After ending on a down note in the last quarter of 2018, European car sales continue their negative trend in January 2019. Registrations of new passenger cars were down 3,9% to nearly 1,23 million sales, still above 2017 levels. Most of the decline can still be attributed to the after effects of the introduction of new fuel efficiency and emissions testing standard called WLTP (Worldwide harmonized Light vehicle Test Procedure) in September. Demand for new cars fell across almost the entire European Union, including the five major markets. Spain and Italy posted the strongest declines (down 8% and 7,5% respectively), while the United Kingdom was surprisingly stable at ‐1,6%. Germany (‐1,4%) and France (‐1,1%) also did better than average. Best performing market was Lithuania (+49%), followed by Romania (+18,8%) and Hungary (+9,2%). The only other markets to improve on 2018 were Portugal (+8,3%), Denmark (+7%), Greece (+3,7%) and Latvia (+0,7%). The biggest declines were seen in Iceland (-47,9% to just 846 registrations), Netherlands (-18,8%) and Czech Republic (-17%).
For readers with an interest in China’s New Energy Vehicle market, when the manufacturer SAIC gets mentioned, the company’s Roewe brand is probably the first brand that comes to mind.
There is good reason for this. Last year, during 2018, of the four SAIC models that made the list of China’s Top Twenty NEV sellers, three of the four carried the Roewe badge.
The exception was the Baojun E100, a micro two-seater made by SAIC’s joint venture (JV) with GM and Wuling. SAIC is the majority share holder, owning just over 50 percent of the company.
The four best selling “SAIC” models are listed and pictured below:
- the Roewe eRX5 PHEV SUV,
- the Roewe ei5 EV station wagon,
- the Baojun E100 two door micro (a product of the SAIC-GM-Wuling Joint Venture), and
- SAIC Roewe ei6 PHEV sedan.
The Baojun E100 gets an Upgrade (Baojun E200 aka the New Baojun E100).
During the second half of 2018, the SAIC-GM-Wuling JV began selling an upgraded version of the Baojun e100, which is described in a General Motors June 2018 press release here as the New Baojun E100. As noted in the release the primary aspect of the upgrade is the longer driving distance, 200 km, which is about 30% more than the previous 155 km. range.
According to another GM China news reference here, a “new” model, was launched in September of 2018. Referred to as the Baojun E200, the “new” model appears to be the same model as the New Baojun E100 that was earlier highlighted in the June 2018 press release, despite the fact that the Baojun E200 reportedly has a slightly higher driving range of 210 km. (NEDC). The lack of consistent terminology regarding model names certainly can be confusing, even for this patient blogger. What is now clear, after cross-checking multiples sources, and the details of specs, is that Baojun’s micro two-seater vehicle, that has a reported driving range of 210 km (NEDC) – – whether its called the E200 – – or the New E100; is indeed the same model. Because the model is still referred to by most sources as simply the E100, I’ve conformed to that label (E100), for almost all sections of this blog. The exception is the section or content related to carbon-credits, where I’ve sometimes used E200, because the Baojun E200 has a longer range (210 km) which matters significantly when calculating carbon credits. To make matters even more challenging, Zotye has its own e200 model, which is not to be confused with the Baojun e200. Good. Clear as mud 😉
So which model is the hottest?
Although all SAIC’s four models pictured above sold relatively well last year, only one – – the Baojun E100 – – experienced a surge in sales during the last quarter of 2018. During the last three months of 2018, nearly twice as many E100s sold as compared to SAIC’s other best sellers.
In the micro two-seater car segment, only one other model – – the Zotye e200 – – made the list of Top 20 Best Sellers in the NEV category. Both micros are similar in size and shape, as seen in side by side photo below:
Although the Zotye E200 outsold Baojun’s E100 during the third quarter of last year, in the fourth quarter, Baojun’s two seater began to clearly overtake its Zotye competitor by a wide margin as seen in the graph below:
While we don’t know exactly what contributed to the Baojun E100’s dominance during the fourth quarter of 2018, a number of factors or developments are worthy of consideration:
- Prior to mid-2018, the geographic market for the Baojun E100 was limited to Guanxi province, a southern province bordering Vietnam. However, in June-July of last year, Baojun began expanding the E100’s market by selling the two-seater in the Northern province of Shandong, in the area of Qingdao.
- The map on the left below shows a zoomed out view of Guangxi and Shandong (see red rectangles), as well as the location of Shandong’s Qingdao city. The map on the right shows a zoomed in view of Qingdao – – which as a matter of interest – – includes a nearby Zotye “New Energy Dealership.”
- In all likelihood, numerous factors led to Baojun’s decision to sell its E100 in the Qingdao region. It seems plausible that the opportunity to compete directly with Zotye’s E200 was at least one such reason.
Baojun’s entry into the Qingdao market during the second half of 2018, most likely contributed to the E100’s success during the Oct.-Dec. period (see graph above), when Baojun’s E100 decisively began to outsell Zotye’s E200.
