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Marchionne’s Fiat Review Spurs Great Wall Interest in Jeep Brand

Bill Russo , , , , , ,

Bloomberg News, August 21, 2017

Sergio Marchionne’s plans to review Fiat Chrysler Automobiles NV’s businesses has one Chinese company expressing interest in purchasing its Jeep division, as Asian carmakers continue to seek European and American brands in search of technology and new markets.

A spokesman for Baoding, China-based Great Wall Motor Co. didn’t say whether the two companies have begun negotiations. Fiat Chrysler manufactures Jeeps in China with local partner Guangzhou Automobile Group Co., which said it doesn’t have plans to buy the SUV brand. Fiat Chrysler declined to comment. Great Wall Chairman Wei Jianjun has been trying to steer the SUV maker to sell pricier and more profitable models, recently introducing a new premium brand named WEY. Acquiring Jeep would put Great Wall on a similar path as Zhejiang Geely Holding Group Co., which bought Sweden’s Volvo Cars and recently sealed a majority stake purchase of Lotus, the British sports-car brand.

“From an SUV manufacturer’s point of view, to have a premium brand of the top of the portfolios, it makes sense,” said Bill Russo, managing director of Gao Feng Advisory Co. and a former head of Fiat Chrysler’s Chrysler unit in China. “But outside of off-road technology, Jeep is not necessarily known as a brand with strong technology pipeline in terms of EVs and autonomous driving. If you look at the future, the technology improvement it brings to Great Wall can be limited.”

Shares of Great Wall gained 2 percent to HK$10.12 as of 2:57 p.m. in Hong Kong trading. Fiat shares jumped to a record in Milan trading. The stock gained as much as 3.1 percent to
11.03 euros, valuing the company at 16.45 billion euros ($19 billion).

Premium SUVs

Building a full-fledged luxury marque would take years with no promise of success. A purchase of Jeep, however, would give the Chinese automaker a stable of world-famous models from the
Cherokee to the Wrangler. At a starting price of 209,800 yuan ($31,400), the Cherokee would also catapult Great Wall into the premium end of the market.

With prices beginning at 88,800 yuan, Great Wall’s H6 competes in a crowded field. In that price range, consumers have a wide array of SUVs to choose from, from Geely Automobile
Holdings Ltd.’s Boyue, Guangzhou Auto’s Trumpchi GS4 and Chongqing Changan Automobile Co.’s CS75 to BAIC Motor Corp.’s X65, to name just a few.

While buying Jeep would give Great Wall a boost in branding, it would also “face big challenges in the near future as the government tightens up requirements on emissions and oil consumption, just like Hummer, which was undermined by the U.S. emission rules years ago,” said John Zeng, LMC’s Shanghai-based managing director.

Chinese regulators in 2010 blocked the acquisition of General Motors Co.’s gas-guzzling Hummer brand by Sichuan Tengzhong Heavy Industrial Machinery Co., saying the company
didn’t provide a reasonable purchase plan. Chairman Wei has warned of rising competition in the entry-level SUV segment. The company is rolling out the new WEY nameplate at a time when sales of its flagship Haval H6 model, which accounts for half of its total deliveries, declined 5.5 percent to 263,872 units in the first seven months of this year.

Great Wall will probably report a 79 percent plunge in second-quarter net income to 537 million yuan later this week, according to the average analyst estimate compiled by Bloomberg.

To contact Bloomberg News staff for this story:
Yan Zhang in Beijing at yzhang1044@bloomberg.net;
Tommaso Ebhardt in Milan at tebhardt@bloomberg.net
To contact the editors responsible for this story:
Anand Krishnamoorthy at anandk@bloomberg.net
Chua Kong Ho, Sam Nagarajan

After Sales Aftermarket China
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COVER STORY: Article on China’s Automotive Aftermarket published in China Automotive Review

Bill Russo , , ,

China Automotive Review, August 2017

Our recent article on the rise of China’s Automotive Independent Aftermarket was published as a cover story in the August edition of China Automotive Review.

