NEVS press release on the Chinese Saab factory and my 2 cents on the whole shebang

First, to the press release:

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Qingdao to become NEVS’ strategic gateway to China for Saab cars

NEVS has entered a long time partnership with the City of Qingdao in China’s Shandong-province. Qingdao initially invests SEK 2 billion, obtaining a 22 percent ownership share of NEVS through a directed share issue. Further investments will be made in a joint venture company in China. NEVS is headquartered in Trollhättan, Sweden where product development and manufacturing is located.

Qingdao’s investment in NEVS will be made in successive stages, and provides NEVS with a financially stable investor, as well as a business partner which provides access to a key market. The City of Qingdao has, through its investment company Qingdao Qingbo Investment Co, Ltd, signed a contract with NEVS’ parent company National Modern Energy Holdings Ltd. and with National Electric Vehicle Sweden AB (NEVS).

”This agreement provides financial resources that form an important contribution to enable implementation of the NEVS business plan,” said NEVS Chairman Karl-Erling Trogen.

”Qingdao is a long term strategic partner in China, which also provides us with a large customer,” said Kai Johan Jiang, CEO and main owner, NEVS.

”Vehicles based on new energy sources are the future. Qingdao wants to take an active part in this development,” said Zhang Xingi, Mayor of Qingdao.

Trollhättan is the NEVS headquarters, with product development and vehicle assembly. China is a key market with great potential demand for Saab vehicles. Qingdao is set to become the hub for NEVS’ efforts in the Chinese market, which means that exports will be shipped through the Port of Qingdao, strategically located on the Chinese East Coast. As production at the Trollhättan plant will reach capacity, a complementary manufacturing facility will gradually be established in Qingdao.

The municipality of Qingdao has a population of nine million, while close to 100 million people live in the Shandong province. The City [of] Qingdao is a large buyer of passenger cars, including both conventionally fuelled and electric vehicles. The NEVS investment is an important step to secure the region’s access to electric vehicles, and to build an industrial structure where the vehicle industry, including EVs, is key for the future.

As part of the agreement, a feasibility study is now conducted to guide the future partnership.

On August 31, 2012, NEVS acquired the main assets of the Saab Automobile bankruptcy estates, and currently studies the opportunity to commence production of the present Saab 9-3 model in the second half of 2013. The first electric vehicle model is planned for launch in early 2014. In October 2012, a sister company of NEVS in China opened a plant in Beijing producing high-performance batteries for automotive applications.

——

A few thoughts on this new information and what we’ve heard from NEVS so far….

Inconsistent….

The name at the bottom of this press release is Mikael Ostlund. That’s the same guy I spoke to for my NEVS interview a few months ago. In that interview, he said that NEVS’ strategy was still based on electric vehicles and that plans to build the Saab 9-3 with a conventional petrol/diesel engine were merely opportunistic – a chance to get cashflow and get the Trollhattan plant up and running.

Mikael also said that once production was at capacity in Trollhattan, only then would they start to consider production in China.

When we reach maximum capacity at the Trollhattan plant, there is the possibility of then building in China.

At the very least, the production plans have been contradicted to some degree in this press release. If they build this factory in China, they’re not going to wait until Trollhattan is at capacity to start using it. They’ll use it as soon as it’s ready, regardless of how full (or otherwise) Trollhattan is.

If the China Auto Web story that preceded this press release was accurate – which is no definite thing – then NEVS may be planning to build conventional vehicles in Qingdao, too. That would make some sense to you and me, but it would also be inconsistent with their stated long term product plans.

Maybe they could invoke the Elwood Blues defence?

JAKE: You lied to a Nun?

ELWOOD: It wasn’t lies. It was just…. bull$h1t

I know that there are some internal questions at NEVS about PR strategy and I got the feeling during the interview with Mikael last year that he needed more resources. The number of questions that he didn’t have answers for surprised me. Now that this press release has come out, I’m surprised even more by the inconsistency between previous statements and these new Chinese production plans.

I think NEVS can be a bit more direct with their communications than what they’ve been so far. As I’ve written before, you can take this Wallenberg-like approach of being the strong silent type IF you’ve got no need to build customer goodwill, if you’ve got the goods to back you up and the resources to sustain yourself. On the other hand, if you need to build up a customer base, especially a customer base that comes with built-in scepticism like Saab’s, it might help to get people onside a bit more.

Inconsistent, but….more realistic

Whilst there might be some inconsistencies here, there do seem to be some more realistic plans in some respects.