Although the graph pertains to national level sales, we know that prior to the third quarter of 2018 the E100’s market geography was limited to Guanxi province in south China. Given that Baojun’s E100 entry into the Qingdao market did not begin until June-July, and considering that it normally takes a few months before sales volume for a successful product begins to ramp up in a new market- – it seems reasonable to suggest that the Baojun E100’s expansion into Qingdao likely contributed to the large rise in sales volume during the fourth quarter of 2018.
Baojun as a brand is known historically for its success outside of China’s largest cities; in other words in China’s more rural areas or in smaller towns and cities. Qingdao is one example of a second tier city. These market geographies, because of their lower rates of car ownership, and their associated higher rates of sales growth, are attractive to not just Baojun or Zotye looking to expand their business, but to virtually all the major OEMs, whether domestic (like SAIC and Geely) or international OEMs such as GM, Ford, or VW. As a case in point, Ford, together with its joint venture partner JMC (Jiangling Motor Co.), is expected to launch a new SUV (the Territory), into the Qingdao market during early 2019, as noted in the article here.
GM already has an established presence or foothold in China’s market for micro EVs, because of the earlier mentioned SAIC-GM-Wuling joint venture; which owns and produces the Baojun brand.
Small NEVs in China and rapid growth. Why?
China’s New Energy Vehicle/NEV market grew by 62 percent year-on-year (2018 vs. 2017), with 1.25 million NEVs sold during 2018. As noted in a China Daily article here, 2019 sales are expected to reach 1.6 million. Within the NEV segment, small vehicles, meaning micros and compacts, are selling best. China’s government refers to these small vehicles as “A00” or “A0” type cars. Within this context “micro” is synonymous with A00, while the slightly bigger, but yet still small “compact”, is roughly synonymous with A0.
In general, its hard for OEM’s to make money selling small, inexpensive vehicles, with very thin profit margins. Its even harder with electric vehicles, which is why governments subsidize them. When the occasional or rare scandal occurs (i.e. a subsidy recipient/OEM committing fraud to improperly receive subsidies) as happened in a few limited cases in China in recent years, this can further delay government subsidy payouts to all OEMs – – including the vast majority which are innocent of any wrong doing. When government subsidies are late, or unreliable, OEMs feel the squeeze, in terms of their corporate balance sheets, cash flow, or profits.
So how is it possible, that despite all of the challenges mentioned above, China’s market for NEVs – – and especially small pure EVs (vehicles powered by batteries only) – – has been experiencing rapid growth during recent years and months?
Much of the growth is a result of the both “carrot and stick” approach that China’s government is using to promote the transformation of China’s automotive market and industry, away from its current and historical reliance on traditional/conventional cars (Internal Combustion Engines/ICEs) and towards much greater reliance on EVs and hybrids (New Energy Vehicles). But that transformation is expensive, and China’s government would like to shift that expense away from public coffers, and towards the OEMs.
This year 2019, marks an expected transition, meaning that later this year China’s long anticipated carbon-credit trading system for the automotive sector is due to begin. This will have major implications not only for companies like SAIC, GM, Baojun, Zotye etc. – – but for all manufacturers in terms of their production, and more specifically, the mix of their output regarding ICEs and NEVs produced. In short, manufacturers will have three choices:
a) produce more NEVs to meet quotas, that are specific to each manufacturer, as determined by the new regulations,
b) don’t meet the quotas but comply with the policy by purchasing carbon-credits from other NEV producers (i.e. competitors) whom have earned surplus carbon credits,
c) face stiff and costly fines and penalties for doing neither a) nor b) above.
Bloomberg’s New Energy Finance team has created an innovative EV Exposure Index to reflect the “readiness” of OEMs for EVs. As seen below, the Chinese OEMs BYD and BAIC score high or “most ready”, because of their high production rates of NEVs. On the other end of the spectrum, manufacturers with low ratings include Toyota, Fiat-Chrysler, Honda, and Subaru. As seen in the graphic below, GM and Ford have readiness index scores that are a bit higher, however still low, relative to NEV industry leaders.
GM’s partnership with SAIC and Wuling, via their JV, is interesting to examine, from the perspective of – – “What’s in it for GM?” In a very insightful 2017 commentary article here (Thriving Baojun bodes well for GM’s future in China) the Managing Editor of China Automotive News, Yang Jian, addresses this question, and highlights some important strategic considerations. Some excerpts from Jian’s 2017 commentary appear below:
Baojun is successful because it has never lost its focus on entry-level car buyers. The brand targets customers in rural areas and small cities in China where the main competition is domestic Chinese brands.
it (Baojun) has been given a new goal: Help GM expand into China’s EV market to meet Beijing’s production quotas. In 2019, the government will introduce a California-style carbon credit trading program to goad automakers to ramp up output of EVs and help curb emissions and pollution.
In response, Volkswagen and Ford each have formed new joint ventures with Chinese EV makers to build small, affordable EVs. GM doesn’t have to do this, because Baojun has access to an entry-level market that Ford and VW have never tapped.
