Big connected electric SUVs, or what I saw at Auto China 2018

I lived in Kunming in January of 1992 when China’s then-paramount leader Deng Xiaoping made his famous “Tour of the South,” meant to reassure Chinese that his reform and opening policies would continue. That the common people in China were convinced was immediately apparent in Kunming, the provincial capital of Yunnan in southern China on the border with Vietnam.

Overnight on a downtown street, dozens if not hundreds of card tables sprouted. Illuminated by bare incandescent light bulbs strung overhead in long lines, those tables sported all manner of small items for sale by individual “business people” who had decided to “xia hai,” or jump into the sea of doing business for themselves, albeit on a small scale.  I mentioned it to a Chinese friend who said, “Chinese people are like a swarm of bees. When the government policy suggests something, they all do it.”

I saw evidence of that same swarming effect at Auto China 2018, which this year took place in Beijing (the show alternates between Beijing and Shanghai). One area the Made in China 2025 policy encourages is development of electric vehicles.  Boy have Chinese firms swarmed into this area. The show included 174 new-energy vehicles, which includes battery-electric, plug-in hybrid electric, and hydrogen fuel cell vehicles.

For all intents and purposes, however, it means BEVs and PHEVs. Of those at the show, more than 70 percent were made by Chinese firms. Note that I do not say automakers because all manner of Chinese companies, from automakers to internet companies to home appliance makers are investing in the sector.

One could see all this investment in EVs as a great thing.  How admirable that so many companies in China have the resources – including intellectual property, technology, design capability, human resources, etc. etc. – to answer the government’s call? On the other hand, one could also consider this a huge mis-allocation of resources. I lean more towards the huge mis-allocation side.

And it is only getting worse. The top Asia Pacific executive at a global supplier told me that they currently have applications from 41 wanna-be EV makers who want to use his firm’s technology. Having to wade through all these applications is a huge waste of his staff’s resources, the exec complained.

We’ve seen this before – in the traditional auto industry. China has more than 100 traditional automakers, most of them producing very small volumes of not very good ICE vehicles. Now, it has dozens — probably hundreds if commercial electric vehicle producers are added in — of companies trying to produce EVs.  I am the one who always says, “Shoot with buckshot and you are more likely to hit something.” But in this case, it really is a mass waste of resources in many instances.

True, China’s EV market is fast-growing. In 2017, it grew by 53 percent compared to the previous year to some 770,000 units, including 479,000 passenger vehicles, according to the China Association of Automobile Manufacturers. That was a tiny percentage of the total passenger vehicle market of 28.9 million units.

EVs have a bright future in China, no doubt.  But a lot of the investment being poured into EV production is still going to be wasted. There is very little to differentiate many of these models from each other. Consider the photos  at the top of this blog, which I snapped on the floor of the show. They represent a very small slice of the large electric connected SUVs on display.

What will differentiate these EVs, and in the end determine which manufacturers will succeed, is technology, most specifically connected car technology. I mean connectivity in the broad sense, so vehicle to vehicle, vehicle to smart phone, etc.  A pair of reporters from French media (but both were ethnically Chinese, so I automatically slipped into Chinese during the interview, only realizing later they probably wanted me to speak English) stopped me on the floor on the second media day and asked me to name one word to describe the show. I had to mull it over for a while before choosing connectivity.

I won’t go into the special connective features of the various models because I don’t know them all. But I will say that the various executives I interviewed at the show thought China would lead the world in connectivity technology. Their reasoning: The government is mandating it – connectivity aka smart car technology is also part of Made in China 2025. Chinese consumers are demanding it. And the shear size of the market means that there is more investment and testing going into connectivity ergo faster development. Big data writ really big.

I also won’t – indeed, since I am not in China on a daily basis I don’t feel able to – pick winners and losers in the China connected EV race.  I do however think China will “win” the EV race simply by virtue of the size of its market. But it won’t necessarily have EVs that are any better than other countries, just more of them. And, some of those will carry foreign badges.

I am becoming more convinced that my friend Bill Russo may be onto something with his Automobility focus, at least where connected cars are concerned.  There is a lot to be said for sheer scale paired with actual innovation.

Now, let’s hope the government doesn’t decide there is a bit too much freedom of information in the sector and clamp down on it. That likely won’t happen, however. Indeed, the eagerness for Chinese to be connected to all things in all ways aids the government in its quest to know more about and to control what its people are saying and thinking. But I won’t go there….