【The Rise of Chinese FCEV OEMs and their strategies in China 2020】
In consideration of resource reserves and technology research and development, FCEVs have been considered as a strategically important business for many Chinese OEMs in recent years. Although FCEV sector still remains at the very early stage of commercialization and is relevantly minor in the NEV industry, and do not occupy a large market share in transportation segment, Chinese FCEVs are beginning to enter the commercialization phase starting from commercial vehicles. At present, most of the big Chinese automotive OEMs in the field attach importance to FC buses and FC trucks.
In this article, we would like to mention two leading companies in FC bus and FC trucks in the hydrogen fuel cell industry respectively.
Zhong Tong Bus is a professional bus manufacture company and started to produce FCEV since 2017. By 2019, Zhong Tong has occupied a market share of 11% in EV bus, ranking second in the new energy bus industry. Zhong Tong Bus is a leading company in FC buses for its industrial leading FC bus production and sales amount, while it is also a powerful FC truck manufacturer for its supportive upstream suppliers. In 2018, Zhong Tong Bus produced 790 FCEVs (including logistics vehicles) , accounting for 49% of the industry‘s total production(1619 vehicles), ranking first among the market. In addition, the company also has a wealth of FC bus models which meet the needs of different users.
With the shareholding reorganization of the parent company, the actual control of Zhong Tong Bus was transferred to Shandong Heavy Industry Group in 2019 (Picture 1). Shandong Heavy Industry Group Co., Ltd. is a large state-owned automobile and equipment manufacturing group and has integrated China's best power systems and engineering machinery resources. It owns many listed companies such as Weichai Power, China's largest automotive parts manufacture, which was announced to start their business transition toward new energy sector.
Picture 1: Shareholding structure of Zhong Tong Bus
The combination of Zhong Tong Bus and Shandong Heavy Industry has greatly helped Zhong Tong Bus's layout in the hydrogen fuel cell industry chain. Zhong Tong has no supply chain for engines, transmissions and axles. However, Weichai has a unique gold powertrain industrial chain in the commercial vehicle industry, which will accelerate the promotion of Zhong Tong Bus to enhance its core competitiveness. As an important step in Weichai’s strategy, Weichai plans to establish a new energy industry chain covering complete vehicles, complete machines, powertrain systems, batteries and electric motors (Picture 2). Shandong Heavy Industry Group would also focus on the development of FCEVs, which is in line with one of the three major strategies of Zhong Tong Bus in the near future.
Picture 2: Hydrogen Fuel Cell System Supply Chain of Zhong Tong Bus
References： “Chinese FCEV OEM players”, Integral,2020. Feb
As the province where Zhong Tong Bus is headquartered, Shandong also attaches great importance to the development of hydrogen energy. Shandong Heavy Industry Group, Yankuang Group(兖矿集团) and Shandong Guohui(山东国惠) have unitedly initiated the Shandong Hydrogen Energy and Fuel Cell Industry Alliance. The establishment of the alliance will maximize the collection of various innovative resources for the development of the hydrogen energy industry in Shandong Province, and strive to crack the three major bottlenecks of management, key technologies and markets.
In addition to Shandong, Zhong Tong Bus has also launched FCEV demonstration operations throughout the country. Zhong Tong’s FC buses could be seen in cities like Datong(大同), Zhuhai(珠海), Foshan(佛山), Suzhou(苏州), while 600 FC trucks could be seen operating in Shenzhen(深圳). By operating FCEVs in those demonstration projects, Zhong Tong Bus managed to cooperate with different upstream fuel cell system companies, and thus selects capable suppliers.
As a revenue-generating focus in operating income, the hydrogen fuel segment will be the key development segment of Zhong Tong Bus in the foreseeable future. It can be assumed that Zhong Tong would combine Shandong Heavy Industry Group and Weichai Power to integrate NEV industry chain resources and form a hydrogen energy industry ecology and reduce vehicle production costs.
Dongfeng Motor is an ultra-large automobile company (big five OEM) directly managed by the central government, headquarter located in Wuhan. Its main business covers a full range of commercial vehicles, passenger vehicles, new energy vehicles, military vehicles, key automobile assemblies and parts, automotive equipment, and automotive-related businesses.
