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

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

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

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.

Volvo owner Geely, Jaguar-powered Tata Motors’ shares diverge

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

China Startups Launching Brands Alongside Products

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

Tesla considers building car factory in China

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

Tesla Working With Shanghai to Explore Auto Making in China

Bloomberg News, June 22, 2017

Tesla Inc. said it’s working with the Shanghai government to explore local manufacturing in China, a move that would allow the electric-car maker to achieve economies of scale and bring down manufacturing, labor and shipping costs.

The electric-car maker led by Elon Musk expects to more clearly define production plans by the end of the year, according to an emailed statement. While most of its production is expected to remain in the U.S., the Palo Alto, California-based company said it needs to establish local factories “to ensure affordability for the markets they serve.”

Reaching a deal to produce cars in China would help Tesla better compete with local rivals because it would eliminate a 25 percent import tariff that makes Tesla’s Model S sedans and Model X sport utility vehicles more costly than in U.S. showrooms. The company is scheduled to begin production in July of the Model 3, the cheapest model in its lineup so far, from its lone assembly plant in California.

“The entrance of Tesla into local production is a necessary step for Tesla to gain relevance in the world’s largest EV market,” said Bill Russo, managing director of Gao Feng Advisory Co. and a former head of Fiat Chrysler Automobiles NV’s Chrysler unit in China. “Tesla’s participation thus far has been limited to imported Model S and Model X cars. However, unlocking the mass market will require a price point that is only achievable with a locally produced Model 3.”

Tesla shares rose 1.2 percent to $380.92 at 11:12 a.m. in New York and are up 78 percent this year. The company’s statement didn’t specify which Tesla products are being considered for local manufacturing in China.

For more on how Tesla may break the auto mold with its China entry

China has identified new-energy vehicles as a strategic emerging industry and aims to boost annual sales of plug-in hybrids and fully electric cars 10-fold in the next decade. A total of 507,000 new-energy vehicles including electric cars were sold last year in the country, according to the China Association of Automobile Manufacturers. About 15 percent of Tesla’s $7 billion in revenue last year was generated in China, according to data compiled by Bloomberg.

Tesla has signed a preliminary agreement with the city of Shanghai to produce vehicles in China for the first time, Bloomberg News reported earlier. The agreement would allow Tesla to build facilities in Shanghai’s Lingang development zone, according to people familiar with the negotiations. Under existing rules, Tesla will also need to set up a joint venture with at least one Chinese company to obtain the necessary manufacturing permits.

Shanghai Lingang Holdings Co., a state-owned industrial zone developer and landlord, said in a filing it hadn’t had contact with Tesla. The carmaker said in its statement Thursday that it’s been working directly with the Shanghai municipal government.

“It’s just at the right moment for Tesla to localize production because China now has suppliers with world-leading technology,” said Fu Yuwu, president of the government-backed Society of Automotive Engineers of China. “Tesla will also need to develop customized mass-market products for Chinese market, which is unique from the rest of the world.”

— With assistance by Yan Zhang, and Tian Ying

Click here to view on bloomberg.com

Trump’s Toughest Climate Foe Taking Clean-Air Crusade to China

Bloomberg News, June 1, 2017

California Governor Jerry Brown

With President Donald Trump’s withdrawal from the Paris climate pact, the leader of the U.S. state with the strictest clean-car rules is turning toward Beijing in his longtime mission to stem automotive pollution.

California Gov. Jerry Brown departed Friday for China, where he’ll urge the world’s most populous country and largest car market to take environmental cues from Sacramento, not the U.S. capital.

Brown — an anti-smog crusader since a previous term as governor starting in 1975 — is now 79 with less than two years left to serve. His gambit in China could create an environmental legacy beyond what he could hope to accomplish in California itself.

“There’s so much propaganda and outright climate denial in Washington,” Brown, a Democrat who attempted runs at the U.S. presidency in three different decades, said in an interview last week.

The trip to China is a way “to forge agreements that will counteract the misguided Republican efforts in Washington.”

Trump’s decision to dump the Paris accord, announced Thursday at the White House, is “an insane move,” Brown said on a conference call shortly afterward. “California will resist.”

