The following is a dialogue between Frank Zhao, dean of the Tsinghua Automotive Strategy Research Institute (TASRI) and Lu Qun, chairman of Qiantu Motor, a subsidiary of CH-Auto Technology Co., Ltd. headquartered in Beijing. The dialogue was featured on Phoenix Auto during the Beijing Auto Show in late April. Zhao was formerly vice president of Geely Holding. – Editor
Zhao: Smart EV startups coming from the internet business think they have the edge on information technology. Traditional automotive OEMs, on the other hand, believe their existing manufacturing expertise gives them a head start in smart EVs. As a design and engineering service company, what is the strength of CH-Auto? Why do you enter the EV business now?
Lu: Our analysis of the current industry indicates this is the right moment for us. First, new energy vehicles are going to be the greatest event in the evolution of the automobile industry over the past 130 years. It is not a simple issue of replacing combustion engines with battery and electric motors. The cost structure, materials, manufacturing, vehicle weight and many other basic elements in manufacturing are also undergoing and overhaul. The traditional powertrain is giving way to new core technologies, creating a new supply chain.
Second, China will be the most important market in the new age of electric vehicles. Although it is too early for Chinese manufacturers to surpass big international automakers in technology, the reshuffling of the entire industry offers China a huge opportunity.
Third, the internet is changing the existing model of vehicle sales and distribution. It will also change the relationship between vehicles and between vehicles and the road. This opens up new opportunities and we have decided to take advantage of this opportunity.
Our strength lies on both sides of the equation. We have been providing technical and R&D services to automakers for a long time and our understanding of carmaking is next only to OEMs. But we are not constrained by the existing manufacturing legacy as do the OEMs when trying to shift into EV production. As far as the internet is concerned, we have been involved in automotive electronics and smart vehicle technologies for a long time. As an engineering and technology service provider for our customers, we are always ahead of the industry.
Zhao: Someone from the internet business would argue you do not have a good understanding of the internet, have no idea what user experience is and how to build an eco-system. What is your take on this?
Lu: Internet thinking is very important. But I do not believe that you have to come from an internet business to understand the internet. Traditional companies can have internet thinking as long as they are open to new things and willing to redefine automotive product based on users’ demand.
Zhao: Qiantu Motor is going to invest heavily on an assembly plant in Suzhou. There is already over capacity in manufacturing in China, why didn’t you choose to contract manufacturing?
Lu: I agree there are excessive capacities in China. But most of them are rudimentary and of low quality production. True competitive and cutting-edge manufacturing facility in China is rarely found. New energy vehicles will have more stringent requirements on vehicle weight. Non-traditional and lighter materials such as aluminum-magnesium alloy, plastics and carbon fiber will gradually replace steel. This in turn will require brand new manufacturing process and equipment which are not yet available in the world. Manufacturing technology is as important as the product itself. As much as we would like to find someone making EVs for us to reduce cost, there is simply no one up to our standards.
Zhao: Almost all new startups coming from the internet business argue that traditional OEMs have failed in providing user experience and services. What is your comment?
Lu: I think traditional automakers do pay attention to user experience. User satisfaction is of high importance to OEMs throughout the vehicle development process. Research firms like J. D. Power feeds back user input to OEMs after the vehicle is sold. The introduction of 4G and future 5G network will make vehicles connected all the time. This will provide a platform for a series of new services such as navigation, vehicle monitoring and active safety. This will be new to traditional automakers.
When car-sharing becomes popular, vehicles can be utilized much more effectively, reducing user cost. In addition, unlike cars today which have to be compromised to incorporate some general features to appeal to the masses, future cars can be made truly specialized to meet particular user demand.
Event Motor is not going to make a mainstream car of today. We will make cars that are highly specialized without compromises. By removing functions unimportant to target customers, we are redefining the vehicle and providing a brand new user experience.
Zhao: When will your first model be on sale? How different will it be from current vehicles? If it is a very specialized car, will the market demand large enough to be profitable?
Lu: We are building the factory now and will start production of our first model in the second half of 2017. It will take another six months up to one year for testing and fine-tuning before we can deliver it to customers.
