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Are Hybrids About to Revive in China?

Date:10-13 14:28 Authour:Zhu Shiyun

Why are multinational auto makers choosing to re-launch hybrid products at this juncture? Is it due to the pressure on fuel consumption or because they truly see the market prospect? In the past they failed in the market, so what are the odds of winning this time? Facing another “substitute” for fuel vehicles, are Chinese auto makers fully prepared?

This time the hybrid models cover a greater range, and prices are falling and auto makers are putting more effort into sales promotion.

Are Hybrids About to Revive in China?

Multinational auto makers have started to produce strong hybrid models in China again, even though they are no longer entitled to any new energy vehicle subsidy.

On September 29th, the Accord “Sport Hybrid” which carries Honda’s latest i-MMD hybrid power system was due for launch. Also that month, GM launched hybrid models of the Buick LaCrosse and the Chevrolet Malibu XL, and is going to launch the plug-in hybrid of the Cadillac CT6 very soon, while Ford dropped the news that it would launch its hybrid version of the Mondeo and a plug-in hybrid version of the C-MAX Energi this year. The Toyota Corolla Hybrid and the Levin HEV which were launched last year saw great sales this year – 28,000 vehicles were sold in the first half of 2016.

In contrast to past experience, this time the hybrid models cover a greater range, and now that growing numbers of them are being produced in China, prices are also falling and auto makers are putting more effort into sales promotion. The Toyota hybrids, whose prices are already set in the same range as fuel vehicles, have already proved successful.

So why are multinational auto makers choosing to re-launch hybrid products at this juncture? Is it due to the pressure on fuel consumption or because they truly see the market prospect? In the past they failed in the market, so what are the odds of winning this time? Facing another “substitute” for fuel vehicles, are Chinese auto makers fully prepared?

It is not “testing the water” any more

Multinational auto makers are no longer entitled to “new energy vehicle” subsidies, but if you see how hard they are working this time to promote hybrids in China, you will find that it is no longer simply “testing the water”.

In 2005, FAW-Toyota put Toyota’s flagship hybrid model – the Prius - into production. The next three years saw the launch of a series of hybrids, including the Prius, the Lexus RX400h and LS600h, the Honda Civic and the Buick LaCrosse. But these cars were not particularly well received in the market. In 2011, also for the purpose of improving fuel efficiency and protecting the environment, Volkswagen introduced the turbocharged engine, which significantly boosted its sales. In contrast, Toyota sold only 3,000 hybrid vehicles, and other brands did not do better.

Hybrids tested the water in China for the first time, and it did not quite work out. However, ten years later, things are rather different - Toyota, Honda, GM and Ford are now much more aggressive as they re-launch their hybrid products.

This time, auto makers are launching a wider range, covering luxury brands as well as high-end and mid-end models. Toyota launched the hybrid Lexus, Camry HEV, Corolla Hybrid and Levin HEV while GM launched hybrid versions of the Cadillac, LaCrosse and Malibu XL. Honda is about to launch the Accord Sport Hybrid soon, which will carry Honda’s latest i-MMD hybrid power system. Later it will roll out hybrid models of the compact Civic and the luxury brand Acura. Ford is also going to roll out the hybrid version of its major model, the Mondeo, and introduce the plug-in hybrid MPV – the C-MAX Energi - which has been a hot seller in the U.S.

“In China, hybrids are becoming the new focus of competition. More brands joining this competition will certainly play a positive role in improving the popularity of hybrids and promoting the rapid development of this market,” said SAIC-GM PR to China Auto.

The revival of hybrid vehicles certainly has something to do with the strict fuel consumption limits imposed by China. It is proposed in the Energy-saving and New Energy Automobile Industrial Development Planning (2012-2020) issued by the State Council that the fuel consumption of passenger vehicles should be reduced to 5L/100km by 2020. In order to achieve this goal, from 2015 to 2020, fuel consumption will have to be reduced by an average of 6.2% per year. As an indicator, between 2006 and 2014 Chinese passenger vehicle fuel consumption standards were in place for almost 9 years and average fuel consumption fell by 0.1-0.25L/100km per year, an annual reduction of only about 2%. If China wants to increase that rate from 2% to 6.2%, new energy vehicles (NEVs) and hybrid vehicles are going to be an important “accelerator”.

At the auto show in Shanghai this year, Takahiro Hachigo, President of Honda Motor Co., Ltd., indicated that Honda was going to gradually expand its range of hybrid models in China - “By 2020, Honda will have about 10 different hybrid and plug-in hybrid products produced in China.” Not long ago, SAIC-GM revealed that it would invest RMB 26.5 billion Yuan in developing advanced power trains and new energy technologies, and that in the next 5 years it was going to launch no fewer than 10 hybrid models. It is targeting NEV sales of 150,000 vehicles by 2020 and plans to increase this number to 500,000 by 2025. Last year, SAIC-GM sold 1.75 million NEV products worldwide.

It is mentioned in the “2020 Strategy” announced by Ford this October that from 2016 to 2020 Ford Motor Company will invest 1.8 billion dollars in local research & development and technology introduction in China. In the next five years, it will roll out 20 new models, including new energy vehicles. It is clearly stated in the “Strategy 2050” announced by Toyota that it will sell 1.5 million hybrid cars a year by 2020 and aims to effectively eliminate gasoline cars by 2050.

Will their wishes come true in the market?

“Substitutes” for Fuel Vehicles?