NEVS were always going to need a Chinese manufacturing facility to make a business case for manufacturing in China. A lot of people mentioned this right from the get-go and were shouted down by notions of “Swedish quality” and “European prestige”. Yes, those things matter to a degree, but there’s no way they would overcome the tariffs that NEVS would face bringing cars from a relatively expensive country like Sweden to sell in China. It simply didn’t make sense.

The basic plan here seems much more realistic and is a general cause for optimism in terms of this company actually making cars and having a future. The big question now is how much that future is split between Sweden and China?

There will be theories that claim this is the first step in moving Saab out of Sweden completely. I don’t agree. If that was the case, why would they campaign so hard for the Saab name? The name is worthless without a genuine Swedish link. They may as well have just bought the assets, hired the know-how and developed a new corporate identity from scratch.

The Saab name has value to NEVS and that value will mostly lie in the company’s reputation for engineering and the general Scandinavian values that come with it.

Tying this up with a genuinely resource-rich backer in China is a common sense move and quite possibly the first concrete proof I’ve seen that this venture has some legs. Before this announcement is was mostly just good intentions, butterflies and a battery plant. This is something more real.

Having said that…..

… let me say this:

This is the car business. It always is and always will be about the product. NEVS can have all the strategic partners in the world and it won’t mean a thing if the product’s no good. This announcement is encouraging because it reflects some of the realism that I was begging for in previous columns on NEVS. But we still have to see some product to know if this is going to go anywhere at all.

I also wonder about the capacities mentioned. The press release doesn’t mention the capacity of the Qingdao plant but a figure of 400,000 vehicles was mentioned in the news story preceding it. Combine that with Trollhattan’s 190,000 vehicle capacity and you’ve got nearly 600,000 in capacity for a brand that’s never sold more than 135,000 cars in year. I know this is essentially a different company and they’ll be selling primarily in a different (and growing) market, but there’s still a question as to why they’re going so big, so early. As one website opined this morning, a Chinese government body doesn’t hand out that sort of money merely to prop up jobs elsewhere.

It’s going to be interesting to watch this situation as it continues to unfold. Again, I’m interested because of the Saab name and the implications it has for friends and former colleagues in Trollhattan and elsewhere. The cars don’t interest me that much – yet.

Wait and see.

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33 Comments

  1. Good post. I agreed with your earlier analysis of NEVS and these new developments give it even more validity. I am somewhat more interested now to see how this unfolds.

  2. The situation has started to be interesting but i wont get my hopes up before i know if they will try build the next gen premium Saabs or just cheap electric vehicles based on old Saabs for the Chinese market.

  3. .
    1. They did not have enough money to implement their plans. Heard this before somewhere!!.

    2. Think > most production will been Eastern based, and I think THN will be a very small part [hence not that many workers, maybe Yet!!].

    3. Personally I feel THN workers are being used to provide the Tech to China.

    4. Over on SU, someone said the rigour mortice has now decently set in @ Saab we knew, and I am afraid I have to agree….

    Steven, Hope Tassy is coping with the fires….

  4. Maybe this sentence is misunderstood by chinese and they are mentioning in article that NEVS will build conventional cars in China as well:

    The municipality of Qingdao has a population of nine million, while close to 100 million people live in the Shandong province. The City [of] Qingdao is a large buyer of passenger cars, including both conventionally fuelled and electric vehicles. The NEVS investment is an important step to secure the region’s access to electric vehicles, and to build an industrial structure where the vehicle industry, including EVs, is key for the future.

  5. Common knowledge tells that it is a daunting task to implement a factory in China that can manufacture products to European (or Australian) quality standards. Quite a number of companies have actually given up, and re-re-located their manufacturing back to Europe. And I believe that is the reason why NEVS really needs its Swedish base, and will continue to do so. I expect hundreds of Trollhättans to work at this Qingdao plant at any given moment in time for the foreseeable future, to train the local workers, supervise workflow, improve processes, etc. That will not only be engineers, but also workers on the assembly line with decades of experience. The whole Trollhättan team will not only work to produce cars there, but also assist in the Chinese production.

    They should buy a long range jet for commuting.

    1. May I suggest an:

      Airbus ACJ319

      This model is the corporate jet version of the A319. It incorporates removable extra fuel tanks which are installed in the cargo compartment, and an increased service ceiling of 12,000 m (40,000′) giving a range of 6,500 nautical miles (12,000 km). Upon resale the aircraft can be reconfigured as a standard A319 by removing its extra tanks, thus maximizing its resale value. Certificated both European JAA and American FAA, the A319LR and ACJ are the only business jets approved for public transport on both sides of the Atlantic.[4]

      The aircraft seats between 19 and 50 passengers but may be outfitted by the customers into any configuration.