China Emerging Markets Europe
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Volvo owner Geely, Jaguar-powered Tata Motors’ shares diverge

Bill Russo , , , , ,

Bloomberg News, August 14, 2017

By Bloomberg News

Since Geely’s US$1.5 billion purchase of Sweden’s Volvo Cars in 2010, the Chinese automaker has seen the share price of its listed unit increase sixfold in Hong Kong trading. SOURCE: EPA

(Bloomberg) — Tata Motors Ltd. and Zhejiang Geely Holding Group Co. both bought iconic luxury brands from a struggling Ford Motor Co. in the wake of the global recession. Both acquisitions were met with skepticism from investors, who now view the two companies very differently.

Since Geely’s $1.5 billion purchase of Sweden’s Volvo Cars in 2010, the Chinese automaker has seen the share price of its listed unit increase sixfold in Hong Kong trading. India’s Tata Motors, which bought Britain’s Jaguar Land Rover two years earlier for $2.5 billion, has merely doubled in the same period.

The contrast is even starker if one shortens the timeframe: Tata is down about 21 percent this year, while Geely is up 149 percent. The difference, says Jochen Siebert, a Singapore-based automotive consultant, lies in what the companies have done with their landmark purchases. Under Chairman Li Shufu, Volvo Cars was able to lower its costs and gain economies of scale by manufacturing and selling in China, the world’s largest auto market. Geely in return benefited from the technology of the more established Swedish automaker through the development of common underpinnings, which Volvo Cars also uses for its smaller models.

When Tata Motors wanted a partner to help it break out of the domestic India market, it looked not to its luxury division, but to Volkswagen AG’s Skoda. JLR and its Indian parent were just “too far from each other” in positioning, preventing them from creating any synergies between them, said Siebert. Talks about a partnership between Skoda and Tata ended last week without a deal as the projected cost savings fell short of expectations, leaving the latter without a global partner.

“Tata sees JLR as a standalone and a financial shareholding,” said Siebert, managing director of JSC Automotive Consulting. “As long as Tata doesn’t want to develop into a higher-positioned brand in its own right, there is just no way to cooperate with JLR.”

Volvo’s Ethos

Tata didn’t immediately offer a comment on the market perception of its acquisition of Jaguar Land Rover. A spokesman for Zhejiang Geely Holding said in a message sent by WeChat that the success of the acquisition “has been down to Volvo’s strong product range and customer-centric design and engineering ethos.”

Tata is now almost entirely dependent on its luxury unit for profits. Jaguar Land Rover accounted for 78 percent of the group’s total revenue and 96 percent of its operating income.

Sales of Tata’s own namesake brand of vehicles contributed 1.3 percent to operating profit, behind that of construction equipment. This has made the parent vulnerable to any hiccups at the British unit. When JLR said it expects pressure on profit margins to continue due to higher incentive levels, investors sent Tata’s stock down 8.6 percent to a 15-month low on Aug. 10.

Deliveries at JLR grew at a slower 4 percent pace in the April- to-June quarter because of weak demand including for Land Rover’s Discovery Sport and Range Rover Sport SUVs. JLR also counts China as a major market and Tata can do little to help in the world’s biggest auto market given its lack of presence there, said Bill Russo, managing director of Gao Feng Advisory Co.

By contrast, Volvo Cars was the first Western carmaker to export a premium China-made car to the U.S. in 2015 with the S60 Inscription. The company last year began building high-end versions of its S90 premium sedan in Daqing, China for global exports and plans to assemble vehicles in India this year, starting with the XC90 SUV. Geely and Volvo Cars also worked together to develop a compact-car platform that will be used by Geely’s upscale Lynk & Co. brand.

