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Smith Electric partnership with Wanxiang finds a sweet spot in China’s EV plans

August 6, 2012

Wanxiang Group www.wanxiang.com , China’s largest automotive supplier, has always seemed like a fairly forward-looking company to me.  That impression was reinforced by a recent conversation with Bryan Hansel, CEO of Smith Electric Vehicles www.smithelectric.com  in Kansas City, MO.  In February of this year Wanxiang Electric Vehicles announced it would make a $25 million equity investment in Smith Electric.  Wanxiang and Smith also signed a letter of intent for an up to $75 million investment in a joint venture to produce electric school buses and commercial vehicles. http://www.greencarcongress.com/2012/02/smith-20120217.html

Seems like a shuang ying (win-win) arrangement to me.  Wanxiang gained access to proven EV technology that will be used to produce electric vehicles in two areas with promise for a big market.  And Smith Electric got operating money and access to a potentially very large market (I shy away from saying “huge.” That remains to be seen.)  Plus, it could make Smith Electric more attractive to non-Chinese investors in the longer term.

The agreement made me think back to my visit to Wanxiang Electric Vehicle Co. http://www.wanxiang.com/Wanxiang%20EV_general.pdf  in April of 2011 and a conversation I had with Li Pingyi, executive director of Wanxiang EV.  I asked it how it was to be in charge of such an important new division of Wanxiang, which started out as a producer of universal joints and other somewhat low-tech components back in 1969.  “The pressure is huge,” said Li.  Well, the cooperation with Smith should help relieve at least a bit of that pressure.

I asked Hansel, who co-founded Smith Electric, how the partnership with Wanxiang came about.  About a year and a half ago, Pin Ni, president of Wanxiang North America, called me, said Hansel.  “Electrification is viewed as critical by China and they have struggled with it,” said Hansel.  “Wanxiang started EV years ago but wasn’t able to get it up and running.”  Seems the relationship developed in the typical way—incrementally.  A small equity investment was the first step—Hansel didn’t say what he meant by “small.”  The two companies stayed in touch and got to know each other.  In late 2011 Ni suggested they talk about a joint venture.  Wanxiang could help Smith take cost out of its vehicles by providing components, said Ni.   (I have written previously about Wanxiang’s joint venture with Ener1, through which it gained access to battery pack technology.)

Last October, Smith launched its electric school bus.  http://smithelectric.com/wp-content/uploads/2011/10/SMITH-ELECTRIC-VEHICLES-ANNOUNCES-AVAILABILITY-OF-ALL-ELECTRIC-SCHOOL-BUS1.pdf  There is a big push to improve the safety standards of school buses in China after some high-profile accidents in China.  Plus the government is pushing electric vehicles.  Double whammy!  The pace of cooperation accelerated.  In early February a Letter of Intent was signed.  Wanxiang provides the physical factory and components, Smith bring the EV technology.  The JV is “plus or minus 50/50,” said Hansel.  Which means Wanxiang has a majority, he admitted.  Now both are making cash investments to create the business, said Hansel.  Smith will get royalty payments in the future, he said.

Wanxiang EV has a lot of floor space in its Hangzhou plant; the JV will initially be based in the Wanxiang EV warehouse, said Hansel.  Smith will contribute its assembly and manufacturing processes. While the JV is not contractually obligated to use the batteries produced at Wanxiang EV, it probably will, said Hansel.  Hansel sees China as critical to making the EV industry a reality.  It is the largest truck market in the world, he said.  “If I can deliver volume, it drives down our costs,” said Hansel. Just as important is China’s willingness to invest in the industry, he said.  Said Hansel of Wanxiang Group chairman Lu Guanqiu:  “He understands that new technology takes investment.  If you are going to make a new industry a success you have to invest for the long term. Finding that kind of long term vision is critical for an industry such as ours.”

Naturally China’s potential as a market for Smith’s technology also made Wanxiang an especially appealing partner, said Hansel.  “Wanxiang could have been in any major market and be interesting but the fact that they are in the largest market makes a lot of strategic sense for us,” he said.   That helps compensate for the fact that China isn’t the easiest place to do business, said Hansel.  “It does take exponentially longer to do a transaction,” he said.  China also has its intellectual property challenges, said Hansel. That is why choosing a high quality partner – such as Wanxiang – is important, he said.

Production in China awaits final government approval of the joint venture.  Approval seems likely—the recently released new energy vehicle policy encourages cooperation with foreign companies.  “We can be up and running very quickly,” said Hansel.  Here in the U.S., Smith Electric’s manufacturing footprint is decentralized, said Hansel.  It has a plant in Kansas City and committed to one in New York, he said.  It aims to follow a similar strategy in China, said Hansel.

