JV aims to get in on ground floor of China’s EV surge…if it happens
I like to talk to little-known (to me at least) companies operating in China’s electric vehicle world to get a broader perspective. In that spirit, when I saw a notice that a U.K.-based company called Sevcon http://www.sevcon.com had formed a joint venture with a Chinese supplier named Risenbo to supply motor controllers and other components to China’s electric vehicle makers http://www.marketwatch.com/story/sevcon-announces-electric-vehicle-joint-venture-in-china-2014-02-04-221844958, I sent a note to Matthew Boyle, Sevcon’s president and CEO, asking if we could chat.
Talking with Boyle opened a window for me to the many layers of the EV industry, and made me think again about how many companies will be disappointed if China doesn’t pull off its grand plan to produce lots of EVs. The opposite could also be true, or course. China may forge ahead and produce many EVs – though mainly for fleets, in my opinion.
Getting in on the ground floor as Sevcon is doing is the way to be positioned to benefit if China does turn into an EV-full country. That’s Matt Boyle’s attitude. “If you are prepared to take a long term view that China is a market that will grow substantially, if you’re not there now you will be too late,” he told me.
Sevcon produces inverters to change DC current into AC current, AC and DC motor controllers, DC/DC converters, and battery chargers for zero-emission vehicles and hybrids. “We try to take as much in electrical components as we can,” says Boyle.
Doing business worldwide, Sevcon has mostly marketed to companies supplying off-road vehicles such as quadracyles, as well as fork lifts and motorcycles.
But Sevcon’s components can also be used in on-road EVs, including fleet vehicles and passenger cars. With the Risenbo joint venture it hopes to capitalize on what many anticipate will be a growing demand in China for electric vehicles in the passenger car, commercial vehicle, and scooter segments. Sevcon’s on-road business has really taken off in the last two years, says Boyle. “We are well known in off-road market; what has become an emerging market for us is on-road,” he told ChinaEV.
As for its partner, I couldn’t find much info on Risenbo Technology Co. Ltd., other than that is Tier 1 Chinese supplier. The 50/50 joint venture will to be known as Sevcon (Hubei) New Energy Technology Co. Ltd. Boyle got to know Risenbo through an industry trade group in the U.K.
Risenbo already supplies components to automotive, bus, and truck manufacturers in China, according to Boyle. The joint venture will market Sevcon products in China targeting on-road applications. And since just about every vehicle producer in China is at least saying it will produce some EVs and the central government is telling local governments to add EVs to fleets, Risenbo could provide Sevcon with an excellent doorway into lucrative markets. Risenbo has mainly served large vehicle makers, says Boyle, but Sevcon’s products are scalable so it is targeting all vehicle segments.
Wisely, given the slowness of Chinese drivers to warm to EVs, Boyle says light commercial vehicles and busses seem to be the best market for its products right now. But, “passenger cars can’t be ruled out,” he says. And the latest EV policy, which ignored hybrids, is also to Sevcon’s advantage. There is no charger on board a hybrid, says Boyle. PHEVs and BEVs do have a charger on board. “If there is a charger on board it will double the revenue for us,” he says.
There are Chinese companies that produce similar products to Sevcon’s, such as Shanghai EDrive Co. Ltd. http://www.chinaedrive.com a company I visited and wrote about last October. Boyle admits that “the challenge in China is our selling prices have to be a modicum lower than in the rest of the world” to compete against local competitors. “Our quality and reputation give us somewhat of an advantage,” he says, “and our partner has a good reputation in China.”
Fortunately Sevcon has been doing contract manufacturing in China for export in a Free Trade Zone in Shanghai’s Pudong district for about 11 years. It won’t have to add capacity to serve the anticipated new domestic business, at least initially, says Boyle.
Companies manufacturing in China often worry about intellectual property protection; Sevcon has had IP issues in the past, says Boyle, but they have been small. “We aren’t unique in the world, but there aren’t that many people doing what we do so it is easy to spot what’s going on,” he says. Also, Sevcon’s customers are all large companies who also have something to lose if something goes on, he adds.
It will take a while to know if Sevcon’s China gamble has paid off. Product cycles in his industry are generally 18 months to three years, says Boyle. And what about all this news that China’s economic growth is slowing to perhaps as low as 7% this year and even lower in the future? “China’s GDP growth still means you are adding an economy the size of Singapore every year,” says Boyle.