Manufacturing News

China's fast and furious race to launch the next Tesla Motors

William Li isn't your typical, boundlessly optimistic Chinese tech entrepreneur. Yes, the founder of startup NextEV Inc. has big plans to disrupt China's electric car market, the financial backing of venture capital powerhouses Sequoia Capital and Hillhouse Capital and considers Tesla Motors founder Elon Musk an inspiration.

That said, he rates his chance of succeeding in China's fast-moving car market at a whopping 5 percent. He also thinks most of the new business models for electric cars being bandied about by tech companies will end up in the junkyard.

"There's an exponential gulf between creating a concept car and mass production, and then to actually sell them," Li said. "Tesla has broken a lot of new ground and inspired a raft of Internet companies to follow, but most have no idea what they're facing."

Such hard-nosed realism is probably wise. A torrent of money is pouring into the nation's market for EVs, plug-in hybrids and fuel-cell cars. In a country with terrible urban air pollution and a rapidly urbanizing populace, the market's upside potential seems big to conventional car companies and tech startups jumping in.

The Chinese government is promoting what it considers a strategic industry with big subsidies for companies and consumers. It wants sales of EVs and plug-in hybrids to top 3 million a year by 2025, up from 330,000 last year.

In February, Premier Li Keqiang called for a speedup of construction of battery-charging facilities to accommodate 5 million EVs by 2020.

BYD on top
Right now, the electric car business is dominated by BYD Co., which has an 18 percent share of China's EV market.

At the Beijing auto show, BYD touted its new entry-level SUV called The Yuan, as in the 13th-century Chinese dynasty, that starts from 209,800 yuan ($32,400) for the hybrid version.

Tesla also is a player in China, where it sells its Model S and Model X, though the Palo Alto, California-based electric car maker would like to be a far bigger one.

For the first three quarters of 2015, the company sold 3,025 vehicles in China, which compares to 11,477 deliveries by BYD. The Chinese company also sells electric buses in overseas markets and surpassed Tesla to become the world's biggest maker of electric vehicles last year.

The success of Tesla in the U.S. and the development of driverless car technologies by Apple and Google are also attracting all manner of technology companies into the Chinese auto market. Some envision cars developing into "mobility service platforms," in which passengers receive data and services in addition to being moved from point A to B.

That could play to the strengths of technology companies, and China could be the perfect experimental laboratory, according to Bill Russo, managing director at Shanghai-based auto consultant Gao Feng Advisory.

Russo compares today's autos to the mobile phones of a decade ago, when apps started gaining popularity. "As cars become mobility service platforms, the technology on board will become more sophisticated," he says.

Technology companies could contract out auto production to make vehicles, then earn recurring revenue by providing car owners with data products and Internet services. "Apple makes money not just on the device, but on all the services that flow through it," he said.

High-tech alliance
It's definitely a vision in search of details, but plenty of technology companies are jumping into the fray. Electronics contract manufacturer Foxconn Technology, Internet service portal Tencent and China Harmony New Energy Auto have set up a joint venture to build alternative energy cars.

The partnership is counting on Foxconn's component supply chain, Tencent's infotainment and telematics systems and Harmony Auto's aftersales network for electric vehicles. In January, Infiniti China chief Daniel Kirchert joined the alliance.

Chinese tech billionaire Jia Yueting also has automotive ambitions. Jia made his fortune as the founder of Le Holdings Co., which makes Web-enabled televisions and smartphones and offers e-commerce services.

Jia is a major investor in Los Angeles-based Faraday Future, which is building a 900-acre factory near Las Vegas, Nevada.

LeEco, which has developed its own electric vehicles, is preparing to apply for a production license in China and also plans to manufacture its cars overseas.

Given all the new entrants, it's easy to understand why NextEV founder Li is wary of the competition. Li has hired former Cisco Chief Technology Officer Padmasree Warrior to lead development and U.S. operations and has inked a deal to outsource production to Anhui Jianghuai Automobile Co.

"They're realistic, they're seasoned, smart people with a lot of money and they're unafraid of the challenge," Michael Dunne, head of strategy and investment advisory firm Dunne Automotive, said of NextEV. "In fact, they seem to be embracing it."

Cattle herder
Li's early life didn't fit the profile of a tech entrepreneur. He spent his early years herding cattle in a mountain village in Anhui province, where he grew up with his grandparents. A talented student, he left the rural China to attend the prestigious Peking University, where he earned a degree in social sciences while supporting himself with part-time work like selling office supplies to Apple Inc.

Before starting NextEV, Li co-founded and built Bitauto Holdings Ltd. into the country's biggest provider of online car pricing data for dealers. The company went public in New York in 2010. Li and Bitauto have invested in more than 40 companies in China including used-car business, financing services and car-sharing platform such as Didapinche.

Li says NextEV is an opportunity to rethink the electric car as not just a transportation vehicle but as a digital platform.

"Traditional auto manufacturers treat the car as 95 percent transportation tool," Li said. "Tesla's cars have perhaps 20 percent to 30 percent content that are not related to transportation," he said referring to such things as mobile connectivity and touchscreens that access car maintenance services. "My aim is to boost that to more than 50 percent."

NextEV has produced an electric Formula E series racer, but hasn't disclosed its plans to develop an electric car for consumers. Meantime, a gaggle of tech companies hope to prove they can be automotive players in China.

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