. Both were included in the policy issued in September, 2013. http://tinyurl.com/nl8amgg ) Well, the EVs from outside the area won’t be able to charge on the local stations.
I talked with my old friend David Reeck, who recently retired from his post as Manager of Electrification Strategy for GM China, about the state of standards in China’s EV world. This is a man who spent years trying to rationalize China’s charging standards. Reeck is living in Oregon now, working as a consultant. He was not optimistic. “I would say by the end of the year China will realize it has really messed up,” he said.
He is especially pessimistic about the DC standards, which are the most contentious and thus the most difficult to decide. “From end of this year until about 2016 China won’t have a DC standard formalized,” said Reeck. China has a DC connector plug that it is promoting. But that lacks safety features that the European, U.S., and Japanese standards include. Also, the male and female parts on the Chinese DC connector are reversed, added Reeck.
There is disagreement among the Chinese about this standard, he says. Some figure it is safe for passenger vehicles — though perhaps not for trucks — and should be released. Others think it better to wait for a standard that works for all kinds of vehicles.
This is an argument that has been going on a long time. I attended the global EVS25 electric vehicle conference in Shenzhen in 2010 and executives from the U.S. Society for Automotive Engineers (SAE) told me at that time of their safety concerns regarding the Chinese plug standard. SAE is now working with China’s CATARC on a DC standard. But SAE declined to comment when I asked about the safety issue.
What do all these internecine battles mean for the industry? Let’s go back to Mr. Zong and his Tesla charging network. No, let’s drop Mr. Zong and just consider Tesla’s attempt to build a charging network in China. Remember, this is a company that has charging stations that only work with its vehicles. But the issues Tesla faces are those that the whole industry faces.
Tesla’s 220V charging stations in China have connectors that are based on the EU standard, which shares a communication standard with J1772, the U.S. standard. Those two are therefore compatible even if the connectors aren’t exactly the same.
When China does finalize the AC charging standard, “Tesla Model S in China will be compatible with the new GB AC standard,” said Tesla. That means all the charging stations that are installed up until then probably won’t work with future Tesla vehicles.
Meanwhile, the U.S. and Europe are moving ahead. In October of 2012, they unveiled a combined AC DC plug standard. It was created through collaboration between engineers in the U.S. and in Europe. “This new standard reflects the many hours that top industry experts from around the world worked to achieve the best charging solution – a solution that helps vehicle electrification technology move forward.” Gery Kissel, the combo plug Task Force Chairman, said. That didn’t include Chinese engineers, it seems. Or if it did, China didn’t collaborate. No, it wants to create its own DC standard.
Foreign automakers in China haven’t been sitting idly by while EV charging standards moved forward in the rest of the world. A group of foreign automakers – collectively known as the Charging Interface Initiative Asia – that includes BMW http://www.bmw.com.cn, Volkswagen Group http://www.vw.com.cn, Daimler http://www.daimler.com/dccom/nea, Ford http://www.ford.com.cn, and General Motors http://www.gmchina.com has been encouraging China to adopt a combined plug standard similar to that just adopted by Europe and the U.S..
So far China insists it wants its own standard. But in 2015, the Germans will “aggressively” demonstrate a combined China GB standard plug, says Reeck. Still, he figures China won’t have a DC standard formalized until 2016. And whether or not that will be compatible with international standards remains to be seen.
A Tesla spokesperson got back on some questions I had regarding the RMB 1 million price tag for a Tesla in China as well as the unavailability of navigation and other features in China. Tesla is working on a China nav system “as Google maps are not supported” in China, said the spokesperson. I wonder if Tesla knew this when it went in and decided to deliver models without fully functioning infotainment? Perhaps. Will be interesting to see who it worked with in China for a nav system and when it is released.
See below for full Tesla response. I await details from China on what extras the RMB 1 million Model S had….
Our goal is to ensure Model S remains fairly priced and our margin is consistent in every market worldwide. We begin with the US price of $81,070 (85 kWh), add shipping and handling ($3,600), Taxes and duties ($19,000), and VAT ($17,700) and then convert at an exchange rate of 6.05 to reach our base 85kWh price of 734k CNY.