In China, Brown will spread the gospel of California’s auto policies, including a state rule requiring an increase in annual sales of zero-emission vehicles powered by batteries or hydrogen. The Chinese government is weighing a similar requirement for automakers competing in the world’s largest vehicle market.

Standards review
It’s a different story in Washington, where the Trump administration is revisiting stringent vehicle greenhouse gas and fuel mileage standards for 2022-25 following pleas from the auto industry. The rules, enacted by Trump predecessor Barack Obama, would boost the fuel economy of new cars and light trucks to an average of about 50.8 miles per gallon by 2025, up from 30.3 mpg this year.

The pullout from the Paris accord, which Trump called a “massive redistribution of United States wealth,” won’t have a direct effect on the reexamination of the automotive standards. The decision leaves the tailpipe and fuel economy regulations as the lone Obama-era climate initiative that remains largely intact and creates a leadership void that China appears ready to fill.

“China has been working very hard to try and replace the U.S. as the world leader in a number of areas,” said Yunshi Wang, director of the China Center for Energy and Transportation. Trump’s abandonment of the Paris accord, Wang said, “is obviously a big opportunity from the Chinese perspective.”

Chinese rules
Under rules that could be implemented next year, a manufacturer selling 100,000 cars and trucks in China would need to sell about 2,500 battery-powered vehicles with a 200-mile range, said Wang, whose center is part of the Institute of Transportation Studies at the University of California Davis. Other compliance options include buying credits from competitors — as with the California rules that China is using as a model — or reducing sales of gasoline-powered cars, he said. California is also helping China develop a cap-and-trade system to limit carbon dioxide emissions from heavy industry and other sectors of the economy.

Zero-emission vehicles could help China with its national-security interest in reducing oil imports, Wang said. In addition, Chinese automakers now see ZEVs as a chance to finally export large numbers of cars and trucks.

“It is good industrial logic to develop products in and for the largest market,” said Bill Russo, managing director of Gao Feng Advisory Co. and a former head of Fiat Chrysler Automobiles NV’s Chrysler unit in China. “The U.S. move, together with China’s push, will serve to put China in the position to lead the commercialization of new energy vehicle technologies.”

Some automakers are pressing the government for more time to meet the targets, Wang said. But they also appreciate California’s involvement, since it provides a legal template that they themselves helped developed through long years of legal sparring with the state’s Air Resources Board. Mary Nichols, the board’s chairperson, is scheduled to join Brown on the week-long trip.

Plug-in vehicles
Volkswagen AG aims to sell 1.5 million units of zero-emission or plug-in cars in China by 2025 with most of them locally produced, while General Motors Co. is targeting 150,000 units in the same time frame under its Buick, Chevrolet and Cadillac brands.

Wang predicted that by 2025, 10 percent to 20 percent of China’s vehicle sales could come from battery-powered cars or plug-in hybrids. Last year, Chinese consumers purchased 507,000 such vehicles, or more than three times as many as in the U.S.

“China is the world’s largest single market for electric vehicles today,” said Roland Hwang, director of the transportation program at the Natural Resources Defense Council, an environmental advocacy group. A California-like electric car sales mandate “in China will kick the whole global electric vehicle market into even higher gear,” he said.

‘Remain vigilant’
Brown has vowed to fight attempts by the Trump administration to undermine the state’s stringent auto rules and to go to court if there’s a challenge to California’s 47-year-old permission to enact clean-air rules that are tougher than U.S. standards.

In the interview, Brown accused the U.S. auto industry of backing Trump, saying it hasn’t changed much since General Motors claimed in 1973 that it would go bankrupt if California forced the installation of catalytic converters.

“The leopard is not going to change its spots,” Brown said. “We have to remain vigilant.”

In separate statements, GM and Ford Motor Co. signaled that the Paris withdrawal may do little to sway their plans for current and future electric vehicles. Though neither addressed The pullout directly, Ford said climate change is real and GM said “international agreements aside, we remain committed to creating a better environment.”

Brown’s opposition to Trump’s policies could have political ramifications at home. “Climate change could be a unifying issue that pulls the Democratic Party together if the 2018 midterm elections become a referendum on Trump,” said Alan Baum, an independent auto analyst in Bloomfield Township, Mich.