• Thu
  • Dec 18, 2014
  • Updated: 4:59pm
The Biz View from Peking U
PUBLISHED : Thursday, 19 June, 2014, 9:58am
UPDATED : Thursday, 19 June, 2014, 10:00am

Why Tesla should be worried about Chinese Wanxiang

Every now and then an industry boils down to a fight between two guys. Think Steve Jobs versus Bill Gates in personal computers. Or Juan Trippe versus Howard Hughes in airplanes. Or William Hearst versus Joseph Pulitzer in newspapers. In each case, the industry became defined by a personal rivalry between two hyper-aggressive individuals.

Looking at the electric car industry today, we might be seeing a similar situation. Electric cars are a massive new market and two billionaire iconoclasts – Elon Musk of Tesla and Lu Guanqiu of Chinese Wanxiang – are emerging as its leaders.

On one side, you have Elon Musk, founder of Tesla Motors, serial entrepreneur, billionaire and all-around technology visionary. His string of startling projects have included electric cars, rocket ships, PayPal and even a “hyper loop” that can transport people 10 times faster than the fastest trains. In electric cars, his company Tesla Motors is arguably the technology leader. His first electric car, the Tesla Roadster, went into production in 2008. And his second car, the Model S, hit the market in 2012-2013.

On the other side, you have Lu Guanqiu, billionaire and founder of China’s largest auto parts company Wanxiang. Lu is the quintessential self-made man. He was born into a peasant family. He dropped out of school at 15 and became an ironsmith. And after years of gathering scrap metal, he founded a small company with US$500 that would eventually become one of China’s most valuable companies. Today, Wanxiang is dominant in auto parts in China but has also expanded into agricultural engineering, bridge and road construction, hotel management, financial services, and power plant construction. It has over 40,000 employees and over US$16 billion in revenue.

Lu is also intensely focused on electric cars. In the last two years, he has acquired both American Lithium-battery maker A123 and American electric car company Fisker Auto. He has also begun manufacturing electric trucks in China and Wanxiang already has over 3,000 employees in the US, about the same as Tesla Motors. He made headlines recently with his proclamation, “I’ll put every cent that Wanxiang earns into making electric vehicles. I’ll burn as much cash as it takes to succeed, or until Wanxiang goes bust.”

So we have two iconoclast billionaires both focused on electric cars. And it is geography that is turning this into a mano-a-mano fight. Lu Guanqiu is aggressively going west, to capture technology and the US market. And Elon Musk is going east, to capture the China market. Because whoever is going to win will need both geographies. America is the key to electric car technology. But China’s large population and pollution problems make it the future of the electric car market.

So Lu and Musk both have basically the same strategy. Build electric cars with Western technology, deploy them initially in the West and then expand into China. Tesla has recently received its first China licence and is attempting to put electric charging stations across the country. Lu, in contrast, already has a dominant operating platform in Chinese auto and is attempting to assemble an electric car company through Western acquisitions.

And here is why Tesla should be worried about Wanxiang (the point of the article at last). Because while they both have the same strategy, Wanxiang’s path is a lot easier than Tesla’s.

Acquiring Western companies is not difficult, especially if you are already a massive conglomerate. However, entering a strategic Chinese industry as a foreigner is exceptionally difficult. You could point to the success of foreign automakers such as GM and Volkswagen in China. They have been increasing their market share recently, mostly at the expense of Chinese automakers. However, Chinese automakers are thirty years behind the technology and operational depth of companies like GM and Volkswagen. That is not the case with electric cars where leaders such as Tesla are at best five years ahead. A foreign electric car maker entering China is going to have few advantages and lots of disadvantages. Especially against an incumbent with the operational scale of Wanxiang. There are few companies that have succeeded in what Tesla is attempting in China.

Overall, the Tesla versus Wanxiang fight is going to be highly entertaining. Both Lu and Musk are visionaries who are already leaders in their industries. They both have long track records of success in hyper-competitive industries. They are both very, very smart. And they are both at the top of their game. So this rivalry should be great for consumers, and pretty fun to watch.

You can read more about the fight for Chinese consumers in my #1 best-seller the One Hour China Book. Now available on Amazon for the price of a medium latte (www.onehourchina.com


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This article takes a simplistic view on the marketplace of EV's in my opinion. Simply "acquiring" western technology will not replicate the sheer experience needed to build the complex battery packs in EV's which constitute the bulk of the cost of an EV. Through the acquisition of A123 Wanxiang inherited a lot of issues, starting with chemistry which is less dense and more expensive (albeit more stable at times) than the 18650 cells used by Tesla. Now here is where it gets complicated, A123 moved their factories back to the US in order to accept the grant money from the DOE during the financial crisis, during this process the manufacturing experience was somewhat lost and quality declined. I'm sure Wanxiang can bring this back to China but even then we are talking about a pico-scale factory compared to the Tesla Gigacomplex to be built which should bring the per KWH cost of batteries down to a point where Wanxiang will have a huge time trying to compete, now lets add to the fact that Tesla has a strong supply chain and most of the Lithium comes from Chile which is closer to the US than China. The reality is Tesla also wants Wanxiang to succeed so the overall adoption of EV's increases but it will have it's own challenges, maybe the real competition isn't against Tesla V Wanxiang but rather ICE's VS EV's.
Hmmm. Let me think. Which company would I -literally- trust with my life (since that is what you are doing when stepping into a newly developed piece of technology that can travel at 120 mph)...?

Ah yes, I think I know.
The new Fisker has four obstacles not mentioned here:
1. The old Fisker and its association with failure.
2. American consumers don't trust Chinese cars.
3. Chinese consumers don't trust Chinese cars. ****wallstcheatsheet.com/stocks/chinese-car-buyers-dont-want-made-in-china.html/?a=viewall
4. Musk is already a rock star in China. ****adage.com/article/global-news/chinese-excited-tesla-s-model-s-launch-april/292352/
What consumer would choose a Chinese car over an American made Tesla?
John Adams
Excellent article !
Thank you
Why - no mention of BYD ?
I'll bet BYD has more electric cars on the roads of China & HK than either of these 2 companies.
This is more of a puff piece for the author to promote his new book.
" In electric cars, his company Tesla Motors is arguably the technology leader." Arguably....?? Have you ever driven a Tesla S Mr Towson ...?
i drove a top spec Tesla S for 200 miles last week in California, followed by a Bentley GTC. I have owned Mercedes S class cars.
The Tesla is better than both.
The stark difference is that Elon Musk is young and Lu Guanqiu is old. The latter has the spirit but is handicapped in many aspects concerning the successful development to the marketing of the electric car. Lu should just be satisfied to preserve his wealth and leave all these serious work to the younger generation of visionaries. Maybe he only wanted publicity.
Does it look like Tesla is worried? They are giving away the farm! ****www.teslamotors.com/blog/all-our-patent-are-belong-you
So this is not news, per se, but rather a giant speculative column and self promoting ad? SCMP is truly getting as lazy as any Mainland news rag that has to run stories approved by the Propaganda Ministry.




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