Geely’s investments in factories and in-house technologies have resulted in a series of new car models, a spokeswoman for Volvo Cars said in an email response. The transformation continues with two new joint ventures formed between Volvo and Geely this month, she said.

Geely has thrown a lot of money at Volvo without concern for an immediate return, a luxury available to an unlisted company, says Janet Lewis, an auto analyst in Hong Kong with Macquarie Group Ltd. This has enabled the Swedish company to invest in technology, whereas it was relatively starved of development money under Ford ownership, she said. “The longer-term challenge for Volvo is its tiny scale. Even combined with Geely for volume, it is going to have a hard time meeting the increasing technology needs when it is up against well-funded giants like Toyota, VW, Renault-Nissan-MMC and GM,” said Lewis. “JLR faces similar challenges with its small scale and its main hope is that Tata ties up with a global partner in India.”

To contact Bloomberg News staff for this story:
P R Sanjai in Mumbai at psanjai@bloomberg.net;
Yan Zhang in Beijing at yzhang1044@bloomberg.net
To contact the editors responsible for this story:
Anand Krishnamoorthy at anandk@bloomberg.net
Chua Kong Ho, Abhay Singh

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Why Tesla’s Elon Musk needs to be wary of Volvo’s China-fuelled foray into Indian roads

Bill Russo

The Economic Times of India, July 30, 2017

 

Volvo has quietly upped the ante. After a decade of a low-key existence in India, the company will have an assembly plant in Bengaluru ready by end 2017.

Finally, Tesla Motors may have some competition — not just from domestic first-mover in electric vehicles (EVs), Mahindra & Mahindra, but competition of the global variety. Early this month, Volvo Cars made headlines across the world when the 90-year-old Swedish carmaker declared that it will go all electric by 2019, pulling the plug on cars with just an internal combustion engine.

“…Tesla has managed to offer such a car for which people are lining up. In this area, there should also be space for us,” Volvo Cars global CEO Hakan Samuelsson told the media. Some of those present called it a wake-up call for Tesla founder Elon Musk. With a market capitalisation of over $50 billion, Tesla’s stock fell after Volvo’s announcement.

“Volvo’s ambition has been to be a full premium brand competing with Mercedes, BMW and Audi. By leading in electrics, it may find a distinctive positioning among best luxury car brands,” says Detroit-based Michael Dunne, founder of Automotive Resources Asia.

Volvo may have Swedish roots, but its DNA has been showing ample traces of Chinese derivation ever since it was acquired by Geely Holding Group, the parent of Geely Automobile, for $1.8 billion seven years ago. Since then, Volvo Cars has been learning new tricks. The Swedish carmaker that’s earned a reputation of being conservative and safety-obsessed is visibly changing. The bit player — it sold just 5.34 lakh units as against industry sales of 88 million globally in 2016 — is now shifting gears with an eye on future demand.

EVs may well be the game-changing gambit. India is key to that transformation. For multiple reasons. The world’s fifth-largest car market today is expected to climb two notches by 2020. “Europe is not growing. China is our biggest market where we sold 1,00,000 cars in 2016. India is where China was in 2000. Nothing can stop the India market from growing,” says Tom von Bonsdorff, managing director, Volvo Cars India.

Bonsdorff is also excited about India’s EV ambitions. Shunning the internal combustion engine, the Indian government is audaciously betting on EVs to curb pollution and take a leap on transportation technology. By 2030, it wants all new cars sold in the country to electric. “The government’s EV thrust aligns with ours. India is our next growth frontier,” says Bonsdorff.

Tesla seems to be in no hurry to rush into India. In May, Musk had sought clarifications from the government on local sourcing of components on Twitter; the government was quick to point out that foreign direct investment in automobiles is not conditional on sourcing. More recently, Road Transport Minister Nitin Gadkari made a visit to a Tesla factory in the US to sense Tesla’s appetite for manufacturing in India.

