Traditional Manufacturers’ Transformation Plans Laid Out for New Energy

Last August, we delivered the first 433 full electric vehicles for urban logistics, which marks a solid step of Yuchai towards the new energy field," said Li Gang, General Manager of Guangxi Yuchai Special Purpose Vehicle Co., Ltd. (hereinafter referred to as “Yuchai Special Purpose Vehicle”. As a subsidiary of the time-honored state-owned Yuchai Group, Yuchai Special Purpose Vehicle is dedicated to the manufacture of environmental sanitation equipment and special vehicles. The initiation of new energy projects is considered as the company's new growth factor.

The case is just an attempt of traditional manufacturing enterprises in the field of new energy. At present, many state-owned manufacturers start to exert their efforts in the field of new energy. According to available statistics, Dongfeng Liuzhou Motor, SGMW, Zhongtong Bus, King Long and BAIC have all laid out plans in the sector for quite some time.

During the transition from traditional manufacturing to new energy, enterprises however face new challenges such as inadequate technical reserves, personnel support and capital investment. Moreover, the restrictions of institutional mechanisms on state-owned enterprises are further highlighted, making the need of reform even more pressing.

Next step: hydrogen fuel

As one of the leading enterprises in internal combustion engine production in China, Yuchai Group has fixed its eyes on the new energy power industry since 2005. It now boasts four R&D bases respectively in Nanning, Yulin, Suzhou and Europe. Yuchai full electric products now occupy 100% of the Nanning market, and Yuchai is the frontrunner in the domestic research and development of new energy fuel.

"Among the industrial sectors Yuchai Group has engaged in, new energy has run through the upstream, midstream and downstream fields, and a complete industry chain has initially been established," said Guo Deming, Deputy Party Secretary of Yuchai Group. With the existing research and development of new energy and the production platform for new energy vehicles as the basis, the group will build a new energy industry chain through the mergers and acquisitions of or equity participation in enterprises in the R&D and production of battery, motor and electric control for new energy vehicles in the upstream field, and through the mergers and acquisitions of new energy automotive companies in the downstream. It aims to build the production lines for new energy buses and special vehicles, and itself into a comprehensive car manufacturer.

"This year more than 1,000 full electric vehicles for urban logistics will be produced, and the output will grow steadily." Li Gang is confident in that thanks to the unique advantages of Yuchai: it possesses a large amount of engines, with about 400,000 sold annually, a large customer base in the field of commercial vehicles, a good reputation; and a good service system with one service station every 20 kilometers on average across China. "These contribute to the core competitiveness of Yuchai in developing new energy products."

It is worth mentioning that Yuchai Group is vigorously promoting the cooperation with Hydrogen, the world's leading power fuel cell company, in hope of obtaining qualification in the fuel cell power system integration and R&D with Hydrogen’s technical advantage in this regard. The two sides signed a memorandum of cooperation in January 2017 and expected to sell 1,000 sets in 2020.

According to Yan Ping, Yan Ping, Chairman of Yuchai, technological innovation facilitates the development of green power so as to create a new economic growth point. Statistics show that in 2016, Yuchai Group achieved sales revenue of 31.3 billion yuan. In the first three quarters of 2017, the accumulated sales revenue reached more than 26 billion yuan, up 17.67% over the same period of previous year. The sales of engines continued to top in the industry. Lin Zhiqiang, Executive Director of New Energy R&D and Marketing of Yuchai, said that the group plans to invest 500 million yuan in the development of more efficient and cost-effective next-generation new energy power products in the next three years.

Hydrogen enjoys abundant resources, high calorific value and no pollution, and is recognized as a clean energy source in today’s world. Its development is in line with the Central Government’s call for ecological civilization construction and the strategic spirit of green development. It is an important area for the transformation and improvement of China's industrial structure. It is of special practical significance as China now suffers from severe haze.

After years of strenuous efforts, China has initially developed key technologies for fuel cell related key materials, galvanic piles, power systems and vehicle integration, and laid the foundation for the industrialization of fuel cell vehicles. Liu Hongsheng, Dean of China National Institute of Standardization, noted that in 2015, the institute formulated 28 national standards for 8 key sectors in the field of hydrogen energy and drafted China's hydrogen energy standard system. In 2017, the first international standard and group standard for hydrogen energy released in China have provided powerful technical support for the development of hydrogen energy industry.

Four prominent “shortcomings” bring difficulty to “corner overtaking”

Reporters learned that although some manufacturing companies expect new energy to promote business transformation, become a new growth point and contribute to diversified layout, the exploration into the new area also means unprecedented challenges to them, of which four “shortcomings” deserve attention.

