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Shanghai Motor Show 2017: Startups to flock to Expo, with China sales forecast to hit 30 million in 2020




Light-vehicle demand in China is expected to rise as the narrowing gap between local production and sales, each set to hit 30 million units per year in 2020, lures new and existing players to fight for a slice of the lucrative market.

IHS Markit Perspective

  • Significance: The Chinese government has opened up coveted vehicle production licences to companies solely planning new-energy-vehicle (NEV) production, giving startups access to the Chinese car market.
  • Implications: As demand trends in China have changed towards sport utility vehicles (SUVs) startups are looking to enter the segment. Some NEV startups are targeting the high-end segment.
  • Outlook: IHS Markit forecasts annual light-vehicle sales of 30 million units in China in 2020, with the vast majority from locally produced models, of which about 1.85 million are forecast to be plug-in vehicles.

The lure of China is the volume. Sales in China are forecast to hit 30 million units per annum (upa) as soon as 2020, IHS Markit estimates.

China's auto market expanded fast in 2016, mainly on government incentives introduced to keep the market growing. Those stimuli have been scaled back and the market's improvement is expected slow considerably. But the overall volume of light-vehicle sales in China is expected to continue to increase, reaching 30 million units per year in 2020. The market's sheer scale continues to attract "new" players. These come in two types, each with big aspirations to gain a slice of the large market: electric-vehicle (EV) startups and startups making regular combustion engine vehicles. 

Chinese local production volume by 2020 is also forecast to hit 30 million upa, highlighting that almost all volume sales in the country are expected to stem from locally produced models. The overall trend is that the gap between sales and production is closing as local output rises. 
Chinese production of plug-in vehicles is forecast to reach 1.85 million units in 2020, with a combination of pure EVs and plug-in hybrid electric vehicles (PHEVS), according to IHS Markit light-vehicle alternative propulsion forecasts. 

The many startups attracted to the upcoming Shanghai Motor Show will include new-energy-vehicle (NEV) and pure EV companies with backing from China's lucrative internet and technology companies, also lured by the market's vast potential. The Chinese government has eased its previously stringent policy on vehicle production licences creating a sub-variety for NEV production. Under these new regulations, the government is granting NEV licences to startups that only produce alternative-energy vehicles. A host of companies have already gained the new licences and the waiting list is lengthy.

NEV production licence holders and applicants

Detroit Electric: This offshoot of Lotus Engineering, owned by Malaysian Albert Lam, has gained significant investment from Chinese cable manufacturer Far East Smarter Electric (FESE) Company. A joint venture (JV) has been signed to gain an NEV licence to produce the SP:01 two-seater pure EV. The plan, according to a press release by FESE, is to build a production base in Yixing in Jiangsu province with production commencing as soon as 2019. Jiang Xipei, founder and chairman of the Board of FESE, is quoted as saying, "Far East is full of confidence in the development of new-energy automobiles and will create international new-energy automobile products through the joint venture. The project is expected to achieve automobile production capacity of 50,000 by 2020, sales volume of 100,000 by 2021, and production and sales volume of 1 million by 2030." The statement was made in February 2017 at the signing of the three-way USD1.8 billion JV, of which USD240 million is direct investment from FESE and USD600 million is to be gained through registered capital from stockholders. The major shareholders in the company are Lin Xiushan, Hjalmar Engel, Willem Van Der Kooi, Wu Zhiqiang, and Huang Jiale. The company aims to receive an NEV production licence this year. The first model will be the SP:01 followed by a model developed by the JV, according to a company statement. 

Thunder Power: A Taiwanese-owned startup EV maker now based in Hong Kong, Thunder Power has announced that production of its first model will begin in the fourth quarter of 2018 in China if it gains an NEV production licence. The model will have a range of 650 km through a 125 kWh battery. The company unveiled the prototype model at a brand launch event in Hong Kong. Production in China will be at a recently inaugurated site in Ganzhou in Jiangxi province. Speaking at the event, Thunder Power chairman and CEO Wellen Sham said, "Our next generation of products will continue to focus on incorporating technology to enhance the driving experience, but some of the key focal points will be to converge a selection of applications, electrification, and autonomous-driving capabilities such as wireless charging and optimising integrating biometric sensors." The company has already started taking pre-bookings for the Thunder Power EV via its website and the entry model is expected to be priced at about HKD490,000 (USD63,050).

ZD Auto: ZD Auto, also known as Shandong Xindayang Electric Vehicle Company, has made the ZD mini electric vehicle, considered a low-speed EV, and has received an NEV production licence, according to Chinese media. The company has been granted approval from the Chinese National Development and Reform Commission (NDRC) for a USD128 million plant to produce 40,000 units per annum. According to China Daily, ZD gained its NEV licence on 1 March this year. 
New Energy Vehicle Sweden (NEVS): In January 2017 the Chinese authorities granted NEVS an NEV licence. NEVS hopes to be able to build its Saab 9-3-based EV. Kai Johan Jiang, the largest shareholder in NEVS, "acquired the main assets of Saab Automotive in 2012", the company states on its website. In February this year the company signed a strategic framework agreement with Contemporary Amperex Technology Company (CATL) to secure batteries for the NEVS 9-3 EV. The plan now is to "to deliver 150,000 9-3 sedan electric vehicles to the partner Panda New Energy, a new-energy-vehicle-leasing company in China". However, the plant in Tianjin is only due to be ready to begin production at the end of 2017, with a production capacity of 200,000 vehicles, according to NEVS. The automaker also has a plant in Longyan, China, following its 65% acquisition of Fujian Long Ma Automotive. 

