TABLE OF CONTENTS
Chinese Auto Market World’s Fastest Growing
Car Manufacturers Expanding in China
Johnson Matthey Year end Revenues
Bharat Forge and KPIT Cummins Battery Technology JV
BMW to Use Carbon Fiber Composites in Electric Vehicle
China’s Geely Signs $1.8 Bn Deal for Ford's Volvo Car Unit
UK Plant to Produce Nissan Electric Car
Now Independent, Saab Resumes Production
For every 1,000 people in China, 30 own a car. In the US, the figure is 700 or 800, the Financial Times reports. Carmakers are cashing in, with Chinese auto sales rising 45 percent last year, and 72 percent in the first quarter of 2010, year on year.
Chinese companies’ share of the market leapt from 21 per cent in 2004 to 32 per cent in 2009, according to Ivo Naumann of AlixPartners, the automotive advisers.
Most analysts predict growth of 10-25 per cent this year, with double-digit growth for the foreseeable future. They point to the fact that when China last year became the world’s largest car market, it got there 10 years early. It had been expected to happen in 2020.
GM recently announced that it would this year break the 2m sales barrier in China, four years ahead of schedule.
The recently held Beijing Auto Show hosted car companies from Detroit to Stuttgart who brought their best new models eager to grab a share of the world’s largest and fastest growing car market.
For the first time, some of the most closely watched companies exhibiting will be Chinese. Of the 89 models making their debut at the show, 75 will be domestic Chinese brands.
Beijing Automotive Industry Corp (BAIC) displayed prototypes for the passenger cars it is developing in-house after acquiring vehicle platforms and other technologies last year from Saab for $200m.
BAIC has made a fine living in recent years from the booming Chinese market – profits last year soared 239 per cent. But it has done so largely from selling Hyundai and Daimler cars through joint ventures.
The Saab deal is BAIC’s bid to kick-start its own line of cars, which it hopes to begin selling next year. Following the model pioneered by Shanghai Auto when it acquired vehicle platforms from the UK’s Rover, BAIC intends to use the Saab technology as the basis for a new line of cars that will be modified for the Chinese market.
The Beijing show was saturated with new domestic models: Geely brought 39, of which 11 shown for the first time; Chery brought 29 and Great Wall brought 10 new or refreshed models.
The moneymakers of the future will also be the many car-wash chains and chrome-wheel cover stores that have yet to be built, and the motor inns and farm-style restaurants that have begun to spring up in the the nation’s countryside.
With a highway network that could well rival that of the US within a decade – in part a fortuitous side-effect of the global financial crisis, which spurred Beijing to use stimulus cash to build toll roads – China’s car culture is on the route to rapid expansion.
General Motors, Hyundai, BMW and Volkswagen have all announced plans in recent months to increase their production in a country whose booming vehicle sales propelled it past the US as the world’s largest vehicle market last year.
Carmakers are taking heart from surging sales and China’s low car ownership rates. The country has only about 41 cars per 1,000 inhabitants, compared with about 900 in the US, according to Goldman Sachs research.
VW, the market leader, calls China its “second home market”, but it is really its first: the German group sold 457,000 cars there in the first quarter, more than 25 per cent of its total, and the most by far for any country.
Some analysts are warning that a potentially costly capacity bubble might be building up in the region.
“Our fear is that China is set to see [added] capacity outstrip demand, as the Chinese national government and local state governments all promote an auto industry expansion,” says Max Warburtons, analyst with Sanford Bernstein.
Another danger as China’s weight in the global industry grows is that carmakers risk becoming too dependent on a single market, and any volatility that may come with that.
In a notoriously cyclical industry, carmakers have been caught out at least once before after overcommitting resources to a big emerging market. In the late nineties, many were overly exuberant in investing in Brazil, whose market slumped badly in 2002, leaving them with many underutilised lines in their plants.
Sales growth aside, China’s market offers carmakers big profit margins, as many consumers are less price sensitive than their western counterparts and favour larger cars.
