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  VW unveiled its CROZZ concept crossover at the Shanghai auto show.
 
SHANGHAI AUTO SHOW
Foreign automakers embrace China as EV development hub
Reuters | 2017/4/21

SHANGHAI -- China's crackdown on vehicle pollution will turn the country into a hub for cutting-edge electric car technologies previously exported from Europe and the United States, some industry executives believe.

A raft of proposals to promote cleaner driving is encouraging automakers to conduct more r&d in China, potentially turning the country into a world leader in EV technology. 

"We are convinced China will become the leading market for electro-mobility," Volkswagen brand chief Herbert Diess told Reuters on the sidelines of the Shanghai auto show this week. 

For years, carmakers have struggled to gain economies of scale to bring down the cost of EVs, which have failed to gain traction with consumers in part because of their price. 

But by floating proposals to require automakers to boost sales of so-called "new energy vehicles," or risk being penalized, Beijing has given them a powerful incentive to focus EV development in China. That could be a big fillip for the local economy -- and a blow to other major car manufacturing nations such as the United States, Germany and Japan. 

Analysts at UBS say the shift from combustion to electric cars is a $107 billion (736 billion yuan) revenue opportunity for suppliers. "There is a clear (Chinese) government policy in favor of electromobility -- high subsidies and an industrial framework in the form of joint venture companies which are being encouraged to invest in this technology," Diess said.

Diess added that Beijing appears to be trying to replicate the success of hybrid car development in Japan and diesel vehicles in Germany. 

According to management consulting firm McKinsey, 43 percent of the 870,000 electric cars produced last year came from China. Germany and the U.S. accounted for 23 percent and 17 percent respectively. 

In order to defend its market position in China, Volkswagen will invest in local EV technology. "This is a challenge but also an opportunity," Diess said. "We will quickly gain large volumes and gain sufficient scale to make electro-mobility cost effective enough so that it will also be a success in Germany and the United States." 

In the wake of its diesel-emissions scandal, Volkswagen is focusing much more on electric vehicles and software-based technologies. VW's joint Chinese venture partners, SAIC and First Automotive Works (FAW), also are pursuing that strategy.

"Our partners, in particular SAIC, are even more committed to transformation," Diess said. "They are already thinking about next steps which go beyond things like software and semiconductors." 

Mercedes's EV plans 
Daimler AG also is preparing to make Mercedes-Benz electric cars in Beijing. 

"We are going to localize electric cars for Mercedes-Benz," said Hubertus Troska, Daimler's board member in charge of China.

"We're not concerned about technology transfer" to Chinese partners, he added, referring to fears that Chinese firms might eventually use technology gleaned from foreign partners against them. 

Mercedes has tripled the size of its Chinese r&d operations over the past two to three years to 700 people. 

The Chinese team can develop entire vehicles, rather than merely customizing designs originated in Europe, said Daimler CEO Dieter Zetsche.

But it remains to be seen how Daimler will divide r&d between China and other research centers. "We will decide how to divide up the tasks on a case-by-case basis, but of course this will include capacities to develop electric cars here in China," Zetsche said. 

GKN, a global engineering group based in England that supplies components for the BMW i8 plug-in hybrid supercar and Volvo's XC90 SUV, said on Wednesday that China would become its global production hub for electrified drivelines starting in 2018.

The company also predicted that production of "eDrive" systems would be ramped up to 1 million units by 2025. 

GKN will start making an electric transmission for a domestic Chinese automaker in 2018 and then deliver an electric motor, inverter, axle and gearbox for a European firm's small car platform a year later. 

Phil Swash, CEO of GKN's driveline division, said four global carmakers had agreed to buy GKN's electric motors, and that these motors would be rolled out in China first. 

"In the past, we imported technology from outside China," Swash said. But for eDrive, "China is taking the lead. The first launch of the newest technology will be here. That is the first time that has happened in our 30-year history."

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