The first car will be the electric sports car on display here at the Beijing Auto Show. It will be a niche market car for now but it may become a mainstream car in the future as we all have an inner thirst for speed and control. The second model will be delivered in 2018 and it will be a very different vehicle from all cars on the road today. In addition, it will provide a platform for future models.
People always ask me if our cars are B-, C- or D-class, or an SUV or a sedan. This categorization itself is outdated, and the internet thinking calls for new definitions.
Zhao: What kind of different experience that your first sports car will bring to customers?
Lu: Sports cars are not all about acceleration. Someone argues that if an electric car equipped with a powerful enough electric motor, then it can reach 100 km/h less than three seconds. I do not think so because it is more complicated than simply adding a powerful motor. For instance, tires will be an important factor. For a sports car, control, safety, braking and steering are as important as acceleration. In addition, aerodynamics becomes important at high speed. Wind tunnel test and simulation are needed to address the issues. To me, the quality of the car is the key to a good user experience, and it takes higher priority over adding extra features or eye catching designs.
Zhao: Coming from an engineering service company without experiences in vehicle production, how do you compete with other OEMs?
Lu: It will take time for us to learn and grow. We first showed our electric sports car concept back in 2012 and a prototype in 2014. One year later, we showed an early stage pre-production prototype. The car we are going to show tomorrow is a pre-production model which is closer to the final production version.
Automobile development is a complex process involving many design, validation, simulation and calibrations. These are exactly what our company has been doing all along, so we have a very good understanding on the process. On top of that, we have the help of first-class suppliers such as Bosch and IAC, and support from experienced large international engineering firms. Together, under our leadership, we can build high quality vehicles.
Zhao: What is the biggest challenge you have met so far?
Lu: Designing and making cars are hard, but we have experiences. The real challenge is in sales and brand building. To build an upper-class new energy car brand from scratch, we have to find ways to make our ideas resonant with our partners, customers and the government. We have made some progress, but there is still much to be done.
Zhao: Making a good product is hard, selling it is even harder. What kind of sales model are you going to adopt?
Lu: I think it must be a combination of various approaches. First, we have to be able to communicate with our users face to face. This cannot be replaced by online chatting. Second, we should utilize the internet and have an online sales channel. With these two in mind, we should redefine dealer role and eliminate unnecessary functions. For example, EVs do not require oil change, hence the maintenance period could be extended to as long as every 50,000 km. Thanks to more flexibilities in production, dealers do not have to be forced stocking up a large inventory. Future dealers need to add new services such as software upgrade and provide continuous and consistent services throughout the life cycle of the EV.
Sales and distribution play a very important role for OEMs because it is where profit is generated. I think they will be even more important in the future because it will involve life-long services.
Zhao: What do you mean by continuous service?
Lu: Currently, once a car is sold, the relationship between the customer and the OEM is essentially over. But in the future, with vehicles connected, OEMs can monitor vehicles and offer real time support. Moreover, additional in-car entertainment services can be offered.
Zhao: Of all services, how much would be provided by Qiantu Motor and how much would require involvement of a new industry eco-system?
Lu: Vehicles of our brand must offer customers a unique experience, but there is no way that a single brand can provide everything through the entire life cycle of a car. Except for sensitive information such as safety and performance data, we want our in-vehicle network system to be open and able to communicate with all other cars on the road irrelevant of the brand. This cannot be done without cooperation and coordination of the industry as a whole.
Zhao: What kind of support do you think the government and industry should provide?
Lu: We do not ask for a lot from the government, as long as it does not get in our way. In addition, I tend to view our fellow EV makers as alliance rather than competitor because we are exploring the new field together. The true competitors are those that oppose vehicle electrification.
Zhao: Since you are aiming for a particular market segment with a specialized car, mass production is unlikely. Without volume, how do you ensure profitability?
Lu: Although our first car is an upper-class sports model, but future models will be very competitive in terms of price. They will not be your “normal” car, but definitely affordable. Our plan is to become profitable before 2019.
Zhao: Thank you!
(Translated by Kevin Wang based on the article published in ifeng.com)