While I obviously don’t know the configuration of your friend’s Model S, if they have already taken delivery of their vehicle, they purchased the 85 kWh or P85 kWh Model S (although we’ve started selling 60 kWh Model S, deliveries of this car have not yet started in China). The P85 starts at RMB 852,500 (85 kWh starts at 734K). These prices are inclusive of all VAT, import duties, and transportation costs.
However this is only the base price without any options. Even if the customer bought the 85kWh, he/she most likely added some options. Here are just a few available to give you an idea of additional costs:
– Dual charger (RMB 13,200)
– Tech Package with Air Suspension (RMB 42,600)
– Parking sensors (RMB 4,400)
– Nappa leather interior (RMB 21,900)
– Alcantara headliner (RMB 13,200)
– Hi-fi sound system (RMB 21,900)
So in terms of the pricing, even if the customer bought the 85kWh, the price is close to RMB 900K with a few options. If the customer bought a P85, the price can become RMB 1 million.
Regarding the second part of your question, currently there isn’t a navigation system in Chinese Model S as Google maps are not supported in the country. However, teams are currently working on a solution with Chinese text and voice recognition. We plan to introduce navigation to Chinese cars later this year (as already communicated to our customers). Once it’s available, maps will be pushed to customers’ vehicles through software updates.
In regards to your final question, remote over-the-air software updates are not yet supported in Chinese Model S. Software updates are pushed to customers’ vehicles through our backend system, and owners then receive notification of available updates on the Model S touchscreen. In fact, we’ve already released a couple minor updates which add additional functionalities to Chinese cars.
I was in Chongqing a few weeks ago. Boy has that city changed since I first visited it in 2003.
But that’s not what I want to talk about. I was on an EV panel at the 2014 China Auto Summit http://mktsummit.org , and also visited the Chonqqing Auto Show on media day.
What a pleasant change from Auto China. I could actually walk around without shoving through crowds of “journalists.” Of course, the Chongqing show is considerably smaller than Auto China and also is consumer-oriented – visitors can actually buy cars there. Since I was in town anyway, however, it was well worth the visit.
I went to a few press conferences, but mainly I just walked around and looked at car and for electric vehicles. I saw lots of cars, but found only one EV, the Zinoro E1, a pure electric vehicle produced by the BMW Brilliance joint venture. http://tinyurl.com/qf4lpbu
(I do not count the Lexus CT200h regular hybrid in the EV category but it had a big stand all to itself in Chongqing.)
Oliver Liang, Brand Management Director for BMW Brilliance Zinoro China, was a fellow panelist at the Summit so I already knew something about the marketing plan for the 1E. I picked up several pamphlets at the show, as well. The car itself is nice-looking enough. But what impressed me is the thought BMW Brilliance has put into the marketing plan, which centers on the concept of “worry free.”
The vehicle is only available to be leased. It offers 1, 2, or 3-year or daily rental plans. Costs are respectively RMB11, 000/month, 9,000/month, 7,400/month, or RMB 400 a day. “We have prepared a range of convenient, worry-free services and flexible rental plans tailored to meet urban and individual needs,” said the pamphlet.
It includes a free maintenance package and warranty since Chinese consumers worry about the maintenance costs of a car with new technology such as an EV. “You will be able to keep your Zinoro 1E in optimal condition without incurring additional maintenance costs,” said the pamphlet.
If the car does need to go into the shop, Zinoro provides a free loaner car, and in the “rare event” of a breakdown, offers year-round, 24-hour roadside assistance as part of the lease.
China has few public charging spots. And who wouldn’t rather charge at home anyway? So the lease includes a wall-mounted charging unit and free installation (up to RMB 12, 0000).
The 1E became available for lease in December of 2013. It is currently only available in Shanghai and Beijing though I suppose someone from another city, say Hangzhou, could lease one in Shanghai and drive it home. If they could find charging stations along the way….
It will be interesting to see if this plan succeeds in moving some electric metal for BMW Brilliance Zinoro.
