Is This Man Going to Be China’s Elon Musk?
The Chinese billionaire who bought Fisker Automotive Holdings Inc. at a bankruptcy auction is planning to build a new slate of electric-drive cars in the U.S., challenging Tesla Motors Inc. (TSLA) on its home turf.
Lu Guanqiu, the chairman and founder of China’s Wanxiang Group Corp., plans to manufacture electric cars in the U.S. and ultimately in China, he said in his first extensive interview since prevailing in a February bidding war for Fisker’s assets.
“I’ll put every cent that Wanxiang earns into making electric vehicles,” he said at Wanxiang’s headquarters in Hangzhou, Zhejiang province. “I’ll burn as much cash as it takes to succeed, or until Wanxiang goes bust.”
Lu’s plan pits him against the likes of Elon Musk, the chief executive officer of Tesla, which has quickly added workers to churn out its $72,000 Model S. Each mogul aspires to move his company beyond the U.S. to sell lower-emission cars in China -- the world’s largest auto market, with some of the worst air pollution.
“Fisker brings a unique edge and owning the company no doubt benefits Wanxiang in terms of gaining access to technologies that would otherwise take them years to develop,” said Harry Chen, an automotive analyst with Guotai Junan Securities Co. in Shenzhen. “To succeed it ultimately has to start production in China and manufacturing in U.S. is just a stepping stone.”
Lu, 69, made tractor parts during China’s Cultural Revolution and has nursed a desire to build cars since the 1980s, he said. Now he has a fortune of $3.1 billion, according to data compiled by Bloomberg. Musk, worth about $9.2 billion, said earlier this year he expects China will become Tesla’s biggest market.
Wanxiang, China’s largest auto-parts maker, is hoping to build upon the remains of Fisker, whose plug-in hybrid sports car, the Karma, won raves for its low-slung design and rants from critics for its technical flaws. The $103,000 Karma was made in Finland. Fisker filed for bankruptcy in late 2013, before it could make good on its plan to use an Energy Department loan to produce a second model in the U.S.
Fisker nonetheless sparked a bidding war between Chinese suitors, who would gain about three dozen current and pending Fisker patents. Wanxiang’s $149.2 million offer topped bids from Hong Kong investor Richard Li’s Hybrid Tech Holdings LLC.
The Fisker estate included an abandoned General Motors Co. (GM) plant in Wilmington, Delaware, providing Wanxiang an entry point for selling cars in the U.S. -- a goal that’s eluded Chinese carmakers such as BYD Co. and Great Wall Motor Co. (2333) Geely Automobile Holdings Ltd. and Chery Automobile Co. have made predictions as far back as 2005 to enter the U.S. market, though they’ve yet to sell their first car in America.
Wanxiang aims to produce the Karma model in the U.S. and later make other extended-range hybrids there, the company said on May 17. It declined to offer a timeline or other details.
Lu said in last week’s interview that he expects Wanxiang to receive a license to manufacture electric cars in China, without offering specifics. The company already has a permit, granted in October, to build electric buses and trucks there.
“The road is still very long,” Lu said. “We want to concentrate for now on manufacturing in the U.S. If I don’t succeed, my son will continue with it. If he doesn’t make it, my grandson will.”
Fisker’s collapse, after struggling with battery defects, negative reviews and missed production targets, ultimately cost U.S. taxpayers $139 million. U.S. presidential candidate Mitt Romney called the company a “loser” during 2012 debates in criticizing President Barack Obama’s energy policies.
The U.S. recovered nothing from Wanxiang’s bid: As much as $90 million is earmarked for Li’s Hybrid Tech, which paid the Energy Department $25 million last year to take over the Fisker loan.
“While the outcome is not what we hoped for, the Department explored every option available and closely followed federal legal processes in an effort to get the best possible recovery for the taxpayer,” said Dawn Selak, an Energy Department spokeswoman.
U.S. officials had said their deal with Hybrid Tech required it to build cars in the country. Lu didn’t specify whether U.S. production would take place in Wilmington.
Born to peasants in 1945 in Hangzhou, Lu became an apprentice at a state-owned metalworks at the age of 15, before starting a flour mill in his village and, later, a bicycle repair shop. In 1969, Lu pooled money with six other farmers in to set up a tractor repair shop for his commune. Wanxiang took its Chinese name from the universal joints -- a part used in drive shafts -- that it produced.
Lu quit a three-pack-a-day smoking habit to win a bet with a local steel-mill boss in order to secure supplies for his factory, he said, wincing at the memory. He hasn’t smoked since, he said. “I said I would do it, and I did,” he said, shifting between the local Xiaoshan dialect and heavily accented Mandarin.
Today, Wanxiang’s publicly traded units include auto-parts maker Wanxiang Qianchao Co. (000559), seed and fertilizer producer Wanxiang Doneed Co., beverage-maker Hebei Chengde LoLo Co. (000848) and Shunfa Hengye Corp. (000631), a real-estate developer. Wanxiang also owns a 3.7 percent stake in Shanghai-traded Guangzhou Automobile Group Co. (601238), the manufacturing partner of Toyota Motor Corp., Honda Motor Co. and Fiat SpA. (F) The Wanxiang conglomerate earned 7.85 billion yuan ($1.3 billion) last year in profit.
Still, Lu hasn’t made good on his dream of making cars.
In the early 1980s, Lu visited the state-owned First and Second Automotive Works -- predecessors of today’s China FAW Group Corp. and Dongfeng Motor Corp. -- and saw Jiefang-brand vehicles emerging every five minutes. He thought that was impressive until he visited a GM plant in Detroit in 1985 and saw cars coming off the line less than a minute apart.
“I felt out of my depth and doubted I had the ability to make it in this industry,” said Lu, who gets around in a Lexus LS600HL hybrid. “Since then, the gulf in technology between foreign and Chinese automakers has widened.”
Lu said he chose to focus on electric vehicles because Wanxiang had no edge in the crowded field of conventional automobiles. Wanxiang has invested 5 billion yuan to develop electric vehicles since 1999, once suspending production after realizing its model wasn’t reliable enough to compete, said Lu.
Instead, the company focused on electric buses, he said. Today, 700 of Wanxiang’s electric buses are in trial operations in Shanghai, Qingdao and Hangzhou, according to the company.
Wanxiang last year bought most of the assets of Fisker’s battery supplier, A123 Systems, which collapsed under the cost of recalling defective power packs. The acquisitions give Wanxiang enough know-how to enter the auto industry, said Lu, comparing the deals to “buying brains.”
Meanwhile, foreign automakers such as Tesla and Nissan Motor Co. (7201) are pushing to win a share of the new-energy vehicle market in China as the government tries to promote cleaner transportation. Tesla, based in Palo Alto, California, delivered its first Model S cars to Chinese buyers last month and is building a network of battery-charging stations in China. It plans to manufacture locally “at some point” in the next three or four years, Musk has said.
“Tesla is already competing in arguably one of the most brutally competitive global industries,” said Simon Sproule, a company spokesman. “The only truth in our industry is that the best product combined with the best customer care will earn the right to stay in business.”
Lu said there are “no shortcuts” to competing against foreign automakers, adding that a successful company accrues its competitive advantage over time.
“Anyone who says you can make a generational leap is just bluffing,” he said.
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