China: Leading The Transition to Electric Cars

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Presentation given by Bill Russo at the European Union Chamber of Commerce in Beijing, China on July 2, 2009

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China: Leading The Transition to Electric Cars

  1. 1. China’s Next Revolution: Leading the Transition to Electric Cars www.synergisticsltd.com
  2. 2. Topics 1. Driving the Revolution: China Becomes the Largest Car Market 2. China’s National Strategy to Reinvent Automotive Propulsion 3. New Energy Vehicle Products and Applications in China 4. Conclusions: Driving Market Acceptance Copyright
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  3. 3. Topics 1. Driving the Revolution: China Becomes the Largest Car Market 2. China’s National Strategy to Reinvent Automotive Propulsion 3. New Energy Vehicle Products and Applications in China 4. Conclusions: Driving Market Acceptance Copyright
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  4. 4. China’s Recently Explosive Automobile Market Growth Slowed Considerably in 2008 • Although 2008 2H growth has flattened, China PV sales are still up 9% YoY • Passenger vehicles consistently represent the majority of total automobile demand • China’s compact segment is still the dominant force (i.e. 34% of total PV in 2008) Total Vehicle Industry including Import: China 2008 Sales 2007 Sales 9% 9.67 Million - 22% 8.98 Million 2006 Sales 25% 7.34 Million Truck 2005 Sales Truck 21% 2004 Sales 11% 5.90 Million 22% 2003 Sales 15% 5.24 Million Truck PV Bus 21% PV Bus 61% 2% 4.56 Million Truck 25% Bus 60% 2% Van Truck 2% Van 16% Bus PV Van 16% Truc 26% PV k24% PV 53% Van 3% 59% 18% PV Bus PV 51% Bus 51% 3% 51% Van 2% 19% Van 21% 22% PV=2.36Million PV=2.66 Million PV=3.23 Million PV=4.45 Million PV=5.43Million PV=5.91Million Source: CAAM auto market press release Copyright
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  5. 5. The Tsunami Struck Copyright
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  6. 6. The Crisis Has Brought Major Losses In Wealth And GDP Growth Wealth Destroyed by Crises OECD Economic Outlook - Impact on GDP(1) (As % of Corresponding Annual GDP) (GDP growth rate in percent) (1) 2009 growth rate is March 2009 projection Source: Asian Development Bank; Federal Reserve; Japan Economic Statistics, OECD; Prospect Magazine; Booz & Company analysis Copyright
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  7. 7. The China Government Has Made Strong Commitment To Achieving Its 8% GDP Growth Target Boost Domestic Demand Increase Money Supply • New bank loans soar to 1.6 Trillion • Fiscal subsidy to farmers for RMB in January as part of 5 Trillion full electronics and vehicle replacement year plan • Car purchase tax rate reduction by 5% Impact of Global • Majority of government spending • Tax and interest rate cut for housing allocated to infrastructure and public transaction Financial Crisis insurance system Policies Stimulus Stimulus Policies • Relax consumer credit to promote • Lowered bank interest rates by 5 times Export Slump in 2008 individual and family buying • Y/Y growth -9% in ’08 Credit Crunch • Eased deposit reserve ratio • Vehicle export see • Money supply (M1) requirement of commercial banks the first drop over dropped -12% in ‘08 past decade Weakened Increased Profitability Unemployment Stimulate Backbone Industries Secure and Create Jobs Stimulus Policies Stimulus • 20 Mil migrant Policies • Industry production dropped -5.3% in ‘08 workers lost jobs • Published stimulus plans of 10 key • 6.1 Mil university • Encourage development of medium/ industries in Jan.-Feb.,2009 graduates seek jobs small enterprises and service industry • Automotive, Light Industry • Oil and Petrol Chemistry • Support SOEs to reduce job cuts • Electronics and IT • Ease enterprise burden by suspension • Ship Manufacturing, Textile or exemption of social insurance fee • Machinery Manufacturing • Iron and Steel, Logistics • Offer professional training to migrant • Mining/Metals workers and university graduates • Encourage industry consolidation and technology upgrade • Promote export and autonomous brand development Source: www.caijing.com.cn, Feb.,2009, www.sina.com.cn Copyright
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  8. 8. In 2009 China Exceeds US To Become The World’s Largest Auto Market Source: Bloomberg; Literature Research; Booz & Company analysis Copyright
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  9. 9. As The Leading Automotive Market, China Has The Opportunity To Drive The Standards And Architecture For The Global Auto Industry Shanghai: A Lean, Green Detroit … In acquiring a stake in BYD, Buffett broke a couple of his own rules. "I don't know a thing about cellphones or batteries," he admits. "And I don't know how cars work." But, he adds, "Charlie Munger and Dave Sokol are smart guys, and they do understand it. And there's no question that what's been accomplished since 1995 at BYD is extraordinary…” Source: Newsweek; May 4, 2009 Source: Fortune; Literature Research Copyright
