HomeArchive 2013Kandi-Geely JV's expected strategic EV market approach.

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June 13, 2013

Kandi-Geely JV's expected strategic EV market approach.

by Marc Chang

Editors note: Marc Chang, CEO, M&A, Business Development, with over 30 years of international activity, is fluently bilingual in Chinese and English and has access to people that most of us don't have. When I asked Marc for permission to reprint this article, originally posted at the private Yahoo! Kandi board, he specifically asked the following: Please insist it's my personal speculation of how the future JV strategy might look like.

What I write here is a result of personal evaluation of the past and current evolution and bottlenecks of the China EV market and how Mr. Hu was able to bring Kandi to the forefront of the China EV market.

I have had the chance to meet Mr. Hu a few times and have an enriching exchange of views with him which has helped me in the past to make a few predictions that have proven to be quite accurate till now.

Which business strategy might result into creation of the biggest EV market for the Kandi-Geely JV and give them the best prospects for a substantial market share all over China?

As the Chinese Academy of electric vehicles dean CC Chan said, to successfully promote the commercialization of electric cars "three conditions" need to be met:
  1. have a good product,
  2. have a good business model,
  3. a good infrastructure.

I may add a 4th condition specifically valid for China: Have the right relationships to get unwavering support from the local authorities and policy makers. Remember, today, city and regional governments are set on meeting their own needs and are prone to protectionist tactics!

In the document "China's quest to adopt Electric Vehicles" the authors clearly stated the challenges that must be overcome for EVs to gain market traction:

"Switching a country or a region to a new generation of environmental technologies like electric vehicles requires the coordination of many actors-car manufacturers, battery developers,

charging infrastructure providers, governments, and consumers. Such a challenge is likely too great for any private company-even one as large and path-breaking as Toyota-to accomplish on its own. To develop the EV industry, not only must there be a well-designed and properly implemented government policy, coordination and cooperation between public and private sectors is essential."

If Toyota isn't able to accomplish it on its own, will the JV be able to succeed in Zhejiang and China?

Before the time of the JV creation Mr. Hu had a good business model but was he in a position to fully implement and exploit it?

While he was able to get a full support in Jinhua and was capable of establishing a tripartite JV with the SGCC satellite company and the battery producer Tianneng Power, I do believe that he met strong resistance to let Kandi steal the EV cake in Hangzhou, especially from other established car manufacturers.

Old timers here will remember how Mr. Hu made the strategic move to have the company office in Hangzhou. After all, back in 2010 when the H. Government first announced future subsidies for private buyers of EVs the document mentioned Geely, Zoyte, Dongfeng...

The Hangzhou Power Authority had its own ideas about battery swapping and early 2011 the SGCC Chairman promoted this model to be SGCC's template for future EV Charging and swapping Stations all over China.

As a KNDI investor I than contacted the SGCC staff in Hangzhou to figure out if they had any cooperation with Kandi but received a very discouraging answer. I kept communicating with them and I remain convinced that was able to trigger some goodwill from the SGCC staff (Electric Vehicle Charging Services Company under Hangzhou Power Authority) to visit Kandi in May 2011 and have a constructive meeting with Mr. Hu. (I should send him a copy of my communications...).

A few months later, in Art's terminology, Kandi was the "Golden child of the SGCC" and later in 2011 when staying in Hangzhou I first learned from the SGCC staff that after rigorous testing of the Kandi KD5011EV they had promoted Kandi to become the sole supplier for the local Government targeted 20,000 EV project.

Now put yourself in the skin of the Local Government decision makers, how do you justify to have Kandi as an exclusive supplier, bypass the heavyweights of the local car industry and ask the Hangzhou Power Authority to coordinate with the SGCC to build-out the EV Charging and Swapping Stations providing each with the necessary battery swapping robots to suit the Kandi EVs?

Wouldn't you think the Goliaths of the established local car manufacturers were doing great efforts to remind the authorities about previous promises and ask them to economically justify why spending the money on subsidies and infrastructure to uniquely suit EV cars build by a small manufacturer from Jinhua?

The HLG didn't select Kandi for this Hangzhou EV project without a struggle but as transpired from several speeches of He Xiulin, Hangzhou Municipal Economic Commission Director of the Auto Industry Kandi offered the best "Value for Money" and its QBEx patented technology suited perfect to the EV battery swap approach promoted by the Hangzhou Power Authority and SGCC.

You can imagine the envy of the well-established Goliaths of the Zhejiang and Hangzhou automobile industry. At that time, the little David Kandi wasn't even a member of the "Zhejiang Association of the Automobile Manufacturers" and didn't have the top level Automobile Manufacturing Licence for production of "Full blood Sedans".

The Hangzhou Government must have been bothered with a lot of questions from this powerful lobby and on top of that in December 2011, even Prof. Quan Shi Chen openly questioned if Kandi would be a good choice and if they had sufficient production capacity and technical capability.

Certainly Kandi had the good product and business model to be the "Golden Child of the SGCC" and it was once more proven when late December 2011 the SGCC displayed a Kandi EV + QBEx technology in their booth during the National Exhibition in Haikou, Hainan Island Province.

