BEIJING (Reuters) -- The Swedish automaker once known as Saab has emerged as part of China's push to make electric vehicles a mass-market alternative to gasoline cars, after getting a $12 billion order for EVs.
Chinese-owned National Electric Vehicle Sweden (NEVS) - the company that acquired Saab's assets - said it received an order for 250,000 EVs in December from a little known Chinese company that will include 150,000 cars based on the Saab 9-3 sedan.
The size of the deal -- and the sketchy information about the companies involved -- prompted some initial skepticism in the industry over its feasibility.
Yet NEVS is one of a group of Chinese-funded start-ups that aim to capitalize on disruption in the auto industry as governments around the world create regulatory incentives for electric or hybrid vehicles. Beijing has created a range of incentives to both attract technology-oriented firms into the EV sector and get the public to buy them.
NEVS $12 billion order for EV cars came from a Beijing-based start-up called Panda New Energy Co.
Jiang Dalong, a 51-year-old Chinese-born businessman who acquired Saab in 2012, said the deal with Panda New Energy requires little upfront money from the start-up. Panda said it plans to lease the cars for commercial fleets, such as taxis and courier services.
Jiang owns 43 percent of NEVS, based in Trollhattan, Sweden, through his Beijing-based company, National Modern Energy Holdings. The city of Tianjin has a 30-percent stake through Tianjin Binhai Hi-tech Industrial Development Area. The rest is owned by Beijing State Research Information Technology Co and Teamsun Technology Co, an information-technology company.
Saab AB, the defense firm from which Saab Automobile was created in 1947, withdrew NEVS’ right to use the Saab brand name after NEVS applied for creditor protection in 2014.
A company spokesman declined to confirm whether NEVS had regained the right to use the brand name, and told Automotive News Europe that the company would not discuss the dialogue it has had with Saab AB on the topic.
Jiang, a Chinese-born, Swedish businessman sold his bio-power generation business in China to help fund and focus on NEVS.
Jiang said he sees a big opportunity for the technology given the enormous policy help Beijing has lined up for it.
"China is going to be the world's biggest market for electric cars," Jiang said in an interview in his office in Beijing. "China has no choice. They have to wean themselves from conventional gasoline combustion cars," he added, describing the recent sharp uptick in air pollution levels in China's capital as "terrible" and "crazy."
"Big existing automakers are too big. They cannot stop producing conventional gasoline combustion cars. But we can ... switch to new energy cars."
Low entry barrier
Beijing's new green-car policy is based on the idea that a low entry barrier for electric car technology will allow late-comers to the automotive industry to close a competitive gap with global rivals who have a century's head-start in traditional combustion engines.
China, a major oil importer and blighted by air pollution, has offered generous incentives to the public to buy green cars and forced global automakers to share their EV technology.
The policy has helped spawn more than a half-dozen Chinese-funded EV startups in and outside China, whose financial backers includes Baidu, Alibaba, Xiaomi and Tencent, as well as LeTV, a streaming video and Internet television provider.
Start-up electric car venture Faraday Future, funded by Chinese Internet billionaire and LeTV founder Jia Yueting, on Monday previewed a technology-heavy concept race car. California-based Faraday hopes to develop it into a range of battery-powered vehicles that can challenge luxury rivals such as Tesla Motors Inc. in the growing market for electric cars.
Jiang said NEVS is exempt from China's regulations requiring a foreign automaker to have a local partner because it plans to produce only electric cars for sale in China.
Jiang said NEVS is building an EV factory in the northeast coastal metropolis of Tianjin. He said he expected to soon get an auto manufacturing license to start producing EVs for Panda New Energy.
Financing the deal
Panda New Energy, which is funded by a Beijing investment fund called Hasun Asset, won't have to pay up the whole $12 billion for the cars, according to Jiang and Panda's Sun Wei.
The two executives said Panda New Energy will pay NEVS for the cars from a four-to-five-year stream of revenue it expects from leasing those 250,000 EVs. All Panda New Energy will have to come up with is a deposit as little as 10 percent, Jiang said.
Panda New Energy initially expects to receive an all-electric minibus that seats 38 passengers and an electric commercial van. Jiang said production of the minibus and the MPV cars are due to start gradually in 2016 at the Tianjin factory, which he said is already half-completed.
Over the next four to five years, Panda New Energy will buy 50,000 minibuses and 50,000 courier vans, Jiang said. Sun said courier service companies in China, such as one run by 58.com, will use the commercial vans.
The rest of the deal - 150,000 vehicles - are all EVs based on the Saab 9-3, a sedan. Panda New Energy plans to lease them to taxi-like chauffeur service companies.
Jiang said NEVS plans to start shipping those EV sedans to Panda New Energy in 2017. The sedans will be assembled at the Tianjin factory.
Largest EV market
Government subsidies and other measures helped all-electric car sales soar nearly fivefold in China to 113,810 in the first 10 months of 2015. That puts China on track to soon overtake the U.S. as the largest market for electric cars.
It is unclear, however, how competitive China's new EV startups will be.
"Even if technical hurdles can be overcome, Tesla has significant first-mover advantage, especially in terms of branding and share of mind as an innovator in the industry," said James Chao, Asia-Pacific managing director of consulting firm IHS Automotive. "Others who come later risk being seen as lagging followers by consumers."
The unnamed CEO of an auto company, who did due diligence for possible investments in China's automotive start, said he decided against it.
"Those startups perhaps have talent good enough to design and engineer electric cars," he said. "But they lack the full breadth of expertise, which includes being able to procure a full range of components and systems to commercialize their design and manufacture them properly, and that's not easy."
A key question remains over whether the battery-powered EV is the right path for the future.
Japan and its automotive firms, for example, are jostling for supremacy in how future electric cars should generate power. Unlike China, which is pushing for battery-powered cars, Japan is betting on other sources of electricity, including hydrogen fuel cells.
"I could see the attraction of heading into Tesla territory now, but I am not sure if the herd is following the right horse," IHS's Chao said.
Editor's note: An earlier version of this story stated incorrectly that Saab Automobile was established in 1990. It was actually created in 1947.