Replacing fuel vehicles is one of the important objectives for developing NEVs. However, limited by various factors such as battery storage capacity and charging infrastructure, the development of new energy vehicles in China is still “subsidy-driven”. Now, without any subsidy, will hybrid products be able to “substitute” for fuel cars?

“By applying GM’s latest hybrid power technology, the full hybrids of the new Buick LaCrosse and the Chevrolet Malibu XL will completely change people’s perception that hybrid products are only about saving fuel,” SAIC-GM PR told China Auto.

The HEV hybrid electric propulsion system carried by the full hybrids of the new Buick LaCrosse and the Chevrolet Malibu XL consist of one 1.8L SIDI engine, synchronous/asynchronous drive motors and a smart electric drive unit, with a maximum power of 184HP. The full hybrid LaCrosse is able to complete a 0-100km/h sprint within 8.9 seconds, and consumes 4.7L of gasoline per 100km, better than the performance of the fuel-driven1.5T model. The full hybrid Malibu XL is able to complete a 0-100km/h sprint within 8.8 seconds and consumes 4.3L of gasoline per 100km, also better than the performance of its fuel-driven1.5T model.

Hybrids have better power performance and fuel economy, but from the market point of view, will hybrids be able to replace fuel vehicles? The real holdouts are reliability and price.

In order to demonstrate reliability, Toyota’s and GM’s hybrids currently on the market all provide 8-year or 160,000km warranties for core parts like electric drive systems/electric control systems and batteries, and 8-year or 200,000km warranties for hybrid power batteries. As a result, price has become the core factor that determines whether this hybrid strategy will succeed.

The Prius was the first hybrid model to be introduced to China, but as all of its core power parts were imported, it sold at a price of about RMB 200,000 Yuan, which was comparable to the price of a B-class car. This is an important reason why the Prius did not sell well in China. After learning a lesson from this, Toyota invested 4.4 billion dollars to build the Toyota Motor Engineering Center (TMEC) in Changshu in 2011, which was Toyota’s first hybrid power train R&D and production base outside Japan. Through this center, hybrid power systems were localized, reducing the prices of the Corolla Hybrid and the Levin HEV to the price range of fuel cars of the same models.

For many years, the annual sales of the Prius and the Camry hybrids have never exceeded 10,000 vehicles, so it is a really “bold” move that TMEC plans to produce 5,000 hybrid power trains per month. It seems that the market response exceeds expectations.

Last December, just one month after launch, the Corolla Hybrid and the Levin HEV saw sales of 2,831 and 3,116 vehicles respectively. It seemed that the supply of hybrid models was falling short of demand, and this situation continues even today. In the first half of this year, 17,664 Corolla hybrids were sold, accounting for 12% of total Corolla sales, and 10,391 Levin HEVs were sold, accounting for 13% of total Levin sales.

While Toyota’s locally-produced hybrids are selling well, the Lexus hybrid model is also doing well in the market. Last year, Lexus sold more than 20,000 hybrids, accounting for 23% of its total sales, and in the first seven months of this year it sold nearly 14,000 hybrids, year-on-year growth of 31%。

There has been speculation that the total sales of Toyota hybrids (Toyota + Lexus) in the Chinese market will reach 100,000 vehicles this year, which will represent 10% of its total sales in China. Judging from the present position, this forecast might become a reality.

Apparently, the strong sales of Toyota’s locally produced hybrid models have encouraged other brands to promote their hybrids.

SAIC-GM PR told China Auto that currently the main parts of the hybrid power systems carried by the Cadillac CT6 PHEV, and by the all-new Buick LaCrosse and Chevrolet Malibu XL full hybrids were all imported, including the electric drive units, battery packs and 1.8L SIDI engines, but that SAIC-GM was now taking action to accelerate the localization of these core parts of NEVs, including investing RMB 1.72 billion Yuan to build Jinqiao Battery Assembly Plant.

Where are the local hybrids?

“Developing battery electric vehicles (BEVs) gives us opportunities to learn motor and electric control technologies, which are also core technologies that can be applied to hybrid models,” said an industry insider to China Auto.

Currently, non-plug-in hybrid models are not included in the list of new energy vehicles entitled to subsidies in China. The micro hybrid, i.e. the parallel-connected range-extended plug-in hybrid, is the main form of plug-in hybrid produced by Chinese auto makers and sold in the Chinese market.

Zhong Wenbin, Asia Pacific Powertrain Integration Manager of Fiat Chrysler, told the media, “It is impossible to bypass non-plug-in hybrids. Only when we produce good non-plug-in hybrids, will we be able to produce plug-in ones. A real plug-in hybrid is the combination of a non-plug-in hybrid and a BEV, so there must be a hybrid power system inside. But for some new energy vehicles, there is no such system. If there is no electricity, the vehicle will consume fuel (and the consumption is high).”

However, local auto makers have not completely given up on full hybrid products.

In 2014, Geely and Toyota’s overseas hybrid power battery supplier Hunan Corun New Energy co-founded a joint venture - Corun Hybrid System Technology Co., Ltd. (CHS) and launched a domestic technology platform for hybrid systems.

This February, Chang’an Automobile announced that it planned to increase its capital holding in CHS (of or by or to?) RMB 460 million Yuan together with Yunnei Power and Corun.

It has been reported that the Geely Emgrand EC7, which carries this hybrid system, will be launched soon, with a gasoline consumption of 4.9L per 100km. In 2017, CHS will officially start industrial production, with a design capacity of 300,000 sets per year, including the testing and processing of 300,000 sets of hybrid power boxes and the assembling, testing and production of 150,000 sets of battery packs.

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