“The availability of gasoline, as is well known, is quite limited,” wrote US magazine, The Horseless Age in 1905. “It behooves the farseeing men of the motor industry to look for likely substitutes.”
In the early 21st century, the Chinese government has been leading the world in promoting the development of electric cars, not only as a solution to peak oil, but also to reduce the country’s carbon footprint. By contrast, back in the early 20th century the only emissions the New York City authorities were concerned about emanated from horses (every year the city’s streets were clogged with 450,000 tonnes of manure, not to mention 15,000 horse carcasses).
America’s first ever dedicated motor show was held in that city in 1900 and caused a sensation, with 48,000 visitors paying 50 cents each to view the 160 different vehicles on display. The most popular models were powered by electricity and by steam.
Gasoline powered vehicles trailed a distant third. They were, “noxious, noisy, unreliable and elephantine” concluded one critic who forecast the “automobile industry will surely burgeon in America, but this motor will not be a factor”.
Sadly for the nascent electric vehicle industry, early lead-acid batteries proved too heavy and cities lacked the necessary charging infrastructure (something the Chinese government is working hard to avoid this time round).
China’s own annual motor show has just taken place in Beijing (it alternates each year with Shanghai). As in recent years, electric cars grabbed a lot of the headlines and accounted for 20% of the 1,200 vehicles on display.
But the real buzz surrounded self-driving cars. Jia Yueting, CEO of LeEco, unveiled the company’s self-driving, smart supercar called LeSEE.
“We consider a car a smart mobile device on wheels,” he told assembled reporters. “We hope to surpass Tesla and leapfrog the industry to a new age.”
Just ahead of the motor show, which ran from April 25 to May 4, Chongqing Chang’an Auto (Ford’s joint venture partner) also unveiled its own driverless car.
It took six days for it to drive from Chongqing to Beijing, presumably with some pit stops along the way for the all-too-human engineer sitting in the front seat monitoring its progress. The company’s president Li Yusheng is predicting the car will go on sale in 2018.
At least 18 companies worldwide are developing driverless cars, including Google, GM, Volkswagen and Toyota. China’s contenders include BAIC, GAC Group, SAIC, Chang’an and BYD.
Geely Automobile President Li Shufu says such cars will only gain traction if the government amends the law so that manufacturers rather than drivers are responsible for accidents. A government committee is currently preparing a blueprint that aims to have self-driving cars navigating China’s highways within three to five years (and its cities by 2025).
The government’s draft proposal will also outline technical standards, including a common language for cars to communicate with each other, a committee member told the news agency.
Beijing Normal University professor Wang Yanmin tells Reuters, “The intersection between technology companies and auto companies is the space to watch.” Baidu, for example, has a tie-up with Chang’an, while Alibaba is working with SAIC Motor (General Motors and Volkswagen’s JV partner). Albeit with less of a car background, Tencent has teamed up with Foxconn.
Reuters also recently reported that Volkswagen has set up a digital lab in China to explore how humans interact with cars.
Switching back from driverless vehicles to more conventional ones, Volkswagen – and archrival General Motors – had new marques on display at the Beijing Motor Show.
General Motors is planning to export its China-made Buick Envision to the US later this summer. Buick is the world’s oldest continuous car brand (the company was founded in 1899 ahead of Ford in 1903) and Buick now sells more cars in China than the US.
Another General Motors marque, the Cadillac, made its first appearance in 1902. General Motors Chinese president, Matt Tsien, recently told a roundtable of journalists that Cadillac is also likely to report more sales in China than the US over the next five to 10 years.
He also said the new electric vehicle (NEV) market is likely to grow significantly in China over the next few years given the government’s ambitious strategy. General Motors has 10 NEV products in the pipeline encompassing its four main brands.
During 2015, NEV sales in China as a whole tripled to 330,000 units, with BYD now forecasting a doubling of sales each year. The government has an official target of getting five million on the road by 2020.
Jochem Heizmann, Volkswagen’s China head, told journalists at Beijing’s auto show that the German company plans to build 15 plug-in hybrids over the next three to four years. Like all of its competitors it is also making a big push into the SUV segment where sales have been strong and margins are much higher than in the standard sedan segment. “An SUV offensive is on the way,” Heizmann proclaimed, before adding that 10 SUV models are in VW’s China pipeline.
Volkswagen’s emission scandal hit Chinese sales in 2015, which fell 3.4% to 3.5 million units. The chief beneficiary of the scandal appears to have been General Motors, which saw sales rise 5.2% to 3.61 million units. GM now has a leading 14.9% market share of the 24.598 million vehicles that were sold overall.
GM’s Tsien reckons car companies will start to make more money in China now consumers are starting to use finance for their car purchases. “When the industry started, people saved a lot and literally brought cash to the dealership,” he commented. “Then it was debit cards and now they’re actually financing in greater numbers.”
However, in an article examining GM and Volkswagen’s China strategy, Time Weekly worries that both companies are over-expanding and placing too much reliance on Chinese sales. It notes that both hope to be able to make five million units per year locally by 2018 (GM) and 2020 (Volkswagen).
“If the market slows they could suffer an overcapacity crisis,” Time Weekly concludes.
This prospect does not appear to worry GM, even though China now accounts for 37% of its global sales.
Tsien also told journalists that the SUV segment is performing particularly strongly. For example, sales of Buicks rose 13% last year, Cadillacs by 18%. But GM’s entry-level SUV Baojun (made with its JV partner) grew by an even more impressive 170%. Tsien expects the SUV segment will record double-digit growth this year.
Sales in China helped GM to double first quarter net profits from a year ago. The strong results took many commentators by surprise. As TheStreet.com says, “The auto market did not count on China coming back and China’s SUV numbers were extraordinary for GM.” Business Insider adds “the industry seems to think China has stabilised for mid-market cars” and that premium vehicle sales will pick up too.
However, as a Seeking Alpha contributor warned, “The China play had better pan out because if the US slows there isn’t really anywhere else to look for growth.”
© ChinTell Ltd. All rights reserved.
Sponsored by HSBC.
The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.