To be sure, Baojun doesn’t boast the profit margins of Buick or Cadillac (two other important GM brands in China). Starting prices are below 70,000 yuan ($10,600), but manufacturing costs are modest, too, so Baojun is a money maker.
Readers should keep in mind that the excerpts above are from a December 2017 article, when Baojun’s business was thriving. As noted in a much more recent February 2019 article here, business for GM’s two joint ventures in China, SAIC-GM, and SAIC-GM-Wuling have taken a downturn, with sales declining significantly during 2018.
Back in November of 2017, GM’s China Chief, Matt Tsien, quoted in a Reuters article here, expressed his confidence, in GM’s ability, and the abilities of its JV partners to meet China’s NEV quotas, which begin this year. The accompanying photo to the Reuters article showing Baojun’s E100 assembly line, represents a good example of the old saying “a picture is worth a thousand words.”
So given much of what’s been presented above, I thought it would be interesting to start taking a look at OEM’s and their ability to generate carbon credits, using the Baojun E100 as an example. Although we won’t be able to get a solid understanding of the more important question – – (i.e. “How much financial value are the carbon-credits going to be worth?”) – – it still seems timely, given the expectation that China’s carbon-credit trading system will be launched sometime this year, to begin looking more closely at OEMs, and their ability to generate carbon-credits.
For readers that are interested in the details of how carbon-credits are calculated, the International Council on Clean Transportation (ICCT) has produced an excellent Policy Update (January 2018) titled China’s New Energy Vehicle Mandate Policy (Final Rule), which is the source I used for estimating carbon credits within this blog.
How Many Carbon-credits are earned for producing one little Baojun micro two-seater?
Below is a table that approximates the carbon-credits that the SAIC-GM-Wuling joint venture will earn, for the production of a Baojun E200 vehicle. As a reminder, readers might wish to revisit the earlier section above (see “The Baojun E100 gets an Upgrade” for an explanation of Baojun model numbers, E100 vs. E200 etc.).
Carbon credits for pure EVs are capped at six credits; irrespective of Base Score and Adjustment factor. Six credits is the maximum number of credits that any pure EV can earn. The ICCT Policy Update includes helpful graphics that illustrate how the adjustment factor is determined, depending on a given vehicle model, and its specs., in terms of energy consumption, and the mass or weight of the vehicle. I’ve annotated the original ICCT graphic below, by inserting the Baojun E200 into the picture:
In addition to the micro two-seater E200, SAIC will be earning carbon-credits from its other NEV models. I thought it would be interesting to look at how many carbon credits the various SAIC NEV models (i.e. 2018 best sellers) would generate, on a per unit basis, which is shown in the table below.
It is important to note that there is a separate and distinct method for calculating carbon credits for PHEVs – – and that method is different than the method used for pure EVs.
For PHEVs the associated carbon-credit is either two or one, depending on whether an adjustment factor is applied. As seen in the graphic below, PHEVs with certain specs. are adjusted
downwards/lower with regards to their carbon credit value, by applying a multiplier of 0.5 to their base value of 2. For such cases, the result is a carbon credit score of 1.
This method applies both for:
- PHEVs that have an electric range of 80 km. or higher, and
- PHEVs with an electric range of less than 80 km.
For PHEVs with electric ranges above 80 km. – – energy consumption (kwH/100 km.) is used together with curb mass (kg.) to determine the adjustment factor. Alternatively, for PHEVs with electric ranges below 80 km., fuel consumption, as measured by L/100 km., is used. These methodology specifics are more clearly illustrated in the graphic below. The SAIC Roewe eRX5 is used as an example in the bottom most graph. The eRX5 SUV has a carbon credit score of 2, due to its electric range of < 80 km., its fuel consumption rating of 1.6 L/100 km, and its curb mass of 1730 kg.
The table below shows all four of SAIC’s 2018 best selling NEVs, and their estimated carbon credits, using the appropriate method either for pure EVs, or for PHEVs:
It’s clear from the table above that SAIC’s pure EV models generate more carbon-credits, on a per unit basis, compared to PHEVs. This reflects Chinese government policy, which favors pure EVs. If we look at the first two models in the table above, we see that selling one ei5 EV wagon, generates over five credits, more than twice the credits generated from selling one ei6 PHEV sedan.
The value of the credits won’t be known for some time, given that the NEV carbon trading system is yet to be launched. Even after it has been launched, it will likely take many months before an established trading range and market value for a carbon credit gets established.
Nevertheless, it seems reasonable to expect that the value of future traded carbon-credits will have at least some impact on the production, marketing, and selling behavior of automotive OEMs that will have to comply with the new policy and regulations. As suggested later in this blog, there might already be evidence that this is happening, with Baojun’s ramp up in sales, of the Baojun E200.