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  10. 10. China Has A Clear And Compelling Need To Reinvent The Propulsion Technology Of The Automobile h  Air Pollution – Bejing, Xi’an, Shenyang, Shanghai and Guangzhou have been listed among the Top 10 cities with the worst air pollution. The massive growth of the automotive market only adds to the problem. – The rapid growth of the automotive market worsens the problem. For example, Beijing’s automobile industry contributed 73% of the overall pollution problem in 2003. h  Energy Consumption – China imports two-thirds of its oil, and its ever-increasing thirst has had a dramatic impact on global energy prices. – The gasoline and diesel consumption has accounted for half of the total consumption of petroleum products. h  Traffic Congestion – In the light of the current rate of development and gas consumption level, China will have over 150 million vehicles and petroleum consumption will exceed 250 million tons in 2020. For alternative propulsion technologies such as clean diesel, hybrid and electric vehicles, China does not lead the technological development Copyright
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  11. 11. Topics 1. Accelerating Transformation: China Becomes the Largest Car Market 2. China’s National Strategy to Reinvent Automotive Propulsion 3. New Energy Vehicle Products and Applications in China 4. Conclusions: Driving Market Acceptance Copyright
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  12. 12. Starting 10 Years Ago, CNG And LPG Vehicles Were Promoted, But It Was Not Considered A National Strategy h  Milestone in Phase 1: Clean Auto Action (1999-2002) h  Investment: 100 Million RMB Background In 1999, Beijing, Xi’an, Shenyang, Shanghai and Guangzhou were listed in the World Top 10 Cities with  The government then did Worst Air Condition not put forward specialized requirement for new energy Main Tasks vehicles  New energy vehicles did not Improving the air pollution in big cities by: serve for national strategy - Improving the emission of fossil fuel vehicles to meet Euro II Standard - CNG and LPG vehicles’ R&D and demonstration - Other CAFV’s R&D Copyright
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  13. 13. Since 2002, A 3×3 R&D Mechanism Was Initiated To Develop EVs Through The 863 Program h  Milestone in phase 2: Electric Vehicle Key Project in 863 Program during 10th five-year Plan (2002-2006) h  Government Investment: 880 Million RMB 3×3 R&D Mechanism Achievements •  Prototypes of BEV, HEV and FCV Vehicle developed Whole FCEV HEV BEV Development • BEV and HEV are qualified to be Vehicle produced Platform Powertrain Control System •  BEV and HEV started Demonstration demonstration in 7 cities Key Electric Drive Motor Tech Traction Battery Others •  26 national standards established • 796 patents applied Source: MOST Copyright
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  14. 14. Since 2006, All Types Of New Energy Vehicles Are Listed On The New Round Of 863 Program And A New R&D Mode Is Framed h  Milestone in phase 3: Energy Saving and New Energy Vehicle Key Project in 863 Program during 11th five-year Plan (2006-2010) h  Government Investment: 1.1 Billion RMB (for 2006-2008) New R&D Mode of 863 Project in 11th Five-Year-Plan: Product All types of vehicle products Development FCEV HEV BEV CAFV Vehicle Platform Battery Technology Fuel cell engine, traction battery, ultracapacitor... Key Electric Drive System Drive motor, motor driving system, engine... Technology for CAFV Basic Technology New material, new component, infrastructure... Public Support Test, standard, policy, demonstration, financing, intellectual property, Platform technology Information Source: MOST Copyright
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  15. 15. With This Structure, China Has Made Progress In Development Of Key Technologies, But More Effort Is Needed On OEM Side 10th Five-Year-Plan 11th Five-Year-Plan 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 National 863 Energy Saving and New National 863 Electric Vehicle Key Project Energy Vehicle Key Project Car: OEMs and universities developed more prototypes Car: small scale production and export BEV overseas Infrastructure: State Grid are considering charge station Bus: demonstration on Beijing city bus line construction Car: prototype developed Car: Most local OEM released HEV launch plan HEV Bus: 400,000km demonstration in Wuhan Bus: Two types are listed on the product bulletin Car: prototype developed by Tongji University Demonstration: UNDP in Shanghai and Beijing FCEV Bus: prototype developed by Tsinghua Infrastructure: 2 filling station in Shanghai and University Beijing More and more OEMs are involved in initiative A few models were developed under government project More efforts for commercialization are made Copyright
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  16. 16. China’s Ministry Of Science And Technology Is Driving A Plan To Support Development Of “New Energy Vehicles” (NEVs) h  In April 2009, Prof. Wan Gang announced an ambitious plan in Cooperation with the Ministry of Finance & the National Development and Reform Commission: – to promote the use of NEVs initially targeting 13 pilot cities, including Beijing, Shanghai, Chongqing, Changchun, Dalian, Hangzhou, Jinan, Wuhan, Shenzhen, Hefei, Changsha, Kunming, and Nanchang. – to support the development of energy-saving technology for use in government fleets, including buses, postal, and sanitation vehicles. – to deploy 60,000 energy saving vehicles in China by 2012 h  Key Objectives of Ministry of Science & Technology: – to promote industrial development and expansion of 863 project and HEV & EV development plan. – to technically support the development of NEV, R&D for NEV, and their promotion and industrialization. h  Tenth Five Year Plan introduced goal to commercialize and industrialize EVs – 3 Vertical Plans: force assembly, driving electric motor and dynamic battery – 3 Horizontal Plans: FCEV, HEV and EV Copyright