Tesla discovering China’s special characteristics
Meanwhile, I’ve been getting a stream of Chinese-language messages from Tesla on my Weixin feed concerning launch plans and services in China. But remember a blog I wrote a while back regarding issues Tesla would likely face in China, especially where building a charging infrastructure was concerned?
Well, anecdotal evidence and actual evidence suggests Tesla is off to a bit of a rocky start in China.
First the actual evidence. An e-commerce entrepreneur in Inner Mongolia smashed the windshield of his new Model S to protest glitches in the delivery process. Now that was a bit silly. But this is China. Buyers of an RMB 1 million BEV don’t like to feel slighted. http://tinyurl.com/mb2asho
Now the anecdotal stuff: A friend has a neighbor who bought a Model S with the 85 kWh battery. Charging does not seem to be a big issue for this new owner, for now. He lives close to Hongqiao Airport, and works in Anting, which is not that far from Hongqiao. One of Shanghai’s two fast-charging stations is in Anting (the other is in Pudong). So the Tesla owner can charge while at work, for now.
That may change if Tesla ownership reached the levels Tesla has predicted and competition for charging spots emerges. But I guess Tesla plans to add more charging stations if permitted. The owner also has a garage, so he can charge at home overnight.
Other aspects are not so sanguine. First, some interesting details about the licensing and tax: He was exempt from the license plate cost, which is at RMB 70,000 in Shanghai right now. But he did still have to pay the import tax. So the total cost of the Model S was RMB 1,000,000! Tesla touted its fair price policy of charging only RMB 734,000 for the Model S based on the following breakdown. So I guess there was an extra expense Tesla missed.
$81,070 US price
$3,600 Shipping & handling
$19,000 Customs duties & taxes
734k CNY @ 6.05 exchange rate
Also a problem Tesla may not have anticipated – the touchpad for the infotainment control system doesn’t fully function in China. GPS, traffic, mapping of locations don’t work, said my friend. Neither does over-the-air updates, which will be a real problem as Tesla issues those rather frequently.
I sent an email to Tesla here in the U.S. asking how it planned to resolve these issues and hadn’t heard back at time of posting. I will add that info if/when I get it.
Will the requirement that 30% of municipal government purchases of new energy vehicles in the most recent Chinese government’s policy result in a mismanagement of resources? It will if automakers adopt BYD’s http://www.byd.com strategy. The Chinese electric vehicle manufacturer is building plants all over China to gain customers.
While the strategy may grow BYD’s sales both locally and globally, it could result in a massive waste of what is apparently dwindling capital. And as BYD’s missteps here in California prove, it may also sap a lot of BYD’s human capital as it works to resolve problems.
I started thinking about this as I read a story in Automotive News China regarding BYD’s plan to assemble buses in the central China city of Wuhan in order to convince the Wuhan government to buy BYD’s K9 electric bus for its local fleets. http://www.autonewschina.com/en/index.asp
This strategy is wrong on several levels. BYD will spend 3 billion yuan, or $480 million at current exchange rates, to build the plant, according to Chinese media. It will initially produce 1,000 K9 buses and, in a second phase whose cost was not revealed, it will assemble other BYD electric vehicles.
Selling to the Wuhan government is a challenge. The city is home to Dongfeng, one of China’s largest state-owned automakers (the former Third Auto Works). Dongfeng http://www.dfmc.com.cn is China’s largest producer of medium- and heavy-duty trucks. It just announced a partnership with Volvo to produce commercial vehicles. http://tinyurl.com/mr58azo And it partners with Nissan http://www.dongfeng-nissan.com.cn and PSA http://www.dpca.com.cn/ to produce passenger vehicles.
And, of course, Dongfeng has an obligatory Dongfeng EV Co. subsidiary. http://www.dfev.com.cn/dfev/publish/ According to its website, Dongfeng EV Co. produces hybrid electric buses as well as a range of small low-speed EVs and a tiny passenger EV. But I’ll bet it will start turning out plug-in hybrid electric vehicles, or battery electric vehicles, in the future as the central government pressures local governments to boost purchase of EVs. Why not produce those vehicles right in Wuhan so the money stays at home?
