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Are niche EV markets in China where the real opportunity lies? UQM hopes so.

August 28, 2015

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.

Still loss-making

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.

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