Profit margins and market demand (sales volume during recent months), are likely the most important variables that will determine future marketing and sales efforts for any given model. At the model level, profit margins are unknown, however sales volume data are available, and during the last quarter of 2018, 7,243 ei6 PHEV sedan were sold, while slightly fewer ei5 EV wagons (6,781) were sold. The sedan is priced somewhat higher than the wagon, and so for that reason alone we might expect profit margins to be higher. However, as illustrated in the first two rows of the table above, more than twice as many carbon credits are generated by producing the pure EV wagon, relative to the PHEV sedan.
Although I’ve used SAIC within this blog as a convenient means for exploring carbon-credits, ultimately, I’m interested in the bigger questions that will effect the industry and the environment – – such as:
- How will China’s expected 2019 NEV carbon-credit trading system impact OEM business decisions, about what types of cars to produce, in what quantities, with what profit margins?
- How valuable, influential – – or not – – will carbon-credits be – – in terms of their 2019-2020 (and beyond) impact on automotive OEM business decisions?
- More specifically, how will carbon credits impact corporate balance sheets and income statements, in terms of revenues generated, or if the credits get accumulated for a period of time (and not sold, or traded in the carbon market) does the value of those accumulated and held credits impact the value of the business or the corporate entity?
- To what extent will China’s policy push for NEV related carbon-credits – – in the long run, be a success or failure? After years or decades of implementation, how will the policies be viewed – – as significant or major contributors to cleaner air, less carbon in the atmosphere, a healthier China, a healthier world, and a changed automotive industry at national and global levels – – or not? Obviously, we’ll have to be patient, it will take years or decades – – before those questions begin to get answered.
In the short run, over the course of this year, we might more realistically point our efforts towards obtaining a better understanding of more concrete and near-term matters. For example, matters related to specific OEM businesses, or an industry sector, such as China’s automotive domestic OEMs. Unfortunately I’m not an accountant, nor do I have much experience analyzing balance sheets or income statements within this context of China’s changing automotive industry; so if there are a few accountants that might be reading this blog “out there”, or really any readers that might be able to shed light on these questions – – please don’t hesitate to use the comments section below, to shed new light on the questions raised above.
In the meantime I could not help but notice, that just a few days ago Jose Pontes, via his blog, EV blogspot, has shared new sales volume data for China’s January 2019, NEV best sellers. Thank you Jose! As acknowledged in the blog and comments, there are numerous challenges regarding data quality and data reliability, so users of this data are wise to take note. With that disclaimer, I do think it’s interesting that according to this source, January sales of the Baojun E100, are reported to be a whopping 8,312 units/cars. If confirmed, this would indeed make for a dramatic rise from the 4,692 units (up 77%) reportedly sold in December 2018. Sales volume for the last four months is shown in the graph below:
With the exception of a slight dip in December, Baojun’s micro, which perhaps should be renamed as the “mighty micro”, or something more fitting, appears to be selling well.
As mentioned earlier, Yang Jian, the managing editor of Automotive News China, noted more than a year ago, back in December of 2017, that Baojun has been given a new goal:
- Help GM expand into China’s EV market to meet Beijing’s production quotas. … (related to) a carbon credit trading program to goad automakers to ramp up output of EVs and help curb emissions and pollution.
That mission, seems to be right on track, as visualized in the graph above. More E100’s are not only being produced, but they also appear to be selling.
It will be interesting to see whether the Baojun E100 sales volume continues to rise, during the coming months.
From this blogger’s perspective, it will be even more interesting to witness the launching of China’s carbon-credit NEV trading system, and subsequently as this year progresses – – how the price of a credit evolves over time.
Even before that price gets established, there seems to be mounting evidence, that China’s policy is already beginning to have at least some of the impact – – that it was designed to have.
For a complete list of sources and references used in this article; click here.
Full disclosure: I do not own any shares in SAIC, or any other company mentioned in this blog.
Guangzhou Auto Corp, also known as GAC, is not your father’s typical State-Owned-Enterprise (SOE).
When you think of China’s auto sector and State-Owned-Enterprises (SOEs), what descriptions typically come to mind? Dynamic, innovative, fast-growth? Perhaps not.
Think again, because at least one such enterprise, Guangzhou Auto (aka GAC), is breaking the stereotypes. GAC would appear to be “that kind of company”; meaning dynamic, innovative, and definitely fast-growth – – especially, when compared to other “peer” SOEs.
GAC ranked 46th in terms of revenues growth, on The Forbes Growth Champions List 2018 Ranking which listed the fastest growing publicly traded companies around the world.
To help put GAC’s standing into perspective, the table below provides examples of other companies and their respective rankings:
The only domestic competitor above GAC was Geely, the number one domestic OEM in China. GAC’s revenues have been growing at a faster clip than both BAIC and BYD. BAIC, also a State Owned Enterprise, is the only other auto SOE that made the list.
Within China’s massive market, its electric vehicle sub-market is growing fastest. Also known as the New Energy Vehicle/NEV market, this segment grew by 62 percent year-on-year with 1.25 million NEVs sold during 2018. As noted in a China Daily article here, 2019 sales are expected to reach 1.6 million.