  6. I think the most important sentence in this press release is this:

    “As production at the Trollhättan plant will reach capacity, a complementary manufacturing facility will gradually be established in Qingdao.”

    I interpret that as a factory in Qingdao will not be built until Trollhättan is already producing ~100’000 cars per annum, which probably won’t happen in the next couple of weeks. That makes much more sense than starting to build a plant in Qingdao now.

    1. JH, they will build cars in that new plant as soon as it’s operational. Take that to the bank.

      The City of Qingdao isn’t going to want to see it’s money sit idle waiting for Sweden to reach capacity. It will want jobs in it’s local area.

      Now it might well take several years to get that factory built and operational, which is great for Stallbacka. Saab employees will get some work setting the new factory up, too. Again, that’s great. But using your example of 100,000 cars (capacity is nearly double that) they’re not going to pause and say “we only sold 90,000 this year, let’s keep Qingdao on hold”.

      It’ll be building cars on day 1 of being operational, which will be long after everyone’s forgotten this press release.

      1. Agree 100% Steven. And chances are high that ALL manufacturing will eventually move to China, where costs are much lower. I’d bet within 5 years at most.

        And they really expect to have a fully electric vehicle ready for sale in “early 2014”? Seriously? That’s 1+ year from now. Not buying that one bit. But if they do have something ready, that means it was rushed into production, and I would be very skeptical of its quality & reliability.

        1. Why would ALL manufacturing move to China? I think that would be very un-economical. It is better to produce cars where they are sold, be it east asia or north america. Why else are Mercedes, VW, BMW, Nissan and the others producing cars all over the world?

    2. No way they will wait with a Chinese plant until Trollhättan reaches maximum capacity. Why?

      It will take years (my guess is 2 years) to hire those thousands (my guess is about 2.000) of people required for max capacity production (something that has never taken place before) *and* to get the production running with parts and logistics. And then I talk about an electric car that is still one year away from presentation (not start of production). If it is about a combustion engine car, I wonder where they will source the drivetrain from. And converting the old 9-3 to a new drivetrain isn’t done in a few months time.

      And if they get production up and running, they most have buyers to the cars. No way consumers in Europe or the rest of the world (except China) will buy that many cars from this new company when Saab never managed more 75% of that with several newer models. So the cars then most basically already have been sold to China. But as has been discussed before, it is weird business to build cars in Europe and then transport them to China. And no way Chinese state funds would pay for that for years until there will be a plant (and jobs) in China.

  7. Regarding the inconsistency in their PR…
    In practice, NEVS stills seems to be a one-man-show run by Kai Johan Jiang. NEVS is a company without products. They are selling a dream, which sometimes is more easy to sell than reality, I guess that NEVS’s so called business plan change at least twice every months when old opportunities are lost and new arises.

    Regarding partnership with City of Qingdao…
    So when every other well dried up, it is again down to state funds? Because last summer there were so much talk about how NEVS where *not* a Chinese company, but rather some Hong Kong based entity controlled from British Virgin Islands and with Japanese money from Sun Investment. Well, Sun Investment seems to have disappeared shortly after the deal was announced. Then NEVS were left with a huge plant that cost loads of money to own, and now they have found new investors in China that will pay for that empty shell in Trollhättan – of course, in exchange for a new plant in China. I wouldn’t be surprised if some parts will go from low-cost industries in souther China to Trollhättan since I’m pretty sure there are a number of the old 9-3 suppliers (those who are still in business) they will simply refuse to deliver parts again.

    I don’t like a Chinese state-funded Saab more than I liked the thought of Swedish taxpayers owning Saab. I fear that this type of funds can muddle a clean business vision, and (in case of hard times) invoke priorities that are not optimal for the company. But I agree with Swade that everything now seems to be more realistic. Something had to be announced.

  8. Somewhat off topic perhaps, but still Swade might know what’s the situation with rights to use Saab brand name. As much as I understand, NEVS may only produce Saabs in Sweden, but not in China… so Quingdao plant will only be able to produce non-Saab copies of Saabs? Am I right? That would certainly defeat the idea of trying to sell Chinese cars out of China.

  9. One thing everybody should know about the Chinese auto industry is that all manufacturers are regional and owned (at least in part) by local government. There are no exceptions, and it’s the reason why the big foreign players have multiple Chinese manufacturing partners (often building the same cars, as with the numerous nameplates for the Jetta/Bora/Lavida/Sagitar/etc…).