Germany’s luxury producers BMW, Daimler and Audi are doing brisk business selling long-wheelbase, chauffeur-friendly versions of their cars with all the extras.
Carlos Ghosn, chief executive of Nissan, told the Financial Times recently that China had replaced the US as its most profitable market.
VW’s Chinese operations reported a pre-tax profit of €286m ($342m) for the first quarter, 41 per cent of the total €703m it made during the period. VW’s export of components to China means that the true scale of its dependence on the market may be larger, analysts say. Commerzbank analyst Daniel Schwarz estimates that VW derived more than half of its profit from China in the quarter.
BMW made almost half of its €449m operating profit in the first quarter in China from imported and locally produced vehicles, analysts estimate.
GM, China’s second-biggest carmaker, reported $400m of equity income from its Chinese joint ventures in the first quarter of this year. GM sells more vehicles in China now than it does in the US, and its international operations – primarily China and Brazil – contributed about the same operating income to the company in the first quarter, according to Tim Lee, who heads the division.
Calm MacRae, industry analyst with PwC, says that current excess capacity in China, at 2.4m units, is little changed from 2005, and utilisation is better than it was then because of “stratospheric growth in the market in 2009”.
The global recovery in demand for cars and trucks helped Johnson Matthey, the world’s leading supplier of catalytic converters to the automotive industry, hold full-year revenues steady in spite of a poor start to the year. Preliminary results for the year ended March 31, 2010 were recently reported, with revenue at £7.8bn.
Neil Carson, chief executive, said the ending of scrappage schemes that had helped maintain demand for light vehicles through the depths of the global recession had created uncertainty over trading during the second half of the year.
He said, however, it expected a strong bounce back in trading in the first half of the current year as automotive production continued to recover in all major economic regions. He insisted Johnson Matthey was “well positioned to take advantage of a global economic recovery” as emission controls on vehicles were being tightened in many countries.
More than half of its business is related to automotive production, with the company estimating it supplies a third of the world’s catalytic converters in light vehicles and up to half of those used in trucks.
Two of India’s largest car parts suppliers, Bharat Forge and KPIT Cummins, have developed technology to transform a petrol-engined car into a hybrid one in just two hours.
The two companies, both based in Pune in Maharashtra, have formed a joint venture to produce what they have described as revolutionary battery-powered technology commercially within six months.
Bharat Forge, India’s largest exporter of motor parts, and KPIT Cummins, the country’s largest automotive technology company, are initially targeting the large “after-market” in India’s fast-growing economy, converting existing vehicles to run in a more environmentally friendly way.
The invention is a plug-in conversion kit that saves considerably on fuel efficiency and carbon emissions. The Indian companies claim they are now able to cut the cost of vehicle hybridisation by as much as a fifth.
Baba Kalyani, Bharat Forge’s chairman, said: “This new technology has been indigenously developed and will cost just about €1,500 [$1,800] compared to at least €10,000 in Europe. We will at first target it for Indian customers.”
The Automotive Research Association of India, which has tested the technology, called Revolo, said that it produced fuel efficiency gains of more than 40 per cent on a standard fuel-consuming engine.
It has also earned praise from the Delhi-based Energy and Resources Institute headed by Rajendra Pachauri, the chairman of the United Nations Intergovernmental Panel on Climate Change.
Ravi Pandit, the chief executive of KPIT Cummins, said the companies were in negotiations with global car companies and expected them to introduce the technology in the manufacturing process once its worth had been tested in the “after-market”.
BMW AG and the SGL Group will build a $100 million carbon fiber manufacturing plant in Washington to supply parts for a new BMW electric vehicle.
The greenfield factory will begin production in the third-quarter of 2011 and make ultra-lightweight carbon fiber reinforced plastics exclusively for BMW’s first vehicle under a new sub-brand. BMW calls the project a “megacity” vehicle. The automaker did not disclose the sub-brand’s name or details about the vehicle other than to say it will be electric-powered and arrive before 2015.
The Moses Lake, Wash., plant will employ 80 and be built by the joint-venture, SGL Automotive Carbon Fibers LLC.