Although none of GAC’s NEV models were among the Top Twenty Selling NEVs in China; GAC has had at least some success in the market with its SUV PHEV, the GAC Trumpchi GS4, pictured below:
Over 10,900 GS4 PHEVs were sold during 2018, and momentum behind such sales grew on a quarterly basis:
The GS4 PHEV was first launched in June of 2017. During its first six months on the market, 1,863 vehicles were sold. Nearly as many (1,781) were sold in December 2018 alone.
The “after subsidies” price of a GAC GS4 PHEV in China is about 185,800 RMB ($27450). When running purely on its 12kWh battery, the SUV has a maximum range of 58 km. (36 miles). The GS4 has a top speed of 180/kmh (112 mph), and a range of about 240 km. at 60 kmh constant speed. In terms of price and many of the specs. highlighted above, the GS4 PHEV is similar to BYD’s Qin PHEV. The Qin PHEV was recently reviewed in the blog titled BYD Leads China’s EV Market. Although we don’t know for sure whether Chinese car buyers were viewing these two models as natural competitors, we do know from sales volume data that for every one GAC GS4 PHEV sold, BYD sold four Quin PHEVs.
GAC and its Joint Venture Partners: Imitation is the sincerest form of flattery
One development that is particularly interesting about GAC’s SUV PHEV is that a number of GAC’s joint venture (JV) partners have begun selling the same model, or an EV variant, using their own respective badges. Examples include the Toyota ix4 and the Mitsubishi Eupheme. Both Honda and Fiat-Chrysler (FCA) are following this approach with their own respective versions of the GAC GS4.
So why is it that four major international OEMs are copying GAC with the same car, same model, but using their own respective badges? As explained in the Bloomberg article The Car That Will Help Big Automakers Game China’s New Rules, this unusual strategy is driven by a number of factors:
- Government regulations require manufacturers to meet higher fuel economy standards,
- Beginning this year, OEMs are subject to new policies and regulations designed to address air pollution, carbon emissions, and global warming through the promotion of NEVs. Each OEM that produces more than 30,000 cars per year will have to earn carbon-credits through the production of NEVs, or alternatively; purchase credits from competitors that have surplus credits to sell.
- Many OEMs need additional time before their own NEV product offerings are ready for the market. Partnering with GAC, and selling GS4 variants, effectively buys additional time.
GAC in the USA?
GAC has the ambition to break into the American market. In an excellent Automotive News China article by Yang Jian, (What has emboldened GAC to enter the U.S.?) Yang explains the historical and cultural context underlying GAC’s confidence, and the companies entrepreneurial spirit. The company’s headquarters is Guangzhou, a port city, with a long history of foreign trade and a strong culture that supports entrepreneurship. Since GAC’s founding in 1997, the company’s confidence is grounded in actual past achievements which required some risk-taking, a behavior not normally associated with China’s auto-state-owned -enterprises. That risk-taking has paid off. During its early more humble years, GAC’s main business was producing and selling motorcycles and small buses. It wasn’t until 2010 that GAC started producing its first passenger vehicles. That’s right – – you’ve read that right – – the company that now has major joint ventures with Toyota, Honda, Mitsubishi, and FCA – – as well as its own successful and growing domestic brand (Trumpchi) – – has been producing passenger vehicles for less than a decade. Pretty impressive.
The company is expanding its entrepreneurial spirit in numerous directions. These include efforts to enter the US market, as well as efforts to expand its New Energy Vehicle business in general.
GAC’s ambition to establish itself in the American market is not new. As far back as 2013, GAC made its first debut at the Detroit Auto show, as highlighted in an article here. More recently, the company attended the 2019 show and displayed its EV concept car, the Entranze, as pictured below:
Perhaps more importantly, in an effort to engage with dealers, GAC recently attended the North American Dealers Association (NADA) conference in Las Vegas, where meetings were held with 80 dealers and partners. Although GAC had planned to enter the US market this year, that timing has recently been adjusted to mid-2020, as noted here. Trade tensions and tariffs between the US and China have contributed to the delays.
Back home in China, GAC is aggressively pursuing its ambitions to expand its NEV business. Last year, during the first 10 months alone, GAC sold 13,928 NEVs under the Trumpchi brand, according to an article here. While that’s not a large number when compared with other peer competitors like BYD or BAIC, it does, nonetheless, represent a more than doubling of sales from the 5,246 NEV units sold by GAC in 2017. In general, GAC’s new energy sales volume has been on a steady rise upwards over the last three years, as seen in the graph below:
During 2018 GAC’s Trumpchi conventional cars (i.e. cars powered by Internal Combustion Engines) still represented the overwhelming percentage (97%) of vehicles sold under the Trumpchi brand. Accordingly, new energy vehicles with a Trumpchi badge represented only 3%. By 2020, GAC hopes to raise that figure to 10%.
