The Wanxiang way

In 1968 American author Philip K Dick wrote a sci-fi thriller that became a cult classic. The novel was called Do Androids Dream of Electric Sheep and it portrayed a world so polluted that governments were sending people to live on Mars instead. Those that remained on earth were herded into crowded cities where animals became such a prized rarity that people were purchasing electric replicas in search of social status.

When the book was turned into a film called Blade Runner in the early 1980s, this imagined world took on a distinctly East Asian hue. And in modern day China, the authorities have been stepping up their efforts to prevent this dystopian vision from becoming more of a reality. Part of the struggle is to get more electric cars, buses and lorries onto the roads. Somewhat like Philip K Dick’s treatment of electric animals, Beijing hopes sales will be spurred if customers see electric vehicles as status symbols too.

Enter Lu Guanqiu, who has been scouring America for failing electric car firms and battery makers. Until very recently – despite two decades of acquisitions in the United States – Lu’s conglomerate, Wanxiang Group kept a low international profile (although WiC did highlight the firm’s activities in issue 92).

This is now changing, thanks to the purchase of the electric vehicle manufacturer Fisker Automotive in February.

With the acquisition Lu says that he intends to take on Tesla, the better-known electric carmaker run by Elon Musk, which began selling its first vehicles in China earlier this year.

Tesla is often benchmarked against the likes of Apple and Amazon as a company with disruptive technology that could be transformational for its industry. Lu has similarly ambitious plans for Fisker, not only in China but also on Tesla’s home turf. “I’ll burn as much cash as it takes to succeed or until Wanxiang goes bust,” he defiantly told Bloomberg last month.

The capital outlay means that Lu might not live up to another of his grandiose statements – predicting five years ago that Wanxiang’s profits would increase 10-fold in the space of a decade to Rmb100 million ($16 million) a day.

Hurun – a wealth report – already ranked Lu as China’s 19th richest man last year with an estimated fortune of $4.5 billion. One of the reasons for his low profile outside China is that most of Wanxiang’s overseas acquisitions have been small-scale, unlike some of the more dramatic M&A activity of companies like Lenovo.

Parent company Wanxiang Group is also privately-held and Lu’s empire is dissipated across a number of listed vehicles including Wanxiang Qianchao (China’s largest auto parts company), Shunfa Hengye (a real estate firm), Wanxiang Doneed (seed and fertilisers) and Chengde Lolo (beverages).

The group also has some significant shareholdings as the second-largest investor in Guangzhou Automobile Group as well as in China Nonferrous Metals’ Foreign Engineering and Construction Company.

Lu is better known to his compatriots, mind you. His rise from humble beginnings – combined with his appetite for risk and his embrace of hard work – make him, in the eyes of some, the emblematic Chinese entrepreneur.

Having lost his job as a blacksmith’s apprentice during the Great Leap Forward in the early 1960s, Lu repaired bicycles and later tractors in his village commune.

This turned into a flourishing business after he began manufacturing shafts and joints for car production.

In 1994 Wanxiang Qianchao became the first former township enterprise to secure a stock market listing. Since then Lu’s family have grown the business further, bucking public preconceptions about the fuerdai or supposedly cossetted children of China’s early entrepreneurs. His wife Zhang Jinmei was clearly made of sterner stuff, becoming an expert welder and working throughout her four pregnancies. And his only son Lu Weiding also recovered from a teenage tearaway phase to become CEO at holding company level. He has also forged an empire of his own in financial services, setting up companies including Tonglian Capital, Wanxiang Leasing, Tonglian Futures and Tonglian Venture Capital.

In March, Wanxiang was one of the winners of five new private sector banking licences after Lu teamed up with fellow Zhejiang native, Jack Ma, the chairman of Alibaba.

Back in North America, Lu senior’s son-in-law Ni Pin has spent two decades building up Wanxiang America into an auto-parts group employing 6,000 workers. This gives Wanxiang more of a springboard to develop Fisker, which was purchased for $149.2 million despite a rival bid from Hong Kong’s Hybrid Tech Holdings, owned by Li Ka-shing’s son, Richard Li.

Fisker’s former owners went bankrupt and US taxpayers lost out too – having given the carmaker a $139 million grant from the Department of Energy’s clean technology loan programme.

In addition to the Fisker deal, Wanxiang’s recent acquisitions include a former General Motors plant in Delaware and A123 Systems, Fisker’s former battery supplier, which also went bust.

A123 has now been renamed B456 Systems and will continue to supply batteries to Fisker, which will begin rolling out its plug-in hybrid sports car, the Karma, to the US market.

Wanxiang has also just announced another joint venture, this time with Japan’s NEC. As Doug Young commented on his China Business blog, Wanxiang is expected to contribute technology acquired from A123 while NEC will offer its own battery and new energy expertise. “Such a pairing looks like a good one, bringing together the less experienced Wanxiang with a more sophisticated Japanese player to commercialise a Western technology with strong potential,” Young believes.

Lu told Bloomberg that he hopes to get a licence to build the car in China, where Wanxiang is already building electric buses and trucks. According to the news outlet, 700 cars are already being tested in trial operations in Shanghai, Qingdao and Hangzhou, although Caijing magazine says that Wanxiang doesn’t have much time to catch up with its competitors in the sector.

Other analysts have been doubtful about the Fisker deal too, saying that Fisker failed because of defects in its battery production, something that Wanxiang will need to overcome.

According to the China Association of Automobile Manufacturers, 17,500 new energy vehicles (of all kinds) were sold in China in 2013, a 39.7% year-on-year increase. The central government has set targets of 500,000 electric cars on the roads by 2015, although it looks unlikely that it will meet its goals on time.

The milestone also falls short of US ambitions for one million vehicles by the same date. Sales in America have been higher than China (96,000 units in 2013), although many manufacturers believe China will claim the number one slot relatively soon. Last month, BMW’s China head Karsten Engel predicted it won’t take more than five years to pass the Americans, with the German group scheduled to begin selling its own i3 electric car in September. Tesla is already selling its Model S luxury sedans, despite a few PR problems with its launch (see WiC234).

Of course, Chinese carmakers hope local brands such as BYD’s Qin plug-in and BAIC’s E150 will have an edge, especially if they get more access to government subsidies. But the key challenge for all the manufacturers is the establishment of a more expansive network of basic charging facilities. To this end, the capital city Beijing has announced plans to build 1,000 charging piles by the end of 2014, while Shanghai says it will have 6,000 units in place by 2015. Tianjin is promising 6,700 charging stations by the same deadline.

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