Tim from Saabs United drove up to Trollhattan yesterday for some face time with a couple of the guys at NEVS. He’s posted the results of his chat on SU and I read it with interest when I woke up this morning. As you know, I had a couple of questions for NEVS, too. Unfortunately, they haven’t been answered in any meaningful way so we’ll have to wait for the Swedish press to get similar access and see if they can get any more clarity.
My questions and related remarks from the SU article (no, it’s not an interview) are posted along with a few expansionary thoughts from me, below.
Why would NEVS consider developing and building their vehicles in Sweden in order to sell them in China? Given the difference in labor costs and the tariffs on vehicles brought into China, it makes no economic sense. Is that really their plan?
The bit from SU that touches on this:
Talking about premium I asked why NEVS didn’t start production in China and the answer was simple, it’s what we’ve said on SU many times before regarding quality and Chinese production. There is also still a regard around the world for Chinese products to be cheep and of low quality, even though they might not necessarily be so, most products produced in China still get that impression. And the fact is that Chinese people who can afford a premium car, want a European or American car rather than a Chinese built car, since it has a lot to do with image and feeling.
Come on. It’s 2012 and we’re talking about a new company that has the chance to direct its own future. The “quality” argument is a strawman in this situation. I’ve really got to wonder whether or not this was actually asked because “quality” isn’t a proper answer given the economic realities that underpin the question.
Fact: Chinese factories can produce goods in 2012 (and will only get better in the future), including cars, that are of as good quality as anywhere else in the world. All they need is the right expertise, guidance and quality control. Most of the Chinese domestic companies and joint ventures don’t have that expertise at home, which is why they buy it in from their joint venture partners.
Yes, there’s a lot of crap built in China, but only by companies that want to build crap. Those who want to build quality, can. Got doubts? Go and hold your iPod, Macbook Pro or iPad in your hands and tell me they can’t build quality in China. I’ve been using them for years and they have been absolutely first class.
And reports out of China from westerners who visit say that it’s going the same way for automobiles. Yes, their home-grown domestic brands struggle to meet the engineering mark, but the Buicks, Audis and BMWs they’re building are built to standards mandated by the western half of their joint venture partnerships and they’re doing it well. It won’t be long, not long at all, before you start seeing western-brand automobiles made in China for sale in non-Chinese markets. In fact, it wouldn’t surprise me if it’s already happening.
If you really think that Chinese design and manufacturing is still back in the dark ages, then I’d invite you (again) to read this article: Trendwatching – Made better in China.
So the question remains….. Why design and build in Sweden in order to sell, primarily, in the Chinese market? It makes no economic sense. You miss out on massive government subsidies and you attract significant tariffs when you bring the vehicles into the country, dramatically increasing what would have already been a high sale price. The Chinese middle class might be newly wealthy, but they’re not stupid.
The other bit from SU that touches on this:
The impression so far that NEVS will focus only on China to start off with is wrong, NEVS aims for a global market directly from the start with world-wide sales directly, however the country which is most likely to have the largest sales is China due to its highly developed infrastructure to support electric cars. The western world is lagging behind the Chinese in this aspect and this will of course affect sales. So to explain, NEVS will sell Saab’s worldwide from day one but their main focus to make profit lies with the Chinese market. So any dealership currently selling Saab’s will very well be able to sell brand new Saab’s produced by NEVS.
So they won’t just sell in China. Noted.
But they’re still aiming to make China their primary market. They still need the Chinese market to be profitable for them. Planning to distribute worldwide makes this question no less relevant. Manufacturing in Sweden to sell into China makes no sense for a company that needs to make a profit.
I suspect that this question hasn’t been asked (and definitely not answered) for real, just yet.
Why would NEVS spend any money bringing out an electric car based on the Saab 9-3? Why not just develop the Phoenix platform they’ve bought rights to?
My theory: spending money on electrifying the old 9-3 is money that could be spent on getting a much more modern and competitive, Phoenix-based product on the market much sooner. Electrifying the 9-3 and getting it ready for market is going to take significant time and money. As pointed out in comments, some of that investment will also make it into the Phoenix based car, but at an estimated cost of around 200million Euros, you’re still pouring a LOT of cash into an old platform, one that you intend to replace.
Throw 100million here and 100million there and pretty soon, you’re talking about serious money.
What’s even more perplexing is that if their customers are clued in, they’ll know that the first car NEVS release is due to be superseded a year or two later. Who would blow a significant amount of cash to be an early adopter in those circumstances?
The bit from SU that touches on this question:
The car which is launched with the 9-3 as base will be a new car, not just a facelift of the old one
Aside from powertrain, how so? It’ll look a little different? Unfortunately, that wasn’t asked and it’s important if you’re trying to figure out what NEVS are doing (and if you’re assuming that rational decisions are being made, as economists like to do). This is the crux of the whole question.
If you’ve got a platform that’s ready to go, why would you spend any more than the bare minimum required to electrify it? If its job is to be an early money-maker, why would you minimise your return by spending more than you need to?
Conversely, why would you spend a whole bunch of money to make it ‘different’ when you have the Phoenix model – the ultimate point of difference – in the pipeline? Spending money and time on the old version is wasting money and time that could be allocated towards your all-new product.
My theory on the possible real answer is this:
An electric car on the Phoenix architecture is, at best, 18 months away (more likely 24 with the momentum and human capital that’s been lost). That estimate assumes that NEVS are happy to use Jason Castriota’s design for what would have been called the Saab 900, i.e. the replacement for the Saab 9-3. If NEVS want to create an all-new exterior/interior design to go on the Phoenix platform, then it’s going to take a minimum of 3 years to develop that car.
Given that that’s the case (and those numbers come from Jason Castriota himself) then the only scenario where electrifying the old Saab 9-3 makes sense is one where NEVS decline use of Castriota’s design and decide to create a vehicle design of their own.
In that scenario, they can electrify the old Saab 9-3 in, say, a year from now and bring out their own Phoenix-based design at least two years later. I would still question the number of 9-3’s they’ll sell in that situation, but it’s the only scenario that even remotely makes sense.
I have a few other thoughts on topics raised in the SU article, but I’ll leave those be for now.
Bottom line, though, I think NEVS just got SU to their first bit of enthusiast PR and Tim even paid for the privilege of doing it. People seem to be quite happy to accept whatever bone NEVS throws to them but there’s got to be some meat in those responses, or else there’s no real conversation taking place.
I’m trying to sort out how much of my own personal time I want to commit to this new company. In doing so, there are fundamental questions that must make sense. Right now, they don’t.
Of course, there could be a really simple answer, something like “we’ve got a MASSIVE bucket of cash and our plans don’t need to make sense to you”. That would be fine and dandy. It wouldn’t make me follow them closely, but it would be an acceptable rebuff.
I’d say I’m still skeptical, but willing to learn.