A number of investments, partnerships, and innovative projects are designed to move GAC closer to that goal. One innovative project involves the establishment of a “New Smart Energy” Automobile Industry Park, located in the Guangdong-Hong Kong-Macao Greater Bay Area. GAC and partners have invested 4.5 billion RMB ($670 million), and the total “planning capacity” of the plant is 400,000 vehicles per year. At this facility, solar energy will be used in the manufacturing of new energy vehicles. According to a December 2018 article here, “the first model (Aion S) will be put into mass production in next May, (i.e. May 2019), and it will become the world’s first pure electric vehicle based on solar energy technology.” The park will be partly powered by 52,000 solar (PV) panels. When running at full capacity, the solar energy represents 15% of the plant’s energy needs.
GAC recently released a press release regarding the Aion S, and like so many other newcomers and challengers to Tesla, the language from the challenger was direct and pointed, with the headline reading “GAC NE’s New EV Sedan Travels Further Than Tesla Model 3.”
According to the GAC press release, “the Model 3 Long-range version delivers 310 miles (499 km). However, GAC NE’s Aion S can run up to 392 miles (630 km) on a single charge, making it the best performing EV sedan so far.”
Not everyone is convinced that GAC’s claims of a longer range are valid, due to a lack of specificity regarding the “test cycle” used when making the claim, as noted in an article here.
Other recent developments should support GAC’s efforts to break into the American market or to become a more serious contender in the NEV space. These include:
Establishing a new regional headquarters in California. The focus will be on branding, marketing, product planning, and also design and R&D operations in the state.
Establishing a 50,000 sq. foot R&D facility in Farmington Hills Michigan, near Detroit. Engineers from both the Michigan facility and the California facility will collaborate on new product development.
Creating two joint venture partnerships with Contemporary Amperex (CATL), China’s large battery manufacturer. The purpose is to ensure GAC’s battery supply, both for its domestic brand, as well as for its joint ventures with international OEMs. The value or registered capital of one of these ventures is 1 billion RMB ($148 million), while the value of the other is not known. For more details about both, click on the Automotive News China article here.
Investing 650.1 million RMB ($96 million) in a New Energy Vehicle Project known as “A20”.
Although little is known about the A20 project, it seems safe to suggest that it is R&D related and that its intent is to contribute to GAC’s future competitiveness in the NEV market.
GAC’s presence in California and Michigan is very recent. As such, it is too early to tell what types of impacts these investments might eventually have.
From a nearer term perspective, GAC’s Aion S is scheduled for launch in May of 2019, and industry observers (including this one) will undoubtedly be looking for signs of traction and market acceptance, during the 2nd and 3rd quarters of this year. Stay tuned.
As emphasized earlier in this piece, GAC truly is a unique and atypical state-owned-enterprise in China’s auto sector. Its track record of fast-growth, entrepreneurial spirit, and innovative culture, clearly makes it a company worth following during 2019, and well beyond.
For a complete list of sources and references used in this article; click here.
Full disclosure: I currently do not own shares in GAC or any other company mentioned in this article.
After looking at 2018 European car sales by manufacturer and brand, let’s take a deeper look into how individual models sold last year. It shouldn’t come as a surprise that the Volkswagen Golf is still the dominant leader in Europe, for the 11th consecutive year. However, the Golf was the biggest loser in the top-18 with a loss of 7,6%, which translates to roughly 37.000 fewer sales. [Read more…]
Last year BYD sold more New Energy Vehicles/NEVs than any other company in China. According to a ranking of the Top Twenty Selling NEVs in China, BYD sold more EVs and PHEVs than any other manufacturer. Cumulatively, the company sold 205,800 NEVs and dominated the list (see below) by placing 2nd, 4th, 6th, 8th, and 9th among the top twenty.
Top 20 Selling EVs/PHEVs in China
December 2018 and 2018 (full year)
BYD Quin PHEV (Gen I and II)
JAC iEV S/E
BYD Song PHEV
BYD Tang PHEV (Gen. I & II)
BYD Yuan EV
SAIC Roewe Ei6 PHEV
Geely Emgrand EV
SAIC Roewe Ei5 EV
SAIC Baojun E100
SAIC Roewe eRX5 PHEV
Donfeng Junfeng Skio
BYD’s best sellers included two sedans, the Quin PHEV and the more recently launched e5 450, also known simply as the e5. The price of a Quin PHEV in China is about 185,900 RMB ( approx. $27,600). With a top speed of 185 km/h (115 mph) and the ability to accelerate from 0-100 km/h in just under 6 seconds, the Quin PHEV (pictured below) does not lack in terms of power. When running purely on its 13kWh battery, the sedan has a maximum range of 70 kms.
Inside the car is a 12.3 inch screen with access to navigation systems, multimedia entertainment, and real time fuel economy information.
A number of convenience factors are built in, including smart-key functionality, tire pressure monitoring, and the ability to remotely control the car from outside the vehicle – – for example – – in low speed mode, while positioning or guiding the car into a parking space.
