I’ve had some questions about NEVS, their strategies and the future of the brand called Saab for some time now. Finally, after a bit of a wait, I had a chance to speak with Mikael Östlund from NEVS earlier this week.
There’s no big groundbreaking news here, but there IS some nuggets of expanded information there. It’s certainly opened my eyes to a few things, which I’ll expand on in another post.
Anyway, here’s what we talked about.
When you bought Saab back in June of this year, you stated that you wanted to build two EV’s – one based on the old 9-3 and one based on the Phoenix platform. You wanted to market those primarily in China. That was stated as your business plan. Has that plan changed? Been expanded?
Yes, that’s still the plan. The first electric vehicle will be launched early in 2014 and the second electric vehicle, based on the Phoenix platform will come later on. The company has been developing the technology around the batteries and battery management in Japan and China for quite a while. And since the transaction was finalised in August we’ve been able to continue development in Trollhattan as well.
When we feel the first electric vehicle is proceeding as planned then we’ll be able to take on the development of the second car on the Phoenix platform.
So that business plan hasn’t been expanded to include other things?
That’s it as far as electric vehicles are concerned.
We have, over the last few weeks, started up relations with the former Saab contractors to see how prepared they are, their ability to be a contractor to Saab Cars again. We have also experienced demand for the 9-3 model during contact with sales organisations in China. So we are evaluating the possibility of starting production again next summer for the 9-3. We haven’t decided that yet. We haven’t decided which models, but it’s one of the things we have mentioned in that letter to suppliers, that we are evaluating this. So when we get responses from the contractors we will have a basis for a decision but that’s not decided yet.
This (re-producing the old 9-3) would give us some benefits. We can get some cashflow, of course, but we can also start manufacturing earlier than planned. We can use the facilities we have more than we do today. What we do at the moment involves producing spare parts for Saab Automobile Parts but of course we want to utilise the facility as much as possible. We have around 100 people working at the plant, of which around 75 are employees of National Electric Vehicle Sweden.
Is the petrol/diesel driven Saab 9-3 something you will market globally?
For all of our models and products – how many we will be able to produce, the market will [decide]. But we have received interest for the model (from China) and as we evaluate the possibilities, the Saab contractors are aware of our plans, the possibilities, so they can work on that as well. But during this autumn or early winter we will see if that is a serious possibility.
Can the 9-3 be sold in China without modification to the front of the car? It wouldn’t receive certification in Europe next year as is, because of the pedestrian protection requirements. Would it be able to be sold in China without modification because that would be a significant expense for you if you have to make those modifications?
I don’t know those details exactly, unfortunately. I don’t know if it will be modified or not or how much has been done around that. But we have experienced demand and we are evaluating the possibilities.
How many do you think you would have to sell to make it worthwhile doing?
We don’t have any estimate of that.
OK, because it seems to me that you’re going to need considerable volume. It’s going to be a costly exercise if you have to modify the car, if you want to refresh the interior….
Well, the estimates that we do have, we don’t go public with those figures.
(I was referring to the conventional 9-3 here, but Mikael moves back to the electric vehicles here – SW)
The initial market is China, for the first vehicle (EV1) and the second vehicle on the Phoenix platform (EV2). Both cars will be sold globally but what demand there will be from the rest of the world, we don’t know. The focus will change a bit with the Phoenix car because that will come later, but certainly the focus for the first vehicle will be China.
There are volume customers and as they (the Chinese) are investing heavily in infrastructure that will help all manufacturers, of course.
If your assessment with regards to re-building a conventionally powered Saab 9-3 doesn’t work out, if you decide not to do that, have you considered building a more conventional hybrid type vehicle, something that will be electrified but offer a greater range than people expect from a pure electric vehicle?
That’s not part of our business plan. We don’t close any doors, but it’s not our focus nor part of the business plan. When you start from scratch, or close to it, you have to consider whether it is cost-effective to have two different powertrains in one newly developed car.
You plan to release your first electric vehicle early in 2014. Do you have a plan yet as to where you will first show the vehicle – will it be a motor show in China, or in Europe?
No, we don’t have an answer for that yet. I’m not sure how that will be done.
What segment of the market will you be aiming these EV models at? Will they be lower cost, higher volume models, or more in the premium segment?
The plan is to produce a premium car, in volume. The first premium electric vehicle produced in volume.