Well, that may be easier said than done….   Still, Smith Electric may have hit a sweet spot in China, time-wise.  Besides encouraging foreign cooperation, the new policy also encourages EV purchases by local governments. http://www.chinadaily.com.cn/cndy/2012-07/30/content_15628934.htm.  “Consistent  government backing is fundamental,” said Hansel.   And that could help Smith with investment on this side of the pond, as well.  Smith’s strategic investors are happy with the China connection, said Hansel.    “Volume from anywhere helps everywhere,” said Hansel.  “Seeing the kind of scale and support that a Wanxiang can offer is very important.”

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4 Comments leave one →
  1. Lawrence permalink
    August 10, 2012 3:13 pm

    “..a fairly forward-looking company..”
    Indeed it does. Wanxiang’s Lu Guanqiu is a gutsy private entrepreneur with a vision far into the future. Since 1994 he has been investing in U.S. auto components enterprises. While it has not always been shuang ying for him there he keeps on trucking. Back home Wanxiang holds a stake in Guangzhou Auto, provides EV batteries for Zotye and Chery, and has been active in things like the Shanghai Bibendum competition where it took away 23 awards for innovation in 2007. In addition to Smith Electric in the U.S., as you cited, back in 2010 it entered ties with Ener1 aimed at China’s State Grid development, and just this week signed an MOU with A123 for battery systems manufacturing. Now that the company has shelved its plans for passenger car EV development, it will be interesting to see how it does with the commercial EVs, aided by this venture with Smith.

  2. August 13, 2012 4:49 pm

    Actually, Wanxiang didn’t “shelve” plans for passenger car devopment. Li Pingyi, director of WX EV told me last year (or was it 2010?) that WX was targeting commercial vehicles and would see how the market for car EVs developed before making a decision to enter it. I wrote about that as well as the EnerDel JV.

  3. John Kua permalink
    August 20, 2012 7:20 am

    Dear Alysha,
    This is John, from Singapore. I’m a keen follower of your blog on China’s EV development for some time, and have decided to sign up recently.

    Briefly, I’m working on my own, as a consultant in electric/hybrid vehicle technologies and also smart grid technologies in Asia-Pacific region, including China (I’ve been involved in such technologies for past 15 years, in both government/academic research and private companies.)
    In my recent dealings, I get the sense that China has recently scaled back its original ambitious plan (2010?) to put up to 5 million EVs on the road by 2020, to commercialize or jump-start the EV/hybrid industry. My first impression on China’s recent EV plan released this July is the gap that exists between paper and reality. Seems that now they are quietly adopting a more cautious path to adopt more proven hybrid technologies (including alternative fueled vehicles) that is more acceptable to market.
    Regarding this, is central government control and execution the way to go, or to leave it to the local governments and private enterprise/foreign JVs – that is the question.

    What is your take on this, or am I reading the signals wrongly?

    Best regards
    John Kua
    Ph.D.

    • August 20, 2012 4:03 pm

      Hi John, Glad to have you as an “official” subscriber! You are very correct in your reading. As I have written in my blog and other publications that I write for, the Chinese government quickly realized that making EVs was much more difficult than it had imagined. Wen Jiabao himself has said on several occassions that China lacks crucial technologies needed to grow the EV segment (hence the emphasis on foreign cooperation in the latest plan) and that battery technology is not mature. But China as always is making policy up as it goes. Hybrids were never a big part of China’s EV plans as it aimed to leapfrog other countries and hybrid technology is pretty mature. BEVs where the initial focus but now PHEVs have been added to the mix. It is a shame China isn’t promoting hybrids more (i.e. subsidizing them) though Guangdong province is doing do (as my colleague Yang Jian at Automotive News China pointed out in a recent column).

      Local governments can play an important role by subsidizing NEV purchses, as Guangdong is doing (ironically, to help out Nissan and Honda, two Japanese automakers with significant operations in GD) and by building recharging infrastructure. But the central government is needed for matters such as plug standards (Where it has failed miserably since no nationwide standard has been released, to my knowledge), purchase subsidies, and infrastructure develoipment (since the two electric utilities in China are owned by the central government).

      As it is China and private entrepreneurs get short shrift in these kinds of big policies, the central government needs to lead with policies, but it seems to lag in important areas such as data collection on a national level. If the central government is going to pick winners and losers it needs to be able to evaluate whether the winners are actually winning. That is a big shortcoming.

      But as I said in my recent blog, local development of some technologies may produce some good results. The problem is that we won’t have a way to evaluate the results without data!

      Best,
      Alysha

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