BYD’s other best seller is the e5, a pure (battery only) EV sedan which was originally launched at the 2015 Shanghai motor show. Partly because of its affordability, the e5 has been a popular choice among taxi cab operators.
The “after subsidies” price of the e5 in China is 140,000 RMB (approximately $20,760). The sedan has a fairly long range of 405 km. (253 miles) and a maximum speed of 130 km/h or 81 mph. The battery capacity is 60.48 kWh, and can be fast-charged to an 80% level in 90 minutes.
Inside is a fairly small touch screen, allowing access to the navigation system, multimedia entertainment, internet connectivity, etc.
BYD is a pioneer in China’s NEV industry, yet is often known by Westerners as “the Chinese Electric Vehicle company that Warren Buffet has invested in.” The company makes both NEVs as well as conventional cars (i.e. cars powered by the Internal-combustion engine/ICE). For the year 2018, BYD sold more conventional cars in China (281,991) than NEVs (225,136), however, the gap between these vehicle types is closing. Last year represented a major rise in the number of New Energy Vehicles sold by BYD, while sales volume for conventional cars continued to drop, as can be seen in the graph below.
Within the NEV category it is also interesting to look at the breakdown between EVs and PHEVs, to get a better understanding of growth rates and trends. During the last two years, pure electric vehicles have surpassed Plug-In Hybrid Electric Vehicles (PHEVs), as a percentage share of BYD’s NEVs sold. The growing importance of pure electric vehicles (EVs) can be seen in the graph below.
From a more macro perspective, this year (2019) marks a major development for the automobile industry in China because car manufacturers will be required to comply with new government policies and regulations designed to address air pollution, carbon emissions, and global warming. This will have major implications not only for BYD, but for all manufacturers in terms of their production, and more specifically, the mix of their output in terms of ICEs and NEVs produced. For an excellent overview and explanation of what the new policies and regulations mean for the industry and manufacturers, readers will want to consult the Bloomberg quicktake article “China is About to Shake Up the World of Electric Cars.” In short, manufacturers will have three choices:
- produce more NEVs to meet quotas, that are specific to each manufacturer, as determined by the new regulations,
- don’t meet the quotas but comply with the policy by purchasing carbon-credits from other NEV producers (i.e. competitors) whom have earned surplus carbon credits,
- face stiff and costly fines and penalties for doing neither 1) nor 2) above.
BYD, as a long established leader in China’s NEV market is well positioned to not just comply with the new government policy and regulations, but to generate substantial revenues from selling its surplus carbon credits on the carbon market. Such revenues would be particularly valuable to a company like BYD, or any manufacturer for that matter, because they contribute directly to the company’s bottom line profits and corporate value.
Within the context of China’s new policies and regulations, not all manufacturers are so well positioned as BYD. As seen in the Bloomberg graphic below some of the giants of the industry, for example Toyota, Ford, and General Motors; appear much less prepared. The score shown below is an EV Exposure Index, created by Bloomberg’s New Energy Finance team, which “rates car makers for their readiness for electric vehicles”.
BYD’s success producing and selling NEVs extends beyond sedans, SUVs, crossovers, etc.; or what we normally think of with regards to “passenger vehicles”. One area where BYD has been particularly successful is in the bus business, and more specifically producing and selling electric buses. BYD has delivered more than 35,000 electric buses globally, and has factories around the world in countries such as the UK, France, Hungary, Brazil, and the US.
Financially, 2018 has been a difficult year for BYD. Although full year 2018 financial results are not yet reported, based on BYD’s 2018 Third Quarterly Report here, it is clear that relative to 2017; profits for 2018 will be significantly lower.
BYD attributed lower expected profits to intense competition, as well as lower government subsidies, according to a Reuters article, which noted that 2018 profits could fall by about a third compared to the previous year.
Despite these challenges, BYD as a company ended its third quarter of 2018 sounding enthusiastic and bullish about its NEV business, and its future. BYD’s third quarter report included a “Forecast on the Results of Operations in 2018”. Below is an excerpt from that forecast:
The new energy vehicle business of the Group is expected to continue to maintain strong growth and drive the rapid recovery of the profits of the Group in the fourth quarter. In respect of new energy passenger vehicle segment, new models have accumulated a large amount of orders relying on their strong market competitiveness and their sales are expected to record significant increase compared with the same period of last year due to the easing of battery capacity bottlenecks.
Battery capacity bottlenecks, appears to be a reference to BYD’s battery supply chain, which it continues to invest heavily in. These investments involve not only new battery plants and factories, but also the rights to a guaranteed supply of lithium, from mining operations. Consider the following:
In January of 2018 Chinese media outlet Xinhua reported that BYD has signed a deal with a mining operation in Qinghai province to secure a supply of 30,000 tonnes of lithium carbonate.
In June of 2018, BYD’s opened its third battery plant, also in Qinghai province. The plant’s annual capacity is 10 GWh. The cost of BYD’s new factory is 4 billion RMB, or approximately $633 million dollars.
