The Hybrid Evolution: Chinese Automakers Go Green

In the ever competitive world of automobile making, Dongfeng Motor Corp, one of China's largest automakers, has decided to take a major green leap. Late last week, Dongfeng quietly announced plans to invest 3 billion yuan ($440.76 million) over the next five years to develop energy-saving and new-energy vehicles; money, that will spur development of hybrid and pure electricity vehicles while continuing to improve the efficiency of the company's internal combustion engines. During the announcement, the automobile manufacturer named 16 key projects in the plan, including research and development into purely electric cars, hybrid buses and other key components. While Dongfeng might seem like an unlikely candidate to lead growth within China's hybrid & electrical automobile segment, its activities over the last 20 years have set the company up to prosper. In fact, Dongfeng started research work on new-energy vehicles in the late 1990s. It then made concept cars powered by electricity as well as light-duty buses powered by fuel cells. In 2001, Dongfeng established the first electric vehicle engineering research center in China. In May this year, it provided 100 Dongfeng Fengshen S30 BSG hybrid sedans to the city government of Wuhan. Now Dongfeng has more than 400 energy-saving and new-energy vehicles on the streets in Wuhan, Shanghai and Zhengzhou for a field trial. The company's green vehicles used at the Beijing Olympics in 2008 and Shanghai Expo this year have received wide acclaim.

In looking to the future, Donfeng has set a goal of producing 100,000 hybrid vehicles and 50,000 purely electric vehicles by 2015. It wants production and sales of new-energy and energy saving vehicles to account for a fifth of Dongfeng-brand passenger vehicles. With plans for 800,000 new-energy vehicles on the market by 2020, the company expects them to have competitive strength with traditional petrol-powered vehicles. While many have been critical of the Chinese government's stance on the environment & emissions, it is clear that the Chinese government has taken a strong stand to support development of new-energy vehicles. China recently began a pilot program this June to provide subsidies to customers of purely electric and plug-in hybrid vehicles as well as automobiles with conventional engines smaller than 1.6 liters. The Chinese government is also considering a plan to invest 100 billion yuan over the next decade to accelerate development in the sector. As the Chinese government throws its support behind green development, foreign auto giants also started creating  strategies to support their growth in this growing market. For example, German automaker Volkswagen plans to introduce its hybrid Touareg to China next year and produce Golf and Lavida electric cars in 2013. The Lavida electric is under development by Chinese and German engineers at the Sino-German joint venture Shanghai Volkswagen.

Dongfeng will also produce new-energy cars in its planned joint venture with Yulon Group, Taiwan's biggest automaker. The company announced last week that the National Development and Reform Commission approved the plan at the end of July that envisions production facilities in Hangzhou with annual capacity of 120,000 passenger vehicles and an equal number of engines in its first phase. The joint venture will have a lineup of SUVs, MPVs, cars and purely electric vehicles. The 50-50 partnership with registered capital of 1.55 billion yuan will at first produce an SUV or MPV with the nameplate Luxgen, a current Yulon brand. As one of the biggest auto groups in China and partner of Nissan, Honda, PSA Peugeot Citroen and Kia, Dongfeng could be a strong collaborator for Yulon to tap the mainland market.