Meantime, Volvo has quietly upped the ante. After a decade of a low-key existence, the company will have an assembly plant in Bengaluru ready by end 2017. Operating in the luxury car market, competing with the likes of BMW, Audi and Mercedes with its cheapest entry at a little over Rs 30 lakh, it wants to double its segment share to 10%, selling 5,000 cars by 2020. It will also boost its geographical footprint, growing its dealer network from 19 to 25 by the year end. Some 800 units of the XC90, , priced at a little over Rs 70 lakh, have been sold so far. Volvo’s most expensive model, the hybrid XC90 T8 Excellence priced at roughly Rs 1.27 crore, has received some 50 orders.

Volvo may have Swedish roots, but its DNA has been showing ample traces of Chinese derivation ever since it was acquired by Geely Holding Group.

Dragon at the Door
Volvo’s India moves also gain significance due to the China factor. In 2010, reeling under the aftermath of the global economic crisis, Detroit giant Ford Motors sold the loss-making Volvo Cars to Geely, then known for making cheap, copycat cars. Since, led by Chinese billionaire Li Shufu, it has come a long way.

Geely has been on an acquisition spree - after Volvo it acquired London Taxi Company in 2013, British sports carmaker Lotus and its Malaysian parent PROTON (49% stake) and American flying car firm Terrafugia in 2017. From 4.2 lakh passenger vehicles in 2011, Geely expects to sell 1.1 million in 2017 and is targeting over 2 million unit sales annually by 2020.

Geely’s acquisition of Volvo Cars is now an HBR case study. Volvo’s financial turnaround, Geely’s deft cross-cultural handling, how it leveraged the former’s technology depth, and how it is now boldly stepping into an electric future make the duo fairly unique in global Motown.

“Geely has benefited from Volvo’s engineering experience and R&D capabilities,” says China-based Bill Russo, managing director of Gao Feng Advisory Company. Geely posted its biggest profit growth in eight years in 2016. “With Volvo, Geely immediately got access to a highly respected brand known for safety and reliability,” says London-based Colin McKerracher, head of transport analysis, Bloomberg New Energy Finance. In 2016, Geelyhad a top line of $7.79 billion and profits of $741 million.

It has been a good ride for Volvo Cars too. “Our owners (Geely) have financial strength. And that makes a big difference. Our sales and financials have never been better,” says Bonsdorff. Post acquisition, Geely has invested $11 billion in Volvo to develop new technology and R&D. The strategy seems to be working. Volvo XC90 won the North America SUV of the year award in 2016, beating BMW, Audi, Mercedes and Land Rover. “Volvo has made dramatic improvements under Geely,” says US-based Dunne.

How did Geely manage this feat? When it acquired Volvo, it largely left the latter’s management unchanged and independent with cars being manufactured in Europe. This strategy mirrors well with what Tata MotorsBSE 0.15 % did with JLR after the acquisition in 2008.

Volvo in turn helped Geely gain access to its technology shelf, engineering experience and exposure to global markets. Not that this was always smooth. In 2014, the news of a boardroom cultural clash hit the headlines with Volvo trying to preserve its Scandinavian roots even as billionaire Shufu was pushing for making big, flashy, pricey cars that the Chinese want.
“Today, in the grand scheme of things, we can see Volvo heading down the right path,” says Russo.

With strong foundations, Geely is now fortifying its future and global ambitions. Last month (in June), Volvo launched a separate brand Polestar to focus on high performance electric cars and take on Tesla. Last year in a joint venture with Volvo, Geely launched a new brand Lynk & Co that will focus on making next-gen cars targeted at millennials globally.

Based on a new compact modular architecture platform, in the works at Volvo for some time, it will debut in October. It plans to offer lifetime warranty and a pay-per-use subscription plan to its customers. In India, for now, Geely is looking at the top end of the market with Volvo. For a nation that suffers from poor quality perception in India, Volvo’s luxury positioning may offer the best entry point for Geely.