    What yesterday’s press release tells me is that NEVS now has the backing of a regional Chinese government. This is a critical step, and they would have gotten nowhere in China without this backing.

    What does this mean to the good people of Trollhättan and for Saab fans everywhere? It means that the project is moving forward. The absence of such regional partnerships would mean that the project is stillborn. I wouldn’t be surprised if there were other regional partnerships announced over the next few months or, barring that, the takeover of small regional manufacturers.

    I see the factory announcement as I would any such announcement in a government press release, anywhere in the world. It’s boilerplate that has to be there, but it most likely will not happen in the manner described. In other words: there will be a factory, it will be located on a parcel of land big enough for a capacity of 400,000 cars, and it will be supported by the regional authorities (unless they’ve moved-on). There’s no express or implied timeline involved, and I don’t expect this new factory to play an important role until the overall project is self-sustaining.

    Short version: this is how business is done in China. Some of us may have reservations, but keep in mind that the alternative is not to do any business at all. That’s a nice position to hold (aka: the moral high ground), but only if you can afford to live there.

    1. OK, thanks for that clarification. I had just posted in response to this on SU that I had never heard of a city becoming an investor and joint venture partner with a manufacturing company before, but that things must be different in China….which you explained. 🙂

  10. As one would imagine, I have mixed feelings. Then again, I am a realist, and I learned to accept the fate of the SAAB I knew and loved with the collapse of SAAB/Spyker.

    I am firmly in the wait and see camp, and planning on holding on to my SAAB for as long as I am able (at five years old, it has been a maintenance-free dream- knock on wood).

    1. I am still running my 2000 9-3 hatchback that I bought new 13 years ago. Sure, some things have worn out and needed to be replaced, but it still drives great! 200,000 miles and still going….still on the original clutch!

  11. Post script- this press release was the most logical thing I have heard so far! Electric only vehicles, shipped directly to China from Sweden sounded like suicide to me.

  12. I once discussed producing SAABs in China with the US head (prior to Jay) of SAAB USA. This was at one of the afternoon sessions at I can’t remember which Convention. My point was that in order for SAAB to thrive we need to open up China to produce the kind of production we are discussing now. This provides the company with cash to return on the capital investment.

    This actually strengthens the Swedish production because of the stability of the company. We have tapped out the present, traditional, markets. We need to welcome new customers. It would be nice to see alternatives like petrol/diesel option coming out of Trollhättan.

    As a side note the city slated for Chinese production was were in WWI the British used 75,000 Japanese troops to rout the Germans out of this Chinese coastal area. Now it is the area where world famous
    http://www.tsingtaobeer.com/ comes from. One day we could have quite an alternative, Asian SAAB Convention there.

    1. ” It would be nice to see alternatives like petrol/diesel option coming out of Trollhättan.”

      Keep dreaming. SAAB, as we all knew it, is done. Period.

      NEVS will make Chinese “SAABs” for Chinese people in China, and not really care about the rest of the world, because they do not need to do so.

      Besides, many former SAAB owners have moved on to other marques, and like me, are probably locked into multi-year leases, or finance deals, so these people aren’t going to be coming back to whatever kind of “SAAB” NEVS produces any time soon…if ever. I know I’m not. I’ve moved on to Audis. I’m keeping the two 1990 900 SPGs I also own, and when they finally die, that’s it.

      As I stated above, I would be very surprised if ANY production was happening in TH five years from now. The Chinese have a very good track record of telling people what they want to hear…then going on their merry way doing what the Chinese want to do, regardless of how much of an outcry erupts. They simply do not care what others think about them.

    1. Do they have an engine supplier? Have those engines been certified for the countries that NEVS wants to sell these car in? Two very important questions.

      Doubt very seriously that GM would be supplying engines to NEVS.

          1. 60.000 cars in 2014, 120.000 cars in 2015.

            Replace the years, and this ‘business plan’ sounds an awful lot like the Spyker business plan. Oh, the irony…

        1. In that case, it would make sense that the petrol engines would also be sourced from Fiat. Will we see the 1.4T MultiAir (165 hp) or 1750 TBi (230 hp) in the 9-3?
          The 1.4T may seem weak to some, but it’s the same engine that powers the similar-weight/size Dodge Dart in the US. That combination does an 8 second 0-60 and gets 40+mpg. That’s 2.0t (175hp) acceleration with Jetta Tdi-like economy.

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