Electric cars drive China’s superpower zeal

Share

In a quiet showroom on the outskirts of Beijing, buyers peruse the batteries Liandong Tianyi Tech has on offer. Power units of all different sizes store backup electricity for computer servers and cellphone towers, efficient and invisible.

Chairman Yan Zidian doesn't expect it to stay that way for long. He is driving his company out of the server farm and onto the streets. By next year, he expects to begin selling an electric car, placing his small company, little known outside the backup power industry, into a race that has drawn hundreds of other competitors in China. They see a generational opportunity to become leaders in the automotive industry of the future.

"There is nothing that is second to this," Mr. Yan says, as he describes plans for a pleasant interior on his initial model, a small two-person electric vehicle destined for bicycle lanes, with hopes to quickly build into something that can challenge the Fords of the world. He's already a battery seller, after all, and batteries make up roughly half the cost of an electric car. "An electric vehicle is just a battery with wheels attached," he says.

"Even America doesn't have the kind of electronics and materials technology we have. Elon Musk doesn't have it, either."

More than a century ago, the architects of the gasoline age built the early capitals of automotive power in Detroit and Mannheim. Now, Chinese tech billionaires, legions of skilled engineers and a coterie of related companies – like Mr. Yan's – are rushing to seize the title.

If they succeed, the global headquarters of the automotive sector, powered by networks of electric vehicles (EVs) that reshape the ways humans move, will shift to places such as Beijing and Shenzhen, a vast recalibration of the industrial system with far-reaching ramifications.

"Is China, or are parts of China, the new Detroit? I think the answer is yes," says Bill Russo, a long-serving auto executive in China who is now managing director at Beijing-headquartered Gao Feng Advisory Co.

"China is likely not only the battleground for electrification, but will lead the world in terms of the business model for EV adoption."

What's happening in China has been less visible in Europe and North America, where Tesla has taken centre stage as a global leader. BMW, Renault, Kia and Nissan sell electric models in Canada, while Volkswagen expects to soon launch a gas-less car with a 500-kilometre range. The German giant intends to sell two to three-million a year by 2025 – and recently said it is exploring the idea of jointly building electric cars with a Chinese company. The Western competition is hardly standing still.

But China's efforts are at once focused and sweeping in their ambition, led in part by a government that has used every tool at its disposal to kick-start an industry it sees as a future economic pillar. The prospects may be crumbling for steel and coal. But master the electric car, and Beijing can dominate the world's largest industrial sector.

So-called "new-energy vehicles" are China's path to "superpower" status in car manufacturing, President Xi Jinping has said.

Healthy subsidies have lit a fire under sales, with various levels of government spending $9.5-billion in subsidies to prop up the industry between 2013 and 2015 alone. Government policies have offered non-financial reasons to buy electric cars – like open access to licence plates that are heavily restricted for gas cars.

Already, Chinese buyers last year snapped up more new-energy vehicles, most of them pure electric cars, here than anywhere else.

Just as important, China has a passel of billionaires on a mission, men whose wallets, stuffed with profit from China's e-commerce boom, put Mr. Musk's wealth to shame and who have no legacy business to protect.

"Dot-com companies simply have too much money. They need somewhere to spend it, and electric vehicles have now become a very hot topic globally," said Yale Zheng, managing director of Automotive Foresight in Shanghai. "They can wait for five or 10 years, burning billions of dollars until one day one or two companies stand up."

Two hundred Chinese companies are now designing thousands of models of electric cars. In state media, officials have expressed disappointment that only 140 of those have brought models to market, suggesting that many entrepreneurs created phantom enterprises for the purposes of soaking up subsidies.

China nonetheless counts about 1,000 electric car models that have entered production.

Among those racing to battery-powered cars are established Chinese auto makers such as BYD – which counts Warren Buffett's Berkshire Hathaway as a major investor – Volvo owner Geely and state-owned BAIC Group.

Last year, BYD sold 62,000 electric cars, 11 per cent of the global total. This year, it expects to double that. If it succeeds, BYD will sell more new-energy cars than changed hands in the entire U.S. market last year. The company is "helping make 'EV' another word for 'Made in China,' said Gu Guozhong, an assistant general manager in the company's sales arm.

Geely has publicly said it wants 90 per cent of its sales to be "new-energy" vehicles by 2020.

BAIC, meanwhile, is promising to shed the stodginess of state-owned corporate culture to herald a consumer-focused "third revolution of the auto industry."

"An egg, broken from the outside, becomes a plate of fried eggs. When it breaks from inside, it becomes a new life," chief executive officer Zheng Gang said at a Beijing release of new concept cars in early August. He wants his company to count among the three biggest global electric car makers in four years.

As the world's biggest auto market, China already has a sprawling manufacturing base that electric car designers can plug into. Its pervasive smog problems give it incentive to step away from tailpipe emissions, too. Chinese leaders ratified the Paris climate agreement early because they see green technology as a way to build up new economic might.