Click here to read this at Economic Times

Autonomous Driving China Innovation New Mobility
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China Startups Launching Brands Alongside Products

Bill Russo , , , ,

Ward’s Auto, June 13, 2017

The Lynk & CO startup is leaning heavily on the Volvo brand heritage for legitimacy, but an investment analyst says not having the burden of a parent brand actually may help electric-vehicle startup NIO.

NIO, maker of ES8 electric vehicle, plans autonomous EV for U.S. in 2020.

by Alysha Webb

SHANGHAI – Lynk & CO and NIO both launched their first production models at the Shanghai auto show in April. Both tout their unique ownership experience, which includes lots of cool technology.

Cool technology is becoming standard in new cars, however. The automakers arguably have a bigger task before them on the road to success.

“They must go through the painstaking process of building a brand,” Bill Russo, managing director at Gao Feng Advisory, a Shanghai-based consultancy, tells WardsAuto.

Most new brands can rely on predecessor brands from the same company, for example, Lexus and Toyota, he says.

Lynk may have a leg up in the brand-building battle. It is the offspring of two automakers, Zhejiang Geely and Volvo, which Geely acquired in 2010. “But I’m not sure that helps Lynk & CO very much,” says Russo.

Meanwhile, the Lynk & CO website proclaims, “Forget what you know about car brands and buying.”

Its first model, a compact luxury CUV called the 01, is scheduled to go on sale in China in fourth-quarter 2017, in Europe in 2019 and the U.S. “some months” later.

Lynk will offer the option of shared ownership of its vehicles, which will include electric and traditional internal-combustion-engine models. The brand, which calls itself “the world’s most connected car,” offers a lifetime warranty and, more important to its desired image, lifetime free connectivity.

The car-sharing feature may be a bonus in trying to attract younger buyers in China, says Namrita Chow, principal automotive analyst with IHS Markit. But, she notes, “The tough part will be brand awareness and gaining traction in a market already saturated by existing brands as well as a throng of newcomers.”

The aim, says Alain Visser, senior vice president-marketing and sales at Lynk, is to create a “hassle-free ownership experience” that clearly will differentiate his company from its competitors.

The startup is leaning heavily on the Volvo brand heritage for legitimacy. The 01 and future models will be “built in China in a Volvo plant according to Volvo standards,” Visser says.

NIO, formerly known as NextEV, also displayed its first production model at the Shanghai show. The ES8, a fullsize SUV, is an all-electric vehicle with a swappable battery.

The startup is leaning on its ownership experience to differentiate it from the crowd, although details aren’t out yet.

“We believe that a better electric automotive product and a better ownership experience will make more and more users willing to own an electric car,” NIO founder and Chairman William Li says at the Shanghai show.

NIO says the ES8 will be on the market in China in 2018, and it will offer an autonomous EV for sale in the U.S. by 2020.

Not having the burden of a parent brand actually may help NIO, says Robin Zhu, senior analyst at investment researcher Sanford C. Bernstein in Hong Kong. “NIO is free to build a brand story consisting of Nurburgring lap times, Formula E and other achievements,” he tells WardsAuto.

The NextEV team has competed in the FIA Formula-E Championship race series since its inception in 2014, winning the series in 2015 with driver Nelson Piquet Jr.

In May, its EP9 electric supercar set an electric-vehicle lap record of 6 minutes, 45.9 seconds at the famous Nurburgring track in Germany. In February, an autonomous version of the EP9 set a new record for an autonomous vehicle with a lap time of 2 minutes, 40.3 seconds at the Circuit of the Americas in Austin, TX.

It won’t be easy for the startups to use customer experience to brand themselves, says Tom Doctoroff, senior partner at global brand and marketing firm Prophet. Most Chinese companies still are much more focused on sales than service, he says.