Unlike Zhong tong Bus, Dongfeng Motor focuses mainly on development of FC trucks rather than FC buses. From 2018 to 2019, out of a total of 23 listed FCEVs, there were merely 4 FC buses.
In the selection of hydrogen fuel cell system suppliers, Dongfeng Motor and Zhong Tong Bus have adopted the similar strategy, that is, to cooperated with a wide number of upstream hydrogen fuel cell companies to filter out truly powerful suppliers. In addition to the cooperation with local suppliers in Wuhan where the headquarters of Dongfeng Motor locates, the company has also collaborated with stack suppliers in Yangtze River Delta region. It is believed that Dongfeng took this move in order to pave the way of the future development in the region and join the construction of Yangtze River Delta hydrogen corridor (Picture 3).
Picture 3: Dongfeng Motor’s FC system supplier layout throughout China
References： “Chinese FCEV OEM players”, Integral, 2020. Feb
In our opinion, Dongfeng Motor chose the Yangtze River Delta region as its core development area for three reasons. The first reason is policy support (Picture 4).
Picture 4: Main policies and developments of FCEVs in Yangtze River Delta Region
Among the cities covered by the Yangtze River Delta hydrogen corridor plan, many cities (Nantong（南通）, Rugao（如皋）, Zhangjiagang（张家港）, etc.) provide stronger policy support toward the promotion of FCEVs and are friendlier to FCEV OEMs. The second reason is the well-equipped infrastructure. The construction of hydrogen highways and hydrogen refueling stations between key cities in the Yangtze River Delta region would vigorously promote the application and development of FCEVs. This can broaden the operating range of FCEVs and lay a solid foundation for the development of the hydrogen energy industry. The third reason is the product gap in the market. Most of the FC trucks currently operating in the Yangtze River Delta region can only meet the logistics transportation needs within the city, but cannot achieve inter-city transportation due to its small rated power of Fuel Cell and limit on mileage distance (Picture 5).
Picture 5: Chinese FCEV’s rated power vs driving mileage comparison
References: Ministry of Industrial Information of China, "New energy vehicle recommendation list", summary by integral，2020. Jan
However, if the hydrogen energy industry in the Yangtze River Delta region is to develop rapidly, a hydrogen fuel cell vehicle capable of supporting long-distance transportation must be indispensable. Dongfeng will certainly strive to seize the opportunity to expand their FCEV market of large FC trucks in the Yangtze River Delta region.
In order for Dongfeng Motor to enter the hydrogen energy market in the Yangtze River Delta more smoothly, the company would have two issues to overcome—the high cost of FCEVs and the ability to transport a long distance. However, due to the current small production and sales volume, FCEVs are more expensive than the already large-scale pure electric and fuel vehicles, so the commercial operation of hydrogen fueled vehicles also needs to rely on the operating model of leases. Moreover, the limited mileage of Dongfeng FC trucks has also hindered its large-scale commercial operation.
When choosing a strategic partner, Dongfeng must resolve the two pain points mentioned above. On one hand, in terms of downstream commercial operations, the operating model should be able to find a solution to reduce the high operating costs; on the other hand, in terms of mileage performance, Dongfeng’s FC trucks must find their ways out to break through technical bottlenecks and provide downstream users with products that meet their needs.
Under such circumstances, Dongfeng Motor has held hands with STNE to reduce the operational cost of users. STNE leases Dongfeng’s FC trucks to users and provide services. Also, Dongfeng signed contract with Wuhan University of Technology to independently develop the stack technology required for hydrogen fuel vehicles (Picture 6).
Picture 6: Dongfeng’s hydrogen fuel cell system supply chain
It is a common feature that FCEV OEMs choose strategic partners to accelerate their expansion toward the domestic market while protecting their advantages of their products in the niche markets. Watching internal OEM players from such points of view while monitoring local market and policy trends would be crucial to form a thorough understanding of China’s FCEV industry. (Details are described in our report: Chinese FCEV players)