BYD may argue that the latest new energy vehicle policy from the central government requires at least 30% of such purchases be from automakers outside of the area and having a plant in Wuhan makes it the most likely company to grab those sales. Is that worth a $480 million bet?
If Wuhan were the only city where BYD has employed this strategy, it might be worth it But Wuhan will be the sixth city in China where BYD plans a bus plant. According to the press report, BYD also has agreements with Changsha, Nanjing, Tianjin, Dalian, and Hangzhou to assemble electric buses.
BYD is based in the south China city of Shenzhen, where it also produces electric buses, naturally. Will these additional plants merely assemble buses from kits sent from the Shenzhen plant? Probably. Then why not just drive the buses there from Shenzhen? No jobs or investment in the local where BYD hopes to sell buses, of course.
Internationally, BYD is also quickly expanding its manufacturing footprint. This is not a bad strategy. But does BYD have the human and financial capital to support this kind of expansion?
I am most familiar with BYD’s plans to produce electric buses in the city of Lancaster, near Los Angeles, where I live. That plant, the launch of which I attended in May of 2013, has encountered a series of potholes on the road to selling it buses here in California. Most recently, the southern California city of Long Beach announced it would cancel its contract to buy 10 BYD electric buses because BYD violated a California Labor Commission law in producing the buses. http://tinyurl.com/kkgjplp
BYD will be allowed to re-bid for the contract when the violation is corrected. BYD America senior vice president Stella Li said in a statement: “We are confident we will prevail in any competitive re-bid in the future for the same reason we prevailed last year: Our superior technology.”
This was not the first problem for the Lancaster plant, however. In July of 2013, cracks appeared above the rear door in a BYD bus undergoing federally-mandated tests. http://tinyurl.com/ltpdbd2 The cracks were a result of faulty welding at the plant in China where the bus was produced, said BYD. “There were no major design flaws discovered. However, there were some minor findings that we wanted to evaluate and review,” said Michael Austin, vice president of BYD America.
In November of 2013, BYD was hit with a $99,245 fine from the California Labor Commission for allowing workers to take one 20 minute break rather than two 10-minute breaks. BYD was also charged with under-paying some Chinese employees. The under payment charge was later dropped; the labor fine was reduced to $37,803. http://tinyurl.com/l97tzr3
None of these problems derailed BYD’s Lancaster plant plans. But they delayed the launch are costing BYD time and money to fix. Will they be repeated in other countries? BYD is also expanding its manufacturing footprint in other parts of the world. In 2012 it announced it would build electric buses in Bulgaria. It has also talked of plans to build a plant in Brazil and in Europe.
It might seem as if BYD has endless funding to build all these plants. That is not the case. The Hong Kong-listed company is raising money through stock sales. In late May it raised 3.4 billion yuan in its largest stock sale since the company’s 2002 initial public offering, according to Bloomberg.
Says Bloomberg: “The funds give Shenzhen-based BYD room to step up investments and bolster production of electric vehicles as governments worldwide step up efforts to fight pollution. Selling shares will also help alleviate the strain on a balance sheet saddled with surging debt.
The company has reason to raise funds via shares over bonds or loans. BYD’s net debt, or interest-bearing borrowings minus cash and equivalents, climbed 34 percent to a record 20.3 billion yuan ($3.3 billion) at the end of last year.”
BYD is betting that its electric vehicles will be its future. http://www.reuters.com/article/2014/05/23/china-byd-sales-idUSL3N0O915T20140523 Meanwhile, sales of its gasoline-powered vehicles have plunged, along with its profits. In the first quarter of 2014, BYD’s profits were down 89 percent. BYD also engages in other “green” industries, including solar panels, LED lighting, and batteries.
To be sure, profits did surge last year after BYD reduced its auto dealership network and reduced losses at its solar business with the help of government incentive money. That is not a sustainable growth plan, however. BYD’s belief that electric vehicles are the future may pay off. But building plants all over China and the world is a dangerous way to back up that belief.