Early 2012 the Hangzhou Gov. also bought 40 economically priced Geely Panda EVs for life testing in an EV rental program but the SGCC didn't support the initiative as the batteries weren't swappable.

In the meantime Zoyte had evolved from being a rising EV Star in Hangzhou supplying EV Taxis for the Hangzhou EV project to a falling EV Star because of the Taxi fire and related battery troubles. They didn't agree to build an EV with a chassis designed for battery swapping and the SGCC kept telling them it didn't make sense as we could finally read here: "Hangzhou Electricity Generating Authority of the successful development of the application of electric vehicles, fully automatic chassis for electricity"

In the meantime Mr. Hu had already approached Geely and prepared a 4-doors demo car KD7002EV possibly converting a Geely Panda EV chassis to fit the QBEx. This car was shown in August 2012 at the Hangzhou EV exhibition.

Simultaneously Zoyte had committed (under influence of the LG?) to allow Kandi using its manufacturing licence to rebrand the KD5001EV into JNJ6290EV and increase its minimum speed to comply with the criteria of the China GB/T 28382-2012 standard for BEV. That cooperation seems to continue...

Now that Kandi was cooperating with local Geely and Zoyte and was supported by the SGCC and AVIC it became a lot easier for the Hangzhou Authorities to commit to Kandi for the 20,000 EV project and a public announcement was made during the EV exhibition.

This project is and remains a Hangzhou Government initiative and as we learned from an AVIC document the coordination of this project is quite complex: "Zhejiang Power Company is responsible for building coverage, Hangzhou, smart-for-power station network facilities, and the intention of purchasing Air lithium and lithium-ion battery. The Air lithium is responsible for the production and the lithium-ion battery, sold to Zhejiang Provincial Power Company, and the intention to be purchased Condi electric vehicles commissioned Hangzhou electric vehicles Industrial Development Company (hereinafter referred to Hangzhou Industrial ") is responsible for the marketing of pure electric vehicles and vehicle leasing operations Management. Hangzhou Municipal Government is responsible to provide the electric vehicles of the private rental local financial subsidies, and introduced Industrial support policy".

The complexity of the project and some internal restructuring in AVIC resulted in further delays and then suddenly parties involved got confronted with the fact that the subsidy programs for EVs were only valid till yearend 2012.

In the meantime Kandi's Chairman Mr. Hu and Geely's Chairman Mr. Li Shufu must have done some progressive thinking and negotiations to conclude the JV.

As I wrote in an earlier message for Geely the JV allowed for some synergies with affiliated businesses and a break through into an EV market focused on short distance BEVs mainly for urban transport.

They both must have thought why not starting an EV rental/leasing activity out of the "Kandi-parking and charging boxes" shown during the Hangzhou exhibition in August 2012.

Both gentlemen prefer to act instead of talk and I'm sure they think the same way as expressed by Elon Musk during the latest shareholder meeting: "If we want to wait until everyone agrees for the right solution there is a chance it will never happen!"

It should be clear to all of us that they are vigorously working to let the JV succeed and expand the market for the JV all over China.

I believe that they both learned a lesson from the treacherous path that Mr. Hu had to walk and through my perception of recent interviews with Mr. Li Shufu and Geely staff and current activities in Zhejiang and Shandong Province I will make another bold prediction that the JV will implement a business model that will encompass "Manufacturing of EVs, EV motors, EV parts, EV batteries and BMS" + "EV Rental / leasing backed up by EV multi-level parking transit stations with integrated long term EV charging and battery swapping".

In this context, a couple of months ago Hangzhou changed some rules to allow private enterprises to build and exploit multi-level parking garages.


Go back to the first paragraphs of my message and check if this concept can meet the 4 conditions and I believe the answer is YES, YES, YES and YES, all boxes are ticked!

For the "good infrastructure" they are no longer 100% reliable on the SGCC to build a sufficient number of EV Charging and swapping stations and they can buy the SGCC standardized battery swapping equipment which is now already for sale through the SGCC satellite companies.

With the above concept, the other EV manufacturers can no longer claim that the SGCC shouldn't set-up swap stations to serve one car manufacturer. The SGCC can no longer be blamed to seek a monopoly position and is the logic provider for electric power via the smart grid. They can either purchase and lease the batteries or have a contractual arrangement for each multi-level EV parking to play a role in energy storage/buffering for the smart grid.

Of course the Government should be a staunch supporter of such strategy as helps to resolve their EV targets and initiate reduction of pollution by ICE cars.

If the JV progress in accordance with the above described business strategy and proves the concept can be successful in Hangzhou it will not take long to repeat the template in all other EV pilot cities. Such a business strategy needs quite a bit of funding but subsidies will be available for purchase of EVs, for EV battery leasing, for EV leasing, for EV Charging and Swapping Equipment etc...

Till now we haven't learned in detail how Geely will realize its contribution to the JV but I wouldn't be surprised that part of their contribution will go to the construction of the "Kandi-boxes" and the start-up of the EV rental/leasing activities.

I have made a few other predictions in the past and till now my score remains high: see messages 9061, 10087, 11332.

Marc Chang

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Last updated June 14, 2013.