Chery’s EV model: soon to be partly built by an Apple supplier
Another week, and another bit of headline news from the electric vehicle industry.
This time the buzz is around a deal between two firms from different backgrounds but with shared ambitions of capturing a larger share of sales in the sector.
A new combination is bringing together Luxshare Precision Industry , a manufacturer of parts for consumer electronics and also a major contract assembler for Apple, with Chery Automobile’s EV unit Chery New Energy.
Shares in Luxshare rose after it said it had invested Rmb10.1 billion ($1.6 billion) in a series of Chery companies, becoming the carmaker’s fourth-largest shareholder and marking its first foray into the new energy vehicle field.
Luxshare is best known as a rival to Foxconn (famously, it was founded by a woman who once worked on the production line herself: see WiC506) and it has already proven its ability to grow into new product areas. It made its name by winning a series of contracts with Apple, starting out in 2013 with connection cables, charging bands and adapters, before taking over as the primary manufacturer of AirPods, and then moving into the assembly of iPhones last year.
Luxshare has been trying to diversify into the automotive field for a while, however, with a focus on the “nervous system” of the vehicle in areas like connecting wires and wiring harnesses. It already supplies wireless chargers to Tesla and is expanding its product portfolio in connectors from low voltage to high voltage, for instance. HSBC’s equity research team predicts that component sales from Luxshare could soon top Rmb15,000 per vehicle, spurring a re-rating of its auto supply business.
In tying up with Chery, Luxshare doesn’t intend to build a car brand of its own. Instead it will follow a contract manufacturing model, with a specialisation in EVs. In doing so it also hopes to cement its position as a supplier of automotive components by testing its own technologies on the production platform that it will develop with Chery.
The standard rationale for electronics manufacturers trying their luck at car making is that the proportion of electronic parts in smart cars is increasing, giving them an edge over more traditional producers in the sector (see WiC562 for speculation about how Duan Yongping, founder of BBK Electronics, is also considering a new business in EVs).
Foxconn, the biggest contract manufacturer of them all, has already taken the plunge, unveiling three prototype vehicles last year under a new Foxtron brand. More models will be rolled out on an EV platform it has been developing.
Others query whether the newcomers are really going to be capable of making the shift from smartphones into EVs, including Tesla boss Elon Musk, who laughed off their challenge. “Compared with mobile phones or smart watches, cars are very complicated,” he told reporters two years ago. “You can’t just go to a supplier like Foxconn and say: Build me a car.”
Perhaps that’s why Luxshare has chosen to join forces with Chery, which sold just over 100,000 new energy vehicles last year – about a fifth of the volume offloaded by the market leader BYD, but slightly more than the much higher-profile brand XPENG Motors.
Luxshare has missed the chance to partner with more prominent carmakers such as Geely or BYD, the Chinese media reckons. But the fit with Chery makes sense because its EV fleet lacks models in the mid-to-high-end range, leaving it more open to supporting other companies that want to make headway in that part of the market.
Of course, Chery already offers technology and product expertise of its own that’s specialised in the making of complete vehicles. And it can provide mature production capacity of the type that looks suitable for that kind of business model.
Some wonder whether the plan can deliver enough profit. The leading car brands won’t want to rely on ODMs to make their vehicles, warns Zhang Xiang, an automotive research specialist at North China University of Technology. While some second-and-third tier car brands might be prepared to sign contracts, their order volumes are going to be much smaller.
A counter argument is that Luxshare could find the commercial space to succeed in an area of lesser interest to larger carmakers wanting to build their own global brands. But Zhang also queries how Luxshare and Chery are going to service a range of customers from a standardised manufacturing platform. “If the structures of the cars are very different, they cannot be produced on the same line,” he told China Business News this month.
A final feature of the media reaction to the announcement is what it might mean for Apple. Some commentators made the point that Luxshare has done the deal with Chery because it doesn’t want to be so dependent on Apple, which makes up a significant proportion of its business. But the Californian tech giant is also rumoured to be developing a prototype EV of its own, with speculation having circulated for some time that a product launch might be imminent.
Sure enough, the news of Luxshare’s automotive venture was soon sparking rumours that it was the final piece in the grand strategy for the ‘Apple Car’, which was about to become a commercial reality. Or at the very least, the new plan gives Luxshare the chance to become part of Apple’s auto supply chain, other analysts suggested.
© 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.
Download Apps