Okay, so that leads me to the questions I have about producing in Sweden to sell in China. The demand in China, that I’ve been able to look up, forecasts 150,000 EV sales there by 2017. That’s the latest research I’ve found from a company called Pike Research and that’s a bit below what the government forecast a few years ago. Given that so many of those are likely to be domestically produced at a much cheaper price, where is the place in the Chinese market for an electrified Saab?
When we reach maximum capacity at the Trollhattan plant, there is the possibility of then building in China.[Building where our factory is, and building the car we can produce quickest] is really a matter of time-to-market in order to lower costs. It’s very hard to establish manufacturing in China without an established market there. We feel that to do that would be too expensive. The Trollhattan plant is a world-class facility. I think there have been about 50 billion SEK invested there so why not take advantage of that? That’s where the scale, the capacity is, so for us it’s obvious: why not use that facility?
I guess my response, as someone who doesn’t know the intricacies of your plan, is because your labour costs are much higher and you’ll be paying a big import duty when you bring the vehicle into China.
The labour cost is not that much on the whole, taking advantage of the facilities here compared to the costs of starting up in China.
OK, so the cost of establishing in China would offset what would you might be penalised for building in Sweden to start with?
To work it backwards, National Electric Vehicle Sweden has bought the assets because of (the quality of) the assets. The whole region is accustomed to building cars. When the plant reaches its maximum there are possibilites to build ‘transplants’ in China. So National Electric Vehicle Sweden is not considering closing the plant to start up elsewhere.
But there may be a transition in the future?
If the market demands are more than we can fulfil in Trollhattan then we could consider this.
You recently opened a battery production facility in China…..
The owner of NEVS, a related company, has started the battery production plant, yes. That factory will be the main supplier of batteries for the Saab cars.
Is that factory producing batteries already?
Yes, they’re currently selling batteries to power electric buses in China.
Will those batteries be shipped to THN for installation in vehicles, or will the vehicles be shipped to the batteries?
That will depend on the market but for cars to be sold in China, the final assembly of batteries could be done in China. When the cars leave Trollhattan they will have batteries so that they can be driven. If the final market is in Europe, for example, we would assemble the (full) battery in Trollhattan. For cars bound for China, there are several solutions that you could use – interim or temporary batteries.
And the production batteries, will they be batteries that can be swapped, as well as being re-charged?
Right now, for our cars, I don’t think swapping batteries will be the solution. We see that for commercial vehicles, or taxi fleets, that swapping the batteries will be OK but for private cars, in the market estimates that I’ve seen, the absolute majority will charge their cars overnight, at home. We see the swapping stations mostly being used by commercial fleets, taxi companies and buses. I don’t know for sure if there will be an alternative for our cars, but I don’t think so.
I’ve shared my own opinion on my website – that all-new product beats rejuvenated product every time. Why would you spend a lot of money on a 9-3 based vehicle that probably has a limited shelf-life and will suffer from limited acceptance in the marketplace, when you could use that money to get your game-changing vehicle – the EV2 – on the market quicker?
That vehicle [EV1] will get us to the market quicker [than the EV2] – it’s all about time to market. Saab has been out of the market for two years and if we wait for the Phoenix vehicle to be realised that will be another three years. That’s a long time for a company to be out of the market. With the 9-3 based vehicle we can go to the market earlier and when we see that our plans are working we can start to develop the car on the Phoenix platform.
So the reasons: there is a demand for the car, we get to the market earlier, we get the cashflow earlier and we can keep the relationship with the market for our quality brand.
The 9-3, when it was being produced before, was already being referred to by the motoring press as being too old. It’s now two years older. Are you worried about this?
The electric vehicle will be a new car. It will be based on the same platform but it will be a new car when it’s launched.
Do you plan to significantly change the interior/exterior of the car to accentuate the fact that it’s a new car?
Yes. It will be a new car and it will be re-designed, the interior and the exterior as well.
Do you plan to use Jason Castriota’s design for the EV2? It would seem to make sense, if it’s a suitable design for you, rather than spending time and money on a clean sheet design.
His designs were not a part of the assets that NEVS acquired. NEVS don’t close any doors but there is no official position as to whether they will or will not. It’s not a part of the deal, however.
Has a design team been appointed to do the required work for the 9-3 (if re-design is required), the EV1 and the EV2? Will that team work from Saab Design in Sweden, or in Japan/China as with the battery engineering? Are there any names we’re familiar with?
Kjell ac Bergström is, as CTO, responsible for the design. The resources there consist of in-house competence as well as consultants such as LeanNova, and cooperation with design teams in Japan and China.
