New joint venture to have production capacity of 120,000 vehicles annually

The Renault-Nissan Alliance is partnering with Dongfeng Motor Group to develop and sell electric vehicles in China, which analysts say is primarily to prepare for China's imminent introduction of a plan that stimulates sales of such automobiles.

Renault SA and Nissan Motor will each hold 25 percent of the new joint venture, eGT New Energy Automotive Co, while Dongfeng will hold the remaining 50 percent, according to a Nissan news release on Aug 29.

The new joint venture will produce electric cars at a Dongfeng facility in Hubei province, which has an annual production capacity of 120,000 vehicles. The first model, a compact SUV, will start production in 2019.

The move came within a week of Ford's signing of a memorandum of understanding with Zotye Automobile to produce electric cars. Volkswagen partnered with JAC Motors on electric cars in May.

Nissan said its move is to tap the potential of the fast-growing segment in China. Statistics from the China Association of Automobile Manufacturers show that 204,000 electric cars were sold from January to July, an increase of 33.6 percent year-on-year.

While agreeing on the prospects for the segment in China, Bill Peng, a partner at PricewaterhouseCoopers' Strategy&, said that a more urgent mission of the Renault-Nissan Alliance's move is to get prepared for the policy that China is set to introduce to boost sales of new energy cars.

A spokesman for the Ministry of Industry and Information Technology said in late July that the policy would be released soon.

As stipulated in a draft - which is widely believed to vary little from the final version - it demands that the credits an automaker earns from selling new energy vehicles should account for 8 percent of its total sales in 2018.

One electric car will be calculated as two or more units depending on a number of factors, including the mileage on one charge, and one plug-in hybrid will count as two units.

If carmakers fail to do so, they will either have to buy credits from other automakers, or will simply face a fine, although the amount has not been stipulated by the authorities.

The task will become increasingly challenging, with the percentage growing to 10 percent in 2019 and 12 percent in 2020, according to the draft.

"The logic is clear. As those international carmakers cannot come up with affordable cars, they create joint ventures in China to produce lower-quality and lower-priced ones to earn the required credits," says Yale Zhang, managing director of Shanghai-based consulting company Automotive Foresight.

In Volkswagen's contract with JAC, it is stipulated that Volkswagen will have priority if it needs to buy credits from the joint venture. Ford and the Renault-Nissan Alliance did not reveal whether they have similar privileges.

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(China Daily European Weekly 09/01/2017 page25)