The first is technological shortcoming. China's new energy vehicles are unique in reliability and software, with the market experience not available in other countries. “However, the technology development in the new energy field in Europe and the United States is ahead of that in China and enjoys a more solid technical foundation. For example, hybrid technology in the United States, Europe, Japan and other countries and regions is more competitive than that in China. Japan and Korea surpasses China in power battery, the core component of pure electric vehicles,” said Mao Zhengsong, Director of New Energy Research Institute of Guangxi Yuchai Machinery Co., Ltd.

Concerning the overall performance of fuel cells, China lags behind in terms of their cell power density, ability to hold a charge, life expectancy and many other indicators. China cannot keep pace with the United States, Japan and Europe in the core technology of hydrogen fuel cells, especially in the materials and processing technology R&D of key components. Experts said that China's fuel cell industry chain sees defects especially that the key components and materials have not yet achieved localization or mass production, but still relied on high-price import to a large extent.

The second "shortcoming" lies in investment. The research and development of new energy started late with insufficient driving force. Yuchai Group in 2005 began to reserve hybrid technology, mainly by tracking, with no strategy and few follow-up investments. From 2016, the group started to regard new energy products as a type of driving force and include them into the strategic development. However, there are still many competitors in China. The head of a new energy automobile company said that the upstream and downstream supporting manufacturers for new energy vehicles in Guangxi see faultiness, unobvious cluster effect and insufficient supporting facilities, which require governmental guidance and supports to be intensified.

Another “shortcoming” is witnessed in terms of talents. There are still restrictions on the introduction of high-end talents. According to Lin Zhiqiang, Yuchai Group's new energy division currently has 50 employees, including 3 PhDs and 8 to 10 masters, and will own 400-500 employees in the next 3 years. Guangxi, however, has no geographical advantages or enough attractiveness, hence difficult to introduce high-end talents. Furthermore, the local supporting policies to attract talents are problematic.

The constraints of institutional mechanisms on the transformation of enterprises are another “shortcoming”. The person in charge of a state-owned enterprise disclosed that after taking office in October 2015, he proposed the reform measures for capital increase and share expansion based on his investigation so as to make up for funds for corporate development. Nevertheless, it required the approval from two local SASACs for the contributors are two state-owned enterprises located in different areas. He saw unprofessional decision-making when handling relevant formalities.

"Some SASACs think that they will lose money due to equal proportion of capital increase. It will involve the sale of state-owned assets if shares are to be sold, so the plan has never been implemented in the past two years." He was helpless as the scale of the enterprise is shrinking and losses continue.

State-owned enterprises release vitality from transformation and the development of new energy

At present, plans for new energy are laid out everywhere. According to the planning, Guangxi will speed up the development of Yuchai Group and Liugong Group and accelerate the pace to build Nanning, Liuzhou and Yulin into intelligent manufacturing cities. By 2020, the total industrial output value of enterprises above designated size in Guangxi's machinery industry will exceed 500 billion yuan, doubling the figure in 2016 with an average annual growth rate of over 16%.

How to better elevate new energy research and development to a new level - some manufacturers put forward new expectations.

First, they expect larger special investments in R&D and the acceleration of independent R&D of core technologies. They hope that China will set up and allocate special funds for large-scale manufacturing enterprises like Yuchai, increase efforts in R&D of new energy technologies, and encourage domestic markets to adopt independent technologies, in order to promote the development of new-energy engines and automobile industries.

Second, they expect to see increase in fiscal and financial support. For sound and steady development of the entire industry chain, tax leverage should be used to give special policy support to the development of new energy. The corporate income tax should be offset by, and the value added tax of terminal sales be fully or partially exempted by the dedicated R&D funds.

Third, they expect the system for talent introduction. They hope that more high-end talents will join the new energy R&D team with the mode of corporatization and partnerships. Besides, new energy power R&D bases or centers are expected to be built in developed countries and regions as well as developed cities in China, and national support be provided.

Fourth, they expect to release the vitality of state-owned enterprises by strengthening the reform. At present, Yuchai Group is pushing for "two reforms". It has vigorously promoted the system reform in order to realize the transformation of Yuchai Group from a wholly state-owned enterprise to one with a mixed ownership and a diversified ownership structure, and further improve the corporate governance structure. Yuchai has adjusted the ownership structure of subsidiaries and encouraged subsidiaries to fully meet the market demand, pilot the ownership reform, and enhance vitality. In terms of mechanism reform, it will continue to promote management and control, reengineering and institutional reform, redefine the parent company's role and management mode to further refine and optimize its management functions and departments, focus on business management and "top-level design" in the process of innovation, and speed up the transformation and upgrading.

"If Yuchai's mixed-ownership reform plan is properly designed as conceived, 7 billion to 10 billion yuan of funds will be introduced so as to address the financial issue in the next few years," Yan Ping was full of expectations. (www.chinatrucks.com)

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