Jiangsu Minan Electric Automobile Company: A subsidiary of the Minth Group, this company gained regulatory approval in China for the production of NEVs in the passenger-car segment in November 2016. The permit has been awarded by the NDRC and the company's new plant is to have an annual production capacity of 150,000 units upon completion, but the first phase will begin with a capacity of 50,000 units per annum. Jiangsu Minan aims to release its first NEV in 2018, reports the Shanghai Daily. 

Qiantu Motor: Qiantu Motor was reportedly granted a licence in September 2016 to produce NEVs in China. The plan is to produce the Qiantu K50 two-seater electric roadster from 2017, pricing the car at CNY700,000 (USD106,000), the chairman of parent company Beijing CH-Auto Technology Company said in an interview with Bloomberg. Lu Qun said that the K50 was comparable to a Tesla Model S. The company has set up its own production base in China for the K50. "We are aiming at building high-performance cars, and there's no other option but to build our own factory, because there isn't a plant in China that has a carbon-fibre moulding workshop," Lu said. The company's plan is also to produce models for other companies. Qiantu therefore aims to become a contract manufacturer using the CNY2 billion plant understood to be in Jiangsu province, which has an initial annual capacity to produce 50,000 units per annum. By 2020 the company chairman aims for Qiantu to have a 15% market share of the EV market – or annual sales of 50,000 units. The K50 is the flagship model with two more models planned, which will be cheaper than the K50. The K50 concept was shown at the Beijing Motor show in 2016.

Changjiang Electric Vehicle Company: A subsidiary of the FDG Group, this company reportedly gained its NEV production licence in 2016. The Hangzhou-based EV maker's founder and chairman Cao Zhong is quoted as saying that Changjiang Automobile owns the core component techniques with independent intellectual property rights for batteries, electric motors, and vehicle control units. The company already has a vehicle production plant and its solid work in the NEV field over the last six years made it the first company to gain an NEV production licence in China, he added. The first model is the eCOOL pure electric small sport utility vehicle (SUV). In a company press release the company states that it aims to produce 50,000 units initially per annum. The eCOOL SUV has a 200 km range with top speed of 136 km/h. 
Subsidiary companies of existing automakers Beijing Automotive Industry Corp (BAIC) Group and Chery Automobile Company have also received NEV production licences: Beijing New Energy Electric Vehicle Company (BJEV) and Chery New Energy Company. A potential JV between Volkswagen (VW) and Anhui Jianghuai Automobile Company (JAC) is still waiting for its NEV production licence as are other such as Thunder Power and Detroit Electric.

Outlook and Implications

IHS Markit analysis shows that Chinese demand for passenger cars will reach 30 million units as soon as 2020. This growth in demand is driving EV startups, looking to benefit from the government's opening up of the much coveted vehicle production licence to gain a slice of the large market, albeit restricted under current laws to NEV production. Startups that have recently gained production licences are aiming to compete with established players. 

The strategies for all these players rest on a strong understanding of the local consumer market. Failure to appeal to local consumers could cause brands to quickly vanish from the market. 

In 2010 the overriding demand within the light-vehicle segment was for sedans, which held over a market share of over 40%. By 2020 the switch is to SUVs, a trend gathering pace in recent years.

        

Certain startups are gaining from the trend while others have almost already lost out. Borgward, for example, which has gained from industry veterans at its helm, has led the strategic positioning of its first models as SUVs. The lineup of SUVs under Borgward is expected to get even stronger with a series of SUVs to join the first model, the BX7, which was released last year and sold 30,015 units, according to our data. By 2020 our forecasts estimate Borgward will have annual sales of 150,000 units. Its strongest market will remain China, where the brand's market penetration is gaining from the release of models that consumers want in a market with great appetite for SUVs. 

China's market for new energy vehicles currently hinges on government subsidies and initiatives. The numbers, when compared with the full light-vehicle market, remain small. In 2010, for example, IHS Markit data show just 3,581 plug-in light vehicles produced in China. In 2015, the number was around 219,800. In 2020 local output of NEVs is estimated to reach 1.85 million. While that number is large, the overall light-vehicle market in China in 2020 is expected to total 30 million units. 

High-end EV makers are targeting a niche within the market. This segment attracts players aiming to make high-performance EVs that appeal to car buyers in China with high disposable incomes looking for a status symbol. The upcoming Shanghai Motor Show promises is set to feature new EVs in "production prototypes" and futuristic concepts from new entrants. 

The upcoming Shanghai Motor Show will showcase new brands competing for the limelight and aiming to steal market from existing players. Current players have announced that they will be bringing enticing models to retain and gain traction in what for many is already their largest and most lucrative market.

About this article

The above article is from IHS Automotive Same-Day Analysis of automotive news, events and trends, and is a deliverable of the World Markets Automotive Service. The service averages thirty stories per day and also provides competitor and country intelligence. Get a free trial.

About The Author

Ms. Namrita Chow is Principal Analyst at IHS Markit for the China automotive market.

With over a decade in China, she has firsthand knowledge of the market, the players and the many nuances. Her expertise has helped in forecasting trends, whether within the domestic Chinese automotive market or linked to Chinese vehicle exports in other markets. She has authored special reports as well as daily news analysis, focusing on the intricacies of the vehicle market in China and is available to speak on subjects relating to the Chinese vehicle market. Ms. Chow’s education includes a Post Graduate Certificate in Economics and Math and a Master of Science degree in Advanced Macroeconomics and Mathematics from the University of London, U.K., as well as two years of intensive Mandarin at Shanghai Jiao Tong University, Shanghai, China.​