Back to top

Shanghai Auto Show Goes Electric: F, GM, TM, Volkswagen, Renault, Lynk

Read MoreHide Full Article

The Shanghai Auto Show has opened to the public today and will continue through Apr 28. It is a huge affair with over a thousand automakers participating and expected to attract over 100X that number in car enthusiasts. There will be 1,400 cars on exhibition, of which 159 will be new energy vehicles (NEVs), including fully electric and hybrid cars. Given the Chinese government’s focus on clean energy, 96 of these 159 cars will be of Chinese make and the rest of foreign make.

A Little Background

Today, China is the world’s largest auto market having lapped up 28 million cars in 2016 itself. Four-wheel SUVs were 40% of this while NEVs were less than 2%. The reason for low NEV sales is similar to the U.S.: less variety, limited distribution and relatively cheaper fuel costs boosting demand for SUVs. This year, the Chinese government might be the cause of a fourth reason: reduced subsidies on green cars by a fifth to ultimately phase out subsidies altogether by 2020 with the goal of creating an independent EV market (this will, however, increase cost of manufacturing and therefore raise prices).

This year, the Chinese auto market growth rate is expected to drop off from last year’s 13.7%, but it will still be a decent 5%, according to the China Association of Automobile Manufacturers. The drop-off isn’t so much a question of weaker demand as the fact that tax incentives on smaller engine cars are being rolled back.

It isn’t clear what percentage of this year’s sales will be NEVs. But it’s worth noting that China is also the world’s largest market for fully electric cars having grown 65% last year to 400,000 units (state-owned Beijing Automotive Group and Warren Buffett-backed BYD were the largest players). Moreover, in September, the government proposed a credit system that would require automakers to make NEVs 8% of sales this year, going up to 10% in 2019 and 12% in 2020 (a downward revision in these targets is expected).

Bottom line: Automakers have to balance the high demand for SUVs with the government demand for NEVs while factoring in the increased cost/lower subsidy. It’s expected that more stringent fuel efficiency standards will in any case drive manufacturers to greener alternatives.

Tales from the Show

Not all cars are production ready, and where they’re not, there are promises of things to come over the next few years:

Ford: Ford (F - Free Report) expects to launch a plug-in hybrid sedan called the Mondeo Energi by 2018 and is also working on a fully electric SUV over the next five years. Its luxury brand Lincoln launched its first gasoline-electric hybrid based on the MKZ midsize sedan model. It also had a concept SUV called Navigator that will start selling later this year.

Ford has a Chinese JV partner in Chongqing Changan Automobile Co Ltd., with which it expects to launch hybrid or fully electric versions of all models built in China by 2025. But the company isn’t in any hurry with company executives maintaining that the volume of cars sold is dependent on things like government subsidies, regulatory policy, as well as cost and refueling speeds of these vehicles.

General Motors: General Motors (GM - Free Report) , which operates in China through a JV with state-owned Shanghai Automotive Industries Corp (SAIC) announced the Buick Velite 5 plug-in hybrid. The Buick is very popular in China as a premium brand but GM will be discounting it by 36,000 yuan ($5,233) because of uncertainties about the amount of government subsidy that may be allowed this year. GM is targeting the launch of at least 10 NEVs by 2020 and has already built a battery assembly plant in Shanghai to deliver battery packs next year.

Volkswagen: The Volkswagen I.D. Crozz four-door coupe-style vehicle will also have self-driving technology. It expects to have 13 NEV models by 2020 and 30 by 2025, by which time it expects to sell a million cars annually. The company is also in talks with Anhui Jianghuai Automobile Group (JAC) to form an NEV JV in China.

Audi: The company showcased the e-tron Sportback electric car concept that will launch in 2019, after the electric SUV called e-tron that is expected to launch next year. The car uses Volkswagen Group’s C-BEV electric car platform. Earlier, the company said that it would have three electric cars by 2020 and thirty by 2025.

Toyota: Toyota Motor (TM - Free Report) will begin testing its hydrogen fuel cell concept later this year with the tests expected to continue through 2020. As part of the project, it will open a hydrogen refueling station at its Chinese R&D center to take care of fueling aspects. Hydrogen cars emit only water vapor, so they are very good for the environment. As a result, Toyota has made this technology a key part of its long-range powertrain plans.

The company also has plans for the EV segment where it plans to build plug-in hybrids at home in Japan and then sell into the Chinese market. The hybrids are expected to ship next year, but the company hasn’t yet allotted a timeline for its fully electric offerings.

Renault: The French company showed off the RS2027 Vision concept car for formula one racing in ten years from now.

Lynk & Co: The Chinese company’s Volvo Cars brand, bought from Ford in 2010, will launch an all-electric car based on the economy-size CMA platform in China and the rest of the world. The car will start selling in 2019.

Conclusion

China is the world’s largest auto market and also one of the fastest growing. Plus government initiatives to drive NEVs are creating a new market. But because of the protectionist economy, many of the largest car makers are partnering with local players including government-owned entities. This definitely seems like the way to go.  

 

Will You Make a Fortune on the Shift to Electric Cars?

Here's another stock idea to consider. Much like petroleum 150 years ago, lithium power may soon shake the world, creating millionaires and reshaping geo-politics. Soon electric vehicles (EVs) may be cheaper than gas guzzlers. Some are already reaching 265 miles on a single charge.

With battery prices plummeting and charging stations set to multiply, one company stands out as the #1 stock to buy according to Zacks research.

It's not the one you think.

See This Ticker Free >>




In-Depth Zacks Research for the Tickers Above


Normally $25 each - click below to receive one report FREE:


Ford Motor Company (F) - free report >>

General Motors Company (GM) - free report >>

Toyota Motor Corp Ltd Ord (TM) - free report >>


More from Zacks Analyst Blog

You May Like