Most important, China's enormous market gives companies a fast lane to large-scale production that can shave costs, one of the largest barriers to the growth of electric car sales. And to fuel this coming wave of new vehicles, China had in place by the end of last year 49,000 public charging points (the United States counted about 32,000), a number that doesn't include home chargers. Local leaders want 4.8 million charging points in place by 2020.

The country has raced to embrace new forms of mobility. This summer, Uber celebrated a billion completed rides in six months, or about 5.5 million a day worldwide, including in China. Competitor Didi Chuxing, which has agreed to buy Uber's China operations, does 11 million trips a day in China alone.

The corporate sector is moving with similar speed. Some of the most ambitious electric car plans belong to companies that didn't exist a few years ago.

They have nonetheless become China's most attention-winning car makers – although none have actually made production cars yet – a cohort of heavily funded startups run by poached executives from German and U.S. car companies. NextEV, Future Mobility, Faraday Future, Chehejia and WM Motor may not be familiar names yet. But give them a few years.

Or, in the case of NextEV, a few months. That's when the company, funded by Chinese Internet giant Tencent and U.S. venture capitalist Sequoia, among others, expects to roll out an electric supercar that can go head to head with anything Tesla – or, for that matter, Italian car makers – has on the market. The years to come will produce many other models of cars, the creations of a sprawling operation that already counts more than 1,000 employees in four countries, including designers in Silicon Valley and engineers in Germany. By year's end, NextEV's work force is expected to total 2,500.

Company founder William Li has been publicly cautious, giving himself a 5-per-cent chance of success. But if it works, NextEV believes the reason will lie with China.

"China is going to be seen as the engine of electric car growth," president Martin Leach said. "How people accept a product can change much more quickly in China than it would in other places."

The country's biggest car makers, meanwhile, are already sketching ways to build out from their foundation in China.

For now, BYD currently has just two electric cars driving in Canada, one belonging to Ted Dowling, a regional vice-president. But the company has behind it massive resources – it employs more than 16,000 engineers, and manufactures most electric battery and drive-train components itself – and a unique plan to win trust by first selling city buses, garbage trucks and school buses.

BYD has tested electric buses in Montreal and Edmonton, where they proved as reliable as diesel in the cold, roughly equivalent in lifetime cost and better-liked by the public. Earlier this year, BYD won a contract to sell three 11-metre all-electric buses to St. Albert, Alta. – a Canadian first.

It's a small start. But sell enough buses, the company figures, and it can get Canadians comfortable with BYD electric vehicles before they buy an electric car. It's about "proving our core competency in these areas," said Matt Jurjevich, BYD's director of business development for Canada.

Still, it hasn't all been smooth waters for BYD. A high-profile test of one of the company's transit buses by the U.S. Federal Transit Administration discovered that welds cracked when the bus was towed and windows leaked during a shakedown exercise. During durability testing, an electric motor and one battery pack failed. BYD has since made design changes, but has been attacked by North American competitors as a company with "a history of overpromising and underdelivering," highlighting one of the biggest obstacles China's electric-car makers face.

Big subsidies have meant "car makers haven't yet worked hard enough to make their cars better. What they have is quite poor quality and not cheap," said Mr. Yan, the Liandong Tianyi chairman. He predicted 99 per cent of the local companies building electric cars will vanish, especially as plans call for subsidies to gradually disappear over the next half decade. "Those companies that remain will become international enterprises," he said. "If we can build good cars at a cheap price, the market will be very huge."

But so far, even government largesse hasn't persuaded many individual buyers. More than 80 per cent of electric car sales so far have been to institutional purchasers, like rental companies, governments or the post office. And on the manufacturing side, China trails badly in technological leadership.

"The best batteries are from Japan or South Korea. The best power management systems are in the hands of European or American companies," said Mr. Zheng, the analyst.

China, too, has been mocked as the global automotive leader, not in innovation, but in pilfering. Chinese car shows are jammed with models that closely mimic iconic Audi, BMW and Range Rover designs.

Where China is trying to pioneer, however, is in new ways of doing mobility. At NextEV, Mr. Leach sees electric cars as digital platforms, and the data they generate as an opportunity to peer into how cars are used, so he can rapidly mould future models accordingly. Change could extend to the purchase process and how cars are owned. "It isn't about producing something and someone buying it. It's about something else – whether it be a rental contract, a subscription or whatever," he says.

Another company, Lianhe Diandong, is trying new ways to sell and use cars. It is building supermarkets for electric cars – each location sells multiple brands – in shopping mall parking lots. It has released an app that brings the Airbnb model to charging, giving drivers the ability to find and pay anyone with a plug. It's also setting up service stations inside apartment blocks with charging plugs and basic repairs, conveniently close to where people live.

"We are building a platform to attract more customers," said co-founder Steven Cao, a talented marketing executive who worked with BMW for eight years before becoming CEO of marketing firm Edelman in China. He sold his shares in Edelman to dive into electric cars.

"It's developing at such an amazing speed," he said. "I think this is the future."