“When you want to talk about customer experience, you have to look at corporate structure and whether it can provide an integrated holistic experience,” says Doctoroff, who lived in China for decades and is the former Asia Pacific CEO of communications firm J. Walter Thompson. “The ecosystem that is required is a very refined ecosystem.”

Click here to read the article at wardsauto.com

China Electric Vehicles Product & Technology
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Tesla considers building car factory in China

Bill Russo , ,

Marketwatch, June 22, 2017

Tesla Inc. said it is exploring with government officials in Shanghai the possibility of opening a facility to build electric vehicles for the Chinese market.

The Silicon Valley auto maker reiterated Thursday it plans to define its production plans for China by year’s end. China, the world’s largest market for new-car sales and a big consumer of luxury vehicles, is an important market for Tesla, especially as the government pushes for more electric vehicles.

“Tesla is deeply committed to the Chinese market, and we continue to evaluate potential manufacturing sites around the globe to serve the local markets,” Tesla said in a statement. “While we expect most of our production to remain in the U.S., we do need to establish local factories to ensure affordability for the markets they serve.”

Tesla didn’t mention a local joint-venture partner. China requires foreign auto makers to operate factories with local partners, though officials have signaled a willingness to relax such requirements. In May, Tesla Chief Executive Elon Musk, who had recently visited China, cryptically suggested such rule changes would be “good timing.”

By making cars in China, Tesla could cut the prices of its vehicles by a third by reducing shipping costs and avoiding import duties, Mr. Musk has said.

In afternoon trading in New York on Thursday, Tesla’s shares rose about 2% to $383.99. The stock is up about 80% this year.

China charges a 25% duty on all imported cars, but the hefty markup hasn’t deterred affluent buyers who regard a Tesla vehicle as a prestige item.

One Chinese Tesla owner, Chen Zhanchong, said he paid $176,000 for a Tesla Model S P90D in late 2015, well over the sales price in the U.S. But the 31-year-old Guangzhou resident, who recently left his job at an internet company, said it was still a good value for a high-performance electric car.

“If a cheap Model 3 is produced in China in large quantities, local companies won’t be able to compete,” Mr. Chen said. “Tesla will enjoy explosive growth.”

Tesla reported over $1 billion in revenue in China in 2016, a figure that analysts believe equates to around 11,000 vehicle sales. The company sold just over 76,000 cars globally last year.

And sales in China have accelerated in 2017: Tesla sold around 5,500 cars in China in the first four months of the year, according to EV Sales, a website that tracks the electric-vehicle market.

Yet while local manufacturing gives Tesla the opportunity to sell cars in far greater numbers, China’s fast-changing regulatory environment is creating uncertainty among foreign auto makers unsure about what Beijing’s requirements will be.

Current regulations also require manufacturers building electric cars in China to source all vehicle components locally. That presents a challenge for Tesla, which won’t be able to use batteries made in its U.S. “gigafactory” in its Chinese-built cars, said Bill Russo, managing director of Gao Feng Advisory, a Shanghai-based auto consulting firm. Tesla may be forced to form a joint venture with a local battery maker, as well as a car maker, he said.

Even so, Tesla has no choice but to manufacture vehicles in China, despite the regulatory uncertainties, in order to achieve scale and tap what is already the world’s biggest market for electric cars, Mr. Russo said.

“On a positive note, China is willing to allow the premier EV brand to plant its flag on Chinese soil,” he said, referring to Tesla. “Tesla needs China. And China needs Tesla — it wants to show they’re not a closed ecosystem.”

Recent events signaled that Tesla is moving closer to committing to opening a factory in China, analysts said. Chinese internet company Tencent Holdings acquired a 5% stake in Tesla for $1.78 billion in March, and Mr. Musk met with senior government officials in Beijing the following month.

-Junya Qian contributed to this article.

Write to Tim Higgins at Tim.Higgins@WSJ.com and Trefor Moss at Trefor.Moss@wsj.com

Click here to read this at marketwatch.com