Car industry shake-up opens door to China upstarts

[April 17, 2009]  SHANGHAI (AP) -- As ailing global automakers agonize over their survival strategies, China's upstarts are racing them to launch homegrown hybrid and electric vehicles in the only major market that is still growing.

Shanghai's biannual auto show, which opens Monday, will showcase these "new energy" vehicles, as the Chinese call them, alongside a cornucopia of conventional gas guzzlers, compacts, luxury and mid-range vehicles.

No purely electric vehicles, apart from a few experimental buses, are on Chinese roads just yet: automakers are still working on developing products with prices and performance that are competitive with conventional cars.

Yet, the focus on innovation reflects China's desire to curb its growing dependence on imported crude oil and clear its polluted city skies. Beijing is plowing $1.5 billion into new energy vehicle technologies in the next three years.

"There's a lot of interest in electric vehicles because it's a technology that's emerging from China's strong research and development base for lithium-ion batteries," said Ray Bierzynski, vice president for engineering in the Asia-Pacific for General Motors Corp.

"China has grown very dramatically but it still has a relatively young infrastructure, so the move to battery technology is very interesting for China," he said.

Chinese consumers, most of them still first-time car buyers, are relatively open to electric vehicles since many already own electric scooters and motorbikes, said Thomas Schiller, managing director for consultants Arthur D. Little China.

Meanwhile, the shake-up in the worldwide auto industry as it grapples with the economic slump, offers Chinese automakers, as relative newcomers to the industry, a chance to move ahead in an area not yet dominated by foreign technology.

"They see it would take five to 10 years to catch up with Western and Japanese manufacturers, so they are jumping to the next technology by investing in electric vehicles," said Schiller.

A recent McKinsey & Co. study estimates the Chinese electric vehicle market could be worth up to 1.5 trillion yuan ($220 billion) by 2030.

Shifting from gas to electric could help China wean itself from heavy dependence on foreign automotive technology, create new business opportunities for parts makers and providers of infrastructure, and make the most of the country's low business costs, the report says.

So far, only Chinese battery manufacturer turned automaker BYD Co. has launched mass production of a plug-in hybrid vehicle that can be charged off a regular home outlet.

Of China's domestic automakers, it appears closest to bridging the gap between battery technology and vehicle technology that has hindered the efforts of even the biggest automakers to bring out models that do not guzzle mainly gasoline or diesel.

Founded in 1995, BYD, which stands for Build Your Dreams, only branched into automaking in this decade. But its ambitions won over legendary investor Warren Buffett: MidAmerican Energy Holdings Co., the utility division of his flagship Berkshire Hathaway, took a 9.9 percent stake in the Hong Kong-traded company in September.

Other domestic competitors are joining the fray. Chery Automobile Co., the country's biggest homegrown car maker, says its new S18 hybrid, equipped with iron-phosphate-based lithium-ion batteries, can run up to 150 kilometers (94 miles) on a single charge.

Chery has not said when it will introduce the vehicle to the market or at what price.

State-owned automaker Shanghai Automotive Industrial Corp., a partner with both General Motors Corp. and Volkswagen AG, says it plans to include a purely electric vehicle, a fuel cell-powered vehicle and its own-brand Roewe hybrid among the 90 models it will display in Shanghai.

BYD's F3DM, launched only for fleet sales in December, runs up to 100 kilometers (62 miles) on a single charge before reverting to its conventional engine. It says the current price of 150,000 yuan ($22,000) may drop to about 110,000 yuan ($16,000) once it ramps up scale.

The Tesla Roadster, by comparison, can run 220 miles (350 kilometers) on a single charge depending on driving conditions, but costs $109,000. The Toyota Prius hybrids now on the roads can run only five to 10 kilometers (about three to six miles) before reverting to gasoline fuel, and cannot be charged from regular electrical outlets.

BYD says it plans to begin exporting vehicles to the United States by 2011. In the meantime, it has become one of China's biggest domestic automakers, ranking 10th in passenger car sales last year. Its F3 compact, powered with a conventional engine, was China's second best-selling car in March.

China's domestic brands are proving their mettle mainly in the fast-growing small-car segment, a main driver of the industry's rebound from a slump late last year.

Auto sales in China hit a monthly record of 1.11 million vehicles in March, exceeding U.S. sales for the third month in a row, as tax cuts and rebates for small car purchases lured buyers back into showrooms.

But while they are whittling away at the market share held by global automakers, China's own car companies are still far from taking on the American and European markets, analysts say.

Mainstream automakers like GM, Ford and Toyota are struggling to shift from big, conventionally powered cars to energy-efficient, smaller vehicles. Meanwhile, newcomers like BYD are working to integrate battery know-how with the myriad, sophisticated systems controlling 21st- century automobiles.

"You have the battery, the motor. You need the control systems to make them work together. Control systems are very difficult. The Chinese makers really don't have them," said Yale Zhang, a Shanghai-based analyst with CSM Worldwide.

Meeting rigorous U.S. and European safety and emissions standards, as well as the exacting expectations of Western consumers?

"Simply put, it is still a 'no,'" he said.

[Associated Press; By ELAINE KURTENBACH]

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