In August of 2018, BYD signed an agreement with the local government of Chongquing in Southwest China, to build a new battery plant at a cost of approximately 10 billion yuan, or $1.5 billion dollars. The Chongquing plant will have an annual capacity of 20GWh.
In September of 2018, BYD announced its plan to build yet another battery factory in Xi’an, the capital of Shaanxi province. The annual capacity of this facility will be 30GwH, according to an article here, by electrive.
With the three new battery plants referred to above, BYD will have a total of five battery plants in China, making the company a major player in the battery business.
In addition to BYD, the other major Chinese owned battery manufacturer competing for dominance in China is Contemporary Amperex Technology/CATL, which like BYD, has been growing in leaps and bounds in terms of its new or planned battery manufacturing capacity. BYD is planning to reach a total capacity of 60 GWh by 2020, while the corresponding figure for CATL is even higher at 88 GWh.
Benchmark Minerals, a company that specializes in the lithium ion battery supply chain
has recently produced an excellent analysis that poses the following rhetorical question: Who is Winning the Global Lithium Ion Battery Arms Race?
The graph to the left shows the Top Five Lithium ion Battery Producers by Capacity. Both CATL and BYD rank 2nd and 3rd respectively – – behind South Korea’s LG Chem, the global front-runner – – and ahead of Japan’s Panasonic and America’s Tesla – – two better known name-brand competitors.
Although most of the batteries produced by BYD’s factories will likely be inputs into its own cars, some of these same factories will also be supplying other automobile manufacturers – – including BYD’s real or potential competitors. For example, in March of 2018 BYD announced that it would be supplying Changan Auto, as reported here, in an Automotive News China article.
Much of the content above suggests that BYD will continue to ramp up its production and sales of New Energy Vehicles. Given the dynamic and innovative nature of the company, BYD will undoubtedly be an interesting player to watch during 2019, and well beyond.
For a complete list of sources and references used in this article; click here.
Full disclosure: I currently do not own shares in BYD, or any other company mentioned in this article.
The European car market seemed to be on another year of growth after the first half of 2018, when sales were up 3%. After July, the year-to-date figure was up 3,5%, but then the introduction of the new WLTP fuel efficiency standards caused total chaos in the sales charts. August sales were up 26,3% as carmakers rushed to register unsold non-compliant model/engine combinations before the September 1 deadline. From that date onwards, only vehicle types that had been tested under the new standard for fuel consuption and emissions testing were allowed to be sold as new vehicles in Europe. As a lot of model/engine combinations had not been tested yet and would no longer be available in Europe until they were tested. Some brands and manufacturers were better prepared than others, but overall the market sunk by more than 7% in each of the last four months of the year and this adverse effect will continue to negatively influence the European car market in the first few months of 2019. December was actually the worst month of the year, both in terms of absolute figures (just over 1 million sales) and in comparison to the year before (except for the dramatic September month of course), with a decline of 8,6%. [Read more…]
After discussing the 2018 China car sales ranking by brand, let’s zoom in on which models were the movers and shakers of the past year. And the Chinese car market is not only one of the most diverse with no less than 575 different nameplates in our ranking up from 531 in 2017 and 502 in 2016, but also one of the most dynamic, with big movements [Read more…]
In 2018, light vehicle sales in China declined for the first time since 1990, as 23,27 million passenger cars were sold, 4% fewer than in 2017. Including minibuses and light and heavy commercial vehicles, the total car market in China declined 2,8% to 28,1 million in 2018. Sales of new energy vehicles (battery electric, plug-in hybrid and fuel cell [Read more…]
After looking at the November 2018 brand sales ranking, let’s take a closer look at which models were moving up the charts. Traditional leader Volkswagen Golf is still on top, despite a double digit decline, but there’s a close battle for second place with the soon-to-be-replaced Renault Clio staying just ahead of the all-new Volkswagen Polo. In [Read more…]
European car sales have been on a wild ride in the second half of 2018, due to the introduction in September of a new fuel efficiency and emissions testing standard called WLTP (Worldwide harmonized Light vehicle Test Procedure), to which many manufacturers have found themselves unprepared. After September 1st , only vehicle types that had been tested under the new standard were allowed to be sold as new vehicles in Europe. That meant that every version of every model sold in the continent needed to be retested, but despite working round the clock, the testing agencies just didn’t have enough capacity to get this done in time. With some vehicle/engine combinations “illegal” after September 1st, automakers rushed to register these vehicles in August, leading to a 26,4% sales gain in what’s usually the slowest month of the year by far. However, as these unsold vehicles still needed to end up in consumers’ hands, sales in September suffered a backdrop of 23,1% as for the first time in modern history fewer cars were sold in September than in August. In the following months, sales continued to suffer from the continued backlog of pre-registered but unsold vehicles as well as reduced availability of certain model/engine combinations. Some manufacturers have been hit harder than others, with VW Group and Renault-Nissan among the hardest hit by the new testing procedures.