There’s still a lot of cynicism in the marketplace about Electric Car companies. Fisker is suffering terribly from this, as did Tesla early on. Tesla’s managed to carve out some credibility, however, thanks to good product and a progressive message. You’ve been very quiet in PR and marketing terms and the Saab brand value that you’ve purchased is being eroded a little more with every week/month. When do you think will be time to start getting your message out there, to either remind or let people know that Saab has a new owner and a new product to promote?
We’ll address the market well before the launch. We don’t have any product to sell right now, but we’ll talk to the market well before we have something to sell. We have been very clear with our message, about when we plan to launch our first vehicle. We have been asked a lot about specifications – battery capacity, range, etc – but why should be talk about all that 18 months before the launch? No other manufacturer would do that.
But the basics of our message are out there and clear. We will build electric vehicles, we will focus on China but we will be a global brand. The rest we will talk about when launch is closer.
All of that is fair and I agree that you shouldn’t be talking about specifications this early. But as a Saab fan, and I know the Saab community reasonably well, I know there will be a lot of interest just in the type of technology you’ll be looking to bring in your vehicles.
In general terms, the batteries that are being produced in China have a very high energy density. They’re being built upon Japanese technology and they’re really at the forefront of this area. We have an R&D department that continue to work on those, working with different materials. That also goes for the construction of the car, where we will use different materials to lower the car’s weight.
That is the Japanese cornerstone of this operation. The Swedish cornerstone in all this is the plant, the manufacturing and design skills. The cars will be from Trollhattan. Then we have the Chinese engineering input and the Chinese market.
So a lot of the engineering expertise is going to come from Japan and China?
Yes. The battery factory has been built and busy this year already and that’s the whole idea behind this – that the work shouldn’t start just when the acquisition was finalised two months ago. There has been work ongoing for some time in Japan and China.
Where do you see demand for pure electric vehicle, say by 2020 in the Chinese market? Do you have a figure that you think electric vehicles sales will reach and the demand that you’ll need to meet in terms of sales?
It’s hard to make estimates on your own and I would only be guessing but if you consider, for example, what has been said about China, that in 2020 there will be around 200 million cars and they estimate that around 10 percent of that could be electric vehicles. That would mean around 20 million cars. The Chinese government are supporting the industry’s effort to produce electric vehicles and they estimate that for 2015 the production capacity would be 500,000 (electric) vehicles, and by 2020 around 2 million vehicles amongst an estimated 5 million vehicles with alternative powertrains.
(Note, just for clarity – the 20 million vehicles mentioned above was also mentioned at the press conference when NEVS bought Saab. The 20 million vehicle forecast was for total vehicle stock on the road (not sales) of both hybrid and electric vehicles by 2020. That figure has been revised down by several agencies since. As mentioned above, Pike Research estimate sales for 2017 at around 150,000 electric vehicles in China – SW)
They are also planning more, for battery swapping and charging stations, charging poles. They will have in December around 13,000 charging poles and somewhere around 250 larger battery swapping and charging stations. The goal is for them to build around 2300 charging and swapping stations and 220,000 charging poles by 2015. China is planning to do this because they have to. They see the coming demand, the environmental challenges and they know that the possibility to fulfil that demand just with fossil fuel cars isn’t a reality. (well, not a responsible one – SW)
But having the capacity to make 500,000 electric vehicles when there might be demand for only 150,000 vehicles (in theory) just means that China will have excess capacity, which is a problem already around the world. It’s a demand-side prospect that you need to forecast, isn’t it? Do you have forecast numbers of your own as to what you think demand will be for your vehicles in China?
As I mentioned before, our market research and estimates, we don’t go public with those figures but we consider our goals to be ambitious and realistic. The Chinese government have released their own estimates and figures about demand and infrastructure such as charging poles, etc, but we don’t release our own figures at this time.
Do you have a time by which you plan to be profitable?
We don’t state a year but we have financing in place for implementing the full business plan and getting a positive cashflow. But we don’t say when that will be.
Well, that’s it.
I got to ask pretty much all of the questions that were bugging me and I thank Mikael Östlund very much for taking the time to answer them.
I can’t say I’m fully convinced by NEVS’s plans for Saab or the answers that Mikael gave, but I appreciate that he can only tell me what he’s allowed to. There are some areas he just can’t go yet, but hopefully this interview managed to push the knowledge envelope just a bit further.