Article / 16 January 2015 at 1:38 GMT

Two Chinese electric vehicle firms to watch in 2015

China Watcher / Shanghai
China
  • China is restricting the issuing of car licence plates, to curb smog and congestion
  • The rules are less strict for electric cars, creating opportunities for this market
  • Carmaker Kandi will release electric models this year, aimed at budget buyers


By Neil Flynn

Earlier this month, I discussed how restrictions on issuing new license plates in major Chinese cities would see car purchase growth decline. The restrictions are designed to reduce traffic congestion in city centres and reduce pollution, which is why electric vehicles either have much more lenient restrictions imposed on them, or are exempt entirely.

As these restrictions seem to be having the desired effect in major cities, I'll discuss two electric vehicle firms that have the potential to capitalise on favourable market conditions in 2015.

Streaming site LeTV rebrands itself

At first glance, it seems unusual that a video streaming website would be included in this report, but LeTV, or Leshi (Chinese pronunciation of 乐视) as they are trying to rebrand themselves as, is making very interesting progress in the electric vehicle market.

In December, the firm announced its intention to develop an electric ‘supercar’, after hiring a former senior manager from Japanese car manufacturer Infiniti, who had previously held the position of GM of China and GM of Asia & Oceania. Leshi has also become the second largest shareholder in the US firm Atieva, which has done design and engineering work for the Tesla Roadster, the Audi R8 eTron and the Chevrolet Volt.

The firm’s largest shareholder is Beijing Automotive, which holds a 25.02% stake in Atieva, and the two are currently developing an electric vehicle that will cost about 500,000 yuan ($80,750). Although the branding of the car and whether or not Leshi is involved have yet to be announced, Beijing Automotive expects the car to be more advanced than innovative US carmaker Tesla in terms of technology and to have a driving range of more than 400 kilometres. If true, this would certainly but pressure on Tesla in China, who’s cheapest Model S begins at 649,000 yuan, and have recently announced that sales in China for the fourth quarter are down. 


Leshi's Super Electric Vehicle Concept
 











Leshi’s Super Electric Vehicle concept combines style, luxury and the environmental benefits of electric driving. Source: Leshi 

Whilst its entry into the industry was curious, to say the least, it seems that Leshi has made more progress than people initially thought it would. However, the concept makes sense when we consider the value of the data that cars can collect. Leshi has build its own operating system LeOS, and this would be used in its proposed car.

The in-car telematics system would be able to collect big data and uploaded to the cloud, at a forecasted rate of 10GB per hour, which would allow for valuable analytics of driver behaviour.


On the rise ... Leshi's share price trend (yuan)

Leshi's China Listed Stock Chart













Source: Xueqiu  

Leshi’s mainland listed shares have rallied around 50% since Christmas on the back of the electric vehicle plans, and that CEO Jia Yueting had been released from hospital after being treated for an unspecified illness.

Kandi Technologies' new range

I have previously been skeptical about Kandi because I viewed its range of electric go-karts and buggies as far too niche to capitalise on the potential of China’s electric vehicle market. However, the firm is set to release a new range of small cars in 2015 that will cater for the budget car market, and this is the market that will be most affected by stricter licence plate regulations.

Typical consumers in this market are first time car buyers who don’t own a licence plate. With licence plates in large cities being both expensive and difficult to attain, these buyers are effectively being priced out of the market. Electric cars have much less stringent restrictions, as local governments are aiming to reduce both traffic and pollution, so they offer a viable alternative to this large demographic of buyers.

Kandi is based in Hangzhou, which is a city to the south of Shanghai. Hangzhou is generally regarded as the wealthiest city in China, and its wealth has lead to high car ownership, the local government has imposed a license plate restriction. As a frequent visitor to Hangzhou, my impression is that the city’s road infrastructure is badly designed for its population of 8.7 million, and suffers from horrendous traffic jams in the city centre.

Kandi has formed a joint venture with domestic manufacturer Geely in order to form a car rental service. The concept is interesting because users can visit one of the joint venture’s ‘vending machines’ and pay 20 yuan an hour to hire an electric car. Speaking from experience, taxis are notoriously difficult to find in Hangzhou, and the metro is under-developed for a city of its size, which also makes walking inconvenient. Whilst it would be unrealistic to expect traffic congestion to fall considerably in the short run, it provides a genuine alternative to driving a car into the city centre, and to car purchase decisions.

This rental model has been adopted in other cities, as the joint venture began selling vehicles to several new leasing companies in Chengdu (which has an urban population of 7.4 million), Guangzhou (11 million) and Changsha (3.6 million) in December.

Kandi's Car Rental Scheme


















A novel vehicle vending machine set up by carmaker Kandi. Convenient, budget-priced electric car hire is a sensible solution to smog and congestion in China. Source: Sapidaily.com  

My previous skepticism was largely based on Kandi’s niche range of cars, making it difficult to see how the firm would capitalise on the potential of the mainstream car buyers market. The comparison that I made was with the Berkshire Hathaway-backed BYD, whose full range of family cars made them a common sight in China.

However, 2015 looks set to be an important year for Kandi as it will release several new cars to target this market. As well as releasing two new city cars, the K12 City Beauty (C) and the K13 City Cowboy (R), the firm will release the 5-door 4-seat KD17 Cyclone (L). Of the planned releases, this car has the potential to help Kandi break into the mainstream market. In addition to the three planned releases, photos emerged in September of a Kandi electric SUV based on the Geely Emgrand 7 RV. Whilst little is known about the SUV, if it is produced, it will help the firm to rival BYD and other manufacturers in the family car market.


Kandi's New Range For 2015
Hangzhou-based carmaker Kandi plans to break into the mainstream electric car market this year with the release three new models. Source: Kandi Technologies  

The licence plate restrictions in major cities create a major opportunity for electric vehicle manufacturers. While wealthier consumers will be able to outbid others in order to attain a new license plate, a large demographic of prospective buyers will be looking at electric vehicles as a viable alternative. The release of a 5-door car and a SUV should help Kandi gain market share in this growing industry, but it must take advantage of these favourable government policies in 2015 before competition becomes even more fierce.


– Edited by Robert Ryan

Neil Flynn is head equity analyst at Chinese Investors. Follow Neil or post your comment below to engage with Saxo Bank's social trading platform.
2y
forbes80 forbes80
This comment has been redacted
2y
Arthur Porcari Arthur Porcari
Good to see an English speaking, China Based Analyst starting to pay attention to KNDI. I assume you are aware that 11,307 Kandi branded pure EV's were sold in China in 2014 made it the uncontested #1 in China Pure EV's through its JV with Geely.

Your advice to "watch" KNDI in 2015 is very perceptive. While current annual production capacity sits at around 230,000, with facilities in of 100,000 each in Shanghai and Changxing and 30,000 in Jinhua, two new 100,000 facilities in Rugao and Wanning will be added in 2015 for a total of 430,000. At current pricing levels ranging from around $21,000 USD to around $38,000 for the E7 EV, only around 9% of 2015 capacity need be sold to breach $1 billion US in JV revenues.

Since KNDI itself sells parts, batteries and BMS to the JV for approximately 65% of MSRP, Its anticipated $200 million in 2014 revenues should easily triple in in 2015 with respective parts profits plus 50% share of the JV Profits, making KNDI EPS of well over $2 a share.
24 January
Dawn Dawn
What is your take on Geely now ?
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