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From Shapingba to Silicon Valley: the rise of the Chongqing-style auto making

In 2003, Dongfeng Motor Corp. president Miao Wei (currently minister of Industry and Information Technology) decided to set up a joint venture with Japan’s Nissan Motor Corp. Even though vehicle JVs had been around in China at the time for 19 years, no state-owned automaker had dared to go all in with a foreign carmaker. Meanwhile, Dongfeng had been negotiating a microvan project with a Chongqing company. Months later, the two projects were completed almost simultaneously: Dongfeng Motor Co., Ltd. (DFL) was formally established on June 9, 2003 and went into operation on July 1, while Dongfeng Sokon Co., Ltd. was established and began operation on June 27. Most people know Dongfeng Sokon but little about the other partner – Chongqing Sokon Industry Group Corp.

Sokon started its business as Chongqing Ba County Phoenix Electrical Appliance Spring Factory in 1986 by producing electrical appliance springs and microvan seat cushion springs in its early stages. It turned to manufacturing shock absorbers for motorcycles, microvans and mopeds later for 10 years. In 2002, Sokon developed the first generation of airbag-based shock absorbers independently, which filled a gap in the domestic market and became a leader in this industry. In the same year, it expanded its business to motorcycle manufacturing. However, the turning point came in 2003 when it entered the automobile assembly business through that JV with Dongfeng. With the growth of Dongfeng Sokon, Sokon’s automotive business grew rapidly. In 2004, Sokon Power Co., Ltd. was established. Three years later, Sokon Group was formed and in 2016 Sokon was listed in the domestic A-share market. From manufacturing vehicle components and parts to motorcycles to microvans, and finally to passenger vehicles, Sokon became the typical Chonging-style automaker, and was the first private company in Chongqing that went into vehicle manufacturing. It was hard to say that Dongfeng had any long-term plan with Dongfeng Sokon when it started, but by accident or not, they invented a new model: a Chinese-Chinese JV formed by a state-owned company and a private company.

Logically, it was natural that Sokon’s president Zhang Xinghai decided to enter the auto industry. First, Sokon had moved up the manufacturing chain from components and parts to motorcycles and eventually to passenger vehicles. The auto industry at the top of the manufacturing chain offered irresistible allure to people in the manufacturing industry, and it was no different to Sokon. Second, Sokon had to look for new growth areas as its motorcycle business dwindled. After researching the history of development of the overseas auto industries, Zhang estimated that China’s auto market would continue to grow at a rapid pace over the next 10-20 years. The microvan sector had a relatively low entry barrier and was a more practical choice for Sokon. Meanwhile, Dongfeng’s product portfolio lacked vehicles in that segment and it had intention to set up a JV with a private company to make it up, because it found out that it couldn’t complete with established companies already with the production scale such as Chang’an and Wuling just by itself. Thus, the 50:50 JV Dongfeng Sokon emerged at a historical moment. In Chongqing, latecomers like BAIC-Yinxiang, Brilliance-Shineray all followed this model.

In 2007, Sokon hired famous Chinese actor Wang Baoqiang as a celebrity spokesman, and bombarded advertisement on CCTV-5 for years. When the Fengguang 580 SUV was launched in 2016, it sponsored hundreds of internet “cewebrities” to live stream the launch online, which was wildly successful despite the move being criticized in the industry as “shameless.” However, the unorthodox move began a fad where “cewebrity” live stream of new model launches became a standard practice.

In its early stages of automobile manufacturing, Sokon borrowed experience from its motorcycle distribution model and collected back large amount of payments within a few days of distributors’ competitive bidding. This solved the cash flow issue and set a precedent in the industry. But Sokon promised its suppliers a two-month credit period instead of three months as is the normal industry practice, and this one-month difference quickly built Sokon’s reputation among its suppliers.

Dongfeng Sokon has had very good relationships with its suppliers and dealers ever since the business started. This is very much related to its experience of components manufacturing and motorcycle selling. In fact, even today, Sokon Group is still a very important supplier of automotive components. The multiple identities make it the most understandable of the pain points in each link of the industry chain, and gave rise to the super-alliance model and an eco-friendly growth strategy, which had a core impact on enterprise development.

Product launch in 2005, sales of 330,000 units in 2011, a market share of over 11 percent and ranking third in the microvan industry. It took Dongfeng Sokon just six years to achieve economies of scale and form a basic foundation for future development. Of course, the initial success was related a lot to Chongqing factors. It took full advantage of Chongqing’s mature supply chain system built by Chang’an, which guaranteed quality products and competitive pricing. Another core element of Dongfeng Sokon’s success was due to its market-oriented philosophy and focus on customer needs. As a result, Dongfeng Sokon quickly rose to one of the three top selling microvan manufacturers and its Fengguang series SUVs had a very impressive market performance soon after market launch.

Looking back over the last 14 years, the greatest advantage of the Chinese-Chinese JV model is giving a number of private companies opportunities to access the auto industry. At present, this group of private car enterprises has been an indispensable and effective strength in the industry, and the potential is limitless. In January 2017, Jinkang NEV under Sokon became the eighth of 15 companies that have obtained approval to produce battery electric vehicles so far. This signals the beginning of a new phase of competition in the car market. In mid-June, Sokon established SF Motors in the U.S. as the main business operator of Jinkang NEV in that market, with headquarters set in the heart of the Silicon Valley. Its CTO, Tang Yifan, was the former principal electric motor engineer at Tesla. This new company also owns an R&D center in Ann Arbor, Michigan, which focuses on engineering and e-powertrain design. On June 22, Sokon revealed that SF Motors acquired a civilian car factory under U.S. top car solution integrated provider AM General for $110, including its civilian car factory related land, plant, equipment, facilities and so on.

Founded in 1903, AM General focuses on vehicle design, manufacturing and support for global car customers. It used to manufacture Hummer H2, Mercedes-Benz R-Class and other renowned brand cars, with an experienced management team and skilled industrial workers. SF Motors announced that it would invest additionally to overhaul AM General plant equipment and manufacturing processes to manufacture high-end electric vehicles. SF Motors CEO Zhang Zhengping said that the transaction would keep the current local management team and skilled factory workers, together with the new modified equipment in the future to ensure electric vehicles of the best quality. Automotive Business Review learned that Jinkang NEV will benchmark Tesla and its first product will be unveiled at the 2018 Beijing Auto Show and sold primarily to the U.S. market after quantity production begins.

Actually, Jinkang NEV was established in 2012, which proved that Sokon at the latest started its strategic layout in the new energy vehicle field five years ago. In June 2016, Sokon Group was listed successfully on the Shanghai Stock Exchange. After going public, it quickened its footsteps in the NEV industry. It took the first action the following month: acquiring 100 percent equity of Chongqing Dongkang NEV previously held by Chongqing Ruichi Automobile and increased Dongkang NEV’s registered capital to ¥300 million as an investment of electric passenger vehicles. In September, Martin Eberhard, a founder and former CEO of Tesla, was hired by Sokon as an NEV consultant.

In October, Sokon acquired 100 percent equity of American AC Propulsion, HongKong E.motor and Beijing E.motor Advance Corp., as well as all of their NEV related companies and entities, trademarks, patents and other intangible assets. At home, Jinkang took a series of purchases focused on electric motor, control and battery core technologies, while abroad, SF Motors and AM General kept recruiting talent. It is obvious that Sokon’s ambition on NEVs is much bigger than when it moved into automobile assembly.

From Shapingba to Silicon Valley, Chongqing Sokon Industry Group Corp. has quietly grown into an international automotive company with a global vision.

(Rewritten by Xiao Jing based on author’s article published on Automotive Business Review)

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