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  17. 17. National Governments And Global OEMs Must Take Note Of China’s Commitment To Fund The Development Of Its NEV Infrastructure h  About 45% of China’s $588 billion USD EXAMPLES stimulus plan is to be invested in projects h  Beijing: purchased 800 HEV buses from related to developing China’s Beijing Foton. infrastructure, which includes support for a variety of clean car technologies. h  Shanghai: hydrogen fuel cell car project was initiated by Shanghai Major Project Promotion h  Therefore, local governments Office as 2008 Olympics project. – support the development of energy-saving tech for h  Jinan: promotes NEVs and plans to use HEV use in government fleets, incl. buses, postal, and buses to replace some of the old bus system sanitation vehicles, to meet the requirement of National Sports – give priority to the EV, and Meeting in the fall. h  Shenzhen: is going to establish a charging – promote collaborations with business to develop infrastructure in NEV. station in the downtown area for NEVs and F3DM duel mode EV was first launched in 863 Projects Undertaking Units Initiative BEV R&D Units Shenzhen which is the first mass produced duel mode EV in the world. Tsinghua University h  Wuhan: becomes new energy resource Beijing Keling experimental unit for Nissan, and Nissan will contribute 300 HEV buses in the city. Beijing Tianjin Qingyuan h  Chongqing: bought 10 HEVs from Changan Tianjin Group Hangzhou Wuhan Wuhan h  Changchun & Dalian: Partnered with FAW Dongfeng Zhejiang Wanxiang BEV Demonstration Cities Demonstrations are located in the same cities of 863 Project undertaking units Copyright
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  18. 18. Topics 1. Accelerating Transformation: China Becomes the Largest Car Market 2. China’s National Strategy to Reinvent Automotive Propulsion 3. New Energy Vehicle Products and Applications in China 4. Conclusions: Driving Market Acceptance Copyright
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  19. 19. In Line With Government Mandate, Many Local Brands Participate In NEV Development, Some With Support Of Foreign Partners Local brand engaged in NEV Overseas company engaged in NEV Joint Venture License Manufacturing Share Minority Share Majority Copyright
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  20. 20. Initially Required By Government, Now Developing NEV Is Gradually Integrated Into OEMs Long-term Strategy BEV HEV BEV HEV BEV Bus under Research Covered Area Focus Area Copyright
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  21. 21. In View Of The Large Market Potential In China, Foreign OEMs Are Prioritizing NEV Development In China Product Promotion Cooperation with Chinese partner Concept introduction R&D in China Launch product Prius RX400h LS600h • Support the HEV R&D work of CATARC June 25, 2009 Civic HEV General Motors will build the Chevrolet Volt extended-range electric car in China beginning in 2011 as part of the automaker's plan to roll out its revolutionary technology in a wide variety of vehicles around the world, LaCrosse HEV the newsletter AutoBeat Asia reports. • Establish 2 NEV R&D centers in China • Cooperate with SGM and All Volts built in China are to be sold PATAC to develop new HEV there. Touran HEV • Take advantage of SVW to cooperate with SAIC to develop Touran HEV Fuel-cell bus Copyright
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  22. 22. China’s Push for Electric Cars Was Clearly on Display at This Year’s Shanghai Motor Show Copyright
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  23. 23. BYD Has Introduced The First Mass Produced Plug-in EV To Use A Home Outlet, Yet Market Acceptance Remains Challenging h  BYD F3DM & F6DM –  onvertible between EV and HEV modes C –  arket launch in 12/2008 (Fleet orders only) M –  etail sales to begin in 9/2009 R –  SRP: RMB 149.8K M –  ombined total power output: 125kW C –  cceleration 0-100km/h: 9 sec. A –  harging time: 7 hours with normal household C power outlet –  ax. distance for one charge: 100 km M –  ales available in 14 1st-tier and 2nd-tier cities S in China Source: www. bydauto.com.cn Copyright
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  24. 24. Topics 1. Accelerating Transformation: China Becomes the Largest Car Market 2. China’s National Strategy to Reinvent Automotive Propulsion 3. New Energy Vehicle Products and Applications in China 4. Conclusions: Driving Market Acceptance Copyright