Carbon fiber-reinforced plastics are currently used in limited parts on low-volume cars, but BMW will use it throughout the structure and in exterior and interior body panels, said a BMW of North America spokesman.
SGL already has composite materials factories in the United States and Canada, making parts such as wind energy and aerospace components.
Friedrich Eichiner, member of the BMW AG board of management for finance, said that the two companies “will be able to produce carbon fiber enhanced components in large volumes at competitive costs for the first time.
The new car will bring together global production sources beyond the new Washington site, with SGL and its Japanese joint-venture partner Mitsubishi Rayon creating part of the carbon fiber formula in Otake, Japan, as well as using BMW production in Landshut, Germany, and Wackersdorf, Germany.
BMW will make the electric car at the same Leipzig, Germany, assembly plant that makes the 1 series passenger car and X1 crossover.
Zhejiang Geely Holding Group, China's largest private-run car maker, agreed to buy Ford Motor's Volvo car unit for $1.8 billion, the country's biggest overseas auto purchase.
The takeover underscores China's arrival as a major force in the global auto industry and ends nearly two years of talks with Geely over Volvo—the last sale from Ford's former premier group, which also held Aston Martin, Jaguar and Land Rover.
Geely chairman Li Shufu told a news conference that Volvo Cars would remain a separate company with its own management team based in Sweden.
Geely said it had secured all the necessary financing to complete the deal, though it remained open to a possible loan from the European Investment Bank.
Addressing questions regarding Geely's plans to keep production lines running in Europe, Li said it was important Volvo stayed close to key supply centres.
"I have a deep belief that the manufacturing footprint in Gothenburg and Belgium will be preserved in the longer term," he said.
The deal, which both sides aim to close in the third quarter, will help free up cash for the number two U.S. automaker and enable it to focus on its core Ford brand.
Geely's chairman is already planning a factory in Beijing which will make 300,000 Volvo branded cars, or as many Volvos for China as are now made abroad for foreigners.
The carmaker has already announced an aggressive target of boosting its sales to 2 million vehicles by 2015 from last year's roughly 330,000 units -- about the same as Volvo's global output.
Japanese car manufacturer Nissan has announced it is to build its Nissan LEAF electric car at its plant in the UK. The car maker said its decision to locate its LEAF production in its Sunderland factory represents an investment of over £420m and is expected to maintain about 2,250 Nissan jobs across the UK. The investment is also backed by a £20.7m UK government grant and up to £220m from the European Investment Bank.
Nissan’s Sunderland factory will also produce a lithium-ion battery.
The UK will be the third country to produce the LEAF car. Production of the LEAF is set to begin in Oppama, Japan later this year, followed by Smyrna in Tennessee in 2012.
The Sunderland plant is expected to come online in early 2013 and will have an initial annual production capacity of about 50,000 units.
The sales launch of the LEAF will begin in late 2010 in Japan, the US and selected European markets, ahead of global mass marketing from 2012.
The Nissan LEAF is a five-seater hatchback powered by an 80kW electric motor. The car will have a top speed of more than 140 km/h and charges to 80pc of capacity in under 30 minutes.
The production lines at Saab Automobile's state-of-the-art Trollhattan, Sweden, plant began rolling again, heralding a new era for the Swedish premium car maker as an independent company.
To mark the occasion, Saab Automobile CEO Jan Ake Jonsson, Spyker Cars CEO Victor Muller and Trollhattan Plant Director Gunnar Brunius took up positions on the line alongside assembly workers as the first batch of cars was built.
Production at the Trollhattan plant was halted for seven weeks after GM decided to cease production of the brand. Now, following the purchase of Saab Automobile AB by Spyker Cars NV, the first cars to be built by Saab as an independent company will soon be delivered to customers.
First on the line was an all-new Saab 9-5 sedan, destined to join a test fleet prior to the model's official launch later this year. Further down the line was a Saab Convertible, now also being produced in Trollhattan as part of the concentration of Saab operations in Sweden. With the introduction of the new 9-5 SportCombi next year, a total of five model lines will be produced at the plant.
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