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  25. 25. Conclusions: Driving Market Acceptance h  Consumer acceptance of new energy vehicles is major challenge –  hile the infrastructure investments already described will help tip the scales in W favor of new energy vehicles, consumers must also be convinced that the price and performance of the new energy vehicle can in fact meet their expectations. –  s a national priority, we can expect the China government to help by offering A incentives for the retail consumer to purchase new energy vehicles. –  hinese consumers have less experience with gasoline-powered cars, and are C already accustomed to short distance, low-speed commuting – conditions very favorable for electric cars. h  The China government’s willingness to invest in the infrastructure to support alternative propulsion technology will ultimately help drive demand side market acceptance –  his is where China has the opportunity to take the lead, and that will drive supply T side investment in new technology –  or the development of NEVs, the infrastructure must come first - and this will drive F supply-side innovation It takes a combination of business and government working together to make this revolutionary change possible and nowhere in the world is there a closer link between business and government than in China. Copyright
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  26. 26. Acronyms NEV: New Energy Vehicle PV: Passenger Vehicle EV: Electric Vehicle BEV: Battery Electric Vehicle HEV: Hybrid Electric Vehicle FCEV: Fuel Cell Electric Vehicle CAFV: Combustion Alternative Fuel Vehicle OEM: Original Equipment Manufacturer UNDP: United Nations Development Programme Copyright
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  27. 27. China’s Next Revolution: Leading the Transition to Electric Cars Backup www.synergisticsltd.com
  28. 28. •  An International business development advisory firm focused on building successful cross- border partnerships. •  Experienced in the formulation of market-entry strategies, competitive analysis, production/ supply capability assessment, regulatory and government approval requirements and identification and qualification of JV/alliance partners. •  Using proven methodologies for program management and negotiation of deals with clients in Asia. We will help your organization: 1.  Formulate a strategic approach to the market 2.  Devise plans for reaching out to partner organizations 3.  Navigate the process of negotiating towards a result •  We have experience in opening new international markets utilizing a life-cycle management approach. This methodology has proven effective in securing negotiated agreements to form new companies, achieving government approvals. •  We bring a unique blend of management, global business, engineering and operational experience to your business including in-depth knowledge, appreciation and respect for the local culture and history to your organization. www.synergisticsltd.com Copyright
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  29. 29. Bill Russo is the Founder and President of Synergistics Limited. He has extensive experience in the automotive and electronics industries, with more than 25 years of experience at driving strategy and performance improvement in Fortune 500 environments. In his role as the first Vice President of North East Asia automotive operations for Chrysler, Bill successfully negotiated and secured government approval for 6 vehicle programs within a 3-year time period with 3 different Asian partners. In this time period, he launched a regional holding company as well as 2 distribution companies. Bill oversaw the industrialization of the first Chrysler and Dodge-branded vehicles in Asia. As head of Product & Business Strategy, Bill led the integration of 3 key planning functions: strategic planning, long-range product planning and the capital investment plan. He had played a major role in achieving a major business turnaround by strengthening operational transparency through deployment of a system-wide balanced scorecard. His work earned international acclaim and was featured in leading business journals (Harvard Business Review, Controlling magazine). As a Business Transformation Consultant, Bill has led global cross-functional multi-disciplinary teams in the identification and implementation of business improvement initiatives throughout key value streams and functions. He holds a US Patent for his innovative efforts towards reducing automotive New Product Development cycle time. Bill is a dynamic speaker and frequently published author and opinion leader. His viewpoints on the China Automotive industry have been frequently published online and his viewpoints have aired on National Public Radio, China Radio International and the CBS Evening News. He has contributed to articles about the China auto industry by Newsweek magazine, the Washington Times and Straits Times. He is also a regular contributor on automotive topics for the popular Chinese newspaper Southern Weekly. Bill has also authored numerous articles on corporate governance, performance management , technology management and process reengineering. He has spoken frequently at conferences hosted by the Conference Board, Hammer & Company and the Balanced Scorecard Collaborative. He has also spoken at 2 Automotive industry conferences at China’s Great Hall of the People. Bill is a tireless and passionate individual who utilizes his process-driven skills to achieve results. Bill has a Master of Science in Manufacturing Systems Engineering from Lehigh University in Bethlehem, PA, and a Bachelor of Science in Chemical Engineering from Columbia University in the City of New York Copyright
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