Chery Automobile (Part 1): Strategic shift in own-brand business

Consolidation to single brand; enhancements to commercial vehicle business

2014/07/16

Summary

Chery Automobile: Production Volume in China This two-part report describes a summary of operational developments at Chery Automobile, a leading Chinese automaker. This first report focuses on the company's mid-term business plans for its own-brand models and the recent moves for production in China. The second report will focus on its joint venture businesses with Israel Corporation, Jaguar Land Rover (JLR) and other foreign manufacturers, as well as Chery Automobile's oversea business.

* Signs of leveling off seen in sales in China and export

 Chery Automobile's passenger car sales in China and factory shipment including export are showing signs of leveling off since its peak in 2010. Its production and sales in the first four months of 2014 slightly declined year-over-year.

* Major shift from sales expansion with low-priced models to sales of high-quality models; layoff of  9,000 workers

 In 2013, Chery Automobile announced that it had laid off 9,000 workers in its own brand business. In addition, the automaker announced policy shift in its vehicle assembly business. The company's direction diverted from expansion in unit sales to more profit-oriented business by introducing vehicles with higher quality, better equipment, and higher profitability. In line with the policy change, the company is now reducing production of the Chery-brand vehicles for a while.

* Consolidation from four brands to a single brand

 The company had four brands-the Chery, Karry, Riich and Rely, when it was aiming for the unit sales expansion. As the brand-oriented strategy has been converted, the four brands were consolidated to the single Chery brand.

 Chery Automobile introduced four new-generation strategic models in recent years (the Arrizo 7, E3, and Tiggo 5 in 2013, and the all-new QQ in January to April 2014). The production ratio of the four models in the company's overall passenger car production volume is increasing from 10.6% in 2013 to 43.3% in 2014.

* Partnership with other manufacturers

 Chery Automobile has joint ventures with foreign manufacturers such as the Qoros-brand cars with Israel Corporation and Jaguar- and Land Rover-brand cars. Additionally, the company has concluded partnership with Guangzhou Automobile Group aiming for more efficient utilization of business resources.


Related Reports:
Beijing Auto Show 2014: Own-brand vehicles from seven Chinese OEMs (Jun. 2014),
Shanghai Motor Show 2013 (2): Six emerging major Chinese OEMs (Jun. 2013),
Chery Automobile: moves forward with joint venture projects with foreign partners (May 2012)

Production of Chery Automobile's own-brand vehicles

Type 2010 2011 2012 2013 Jan.-Apr.
2013
Jan.-Apr.
2014
Passenger cars Sedan/Hatchback 509,304 466,678 409,132 334,055 122,150 82,313
SUV 82,687 115,205 119,109 94,880 30,583 36,113
MPV 30,635 16,812 5,278 7,768 2,014 2,356
Mini van 61,963 30,691 17,046 22,580 9,387 6,025
Total 684,589 629,386 550,565 459,283 164,134 126,807
Commercial vehicles Mini truck 7,335 6,345 11,838 17,408 7,166 6,896
Light bus 0 1,692 1,548 475 125 467
Total 7,335 8,037 13,386 17,883 7,291 7,363
Total own-brand of Chery Automobile 691,924 637,423 563,951 477,166 171,425 134,170


Mid-term business plan for Chery brand

 

Mid-term business goals <Business policies>
* To concentrate on limited resources to increase the Chery brand appeal.
* To shift from quantitative expansion to qualitative improvement with priority on quality, brand appeal and sales efficiency
* To continue globalization.
<Restructuring>
* Reducing the number of workers by 9,000 from 33,000 to 24,000 starting in April 2013.
<Unit sales of completely assembled vehicles>
Note: Shipment of Chery's own brand vehicles from plants including exports. Foreign brands are excluded.
* Shipment in 2014: 750,000 units
  Breakdown: 560,000 units sold in China (including exports from China), 190,000 units manufactured overseas
* Mid-term goal: One million units including 400,000 units for export (breakdown unknown)
<Strategy> (Announced in April 2013)
▽Phase 1: From 2013 to 2016
  To lead the entry market with original Chinese-brand vehicles.
▽Phase 2: From 2016 to 2020
  To raise technical performance of Chery vehicles to the level of foreign vehicles.
▽Phase 3: From 2020 and beyond
  To be a world-leading automaker with global competitiveness and similarly leading technical performance.
Completely assembled vehicle production <Organization>
* China:
  Operate main plant in Wufu, Anhui province and plants in Dalian, Liaoning province, in Kaifeng, Henan province, in Ordos, Inner Mongolia and in Guiyang, Guizhou province.
* Overseas:
  To build a main assembly plant in Brazil with an engine manufacturing facility and stamping, welding coating and assembly lines (operations to start about July 2014). To operate knock-down (KD) plants at 16 sites including Ukraine, Russia, Iran, Egypt, Indonesia, Myanmar, Venezuela and Uruguay (as of July 2014).
<Annual production capacity>
▽ Production line restructuring
  Starting in April 2013, a separate assembly line is built for each of the four series, QQ, Tiggo, Fulwin and Arrizo, all consolidated under the Chery brand.
▽ Annual production capacity
* In early 2014: Capacity for 900,000 assembled vehicles including over 10,000 units of new-energy models (as well as 900,000 engines and 800,000 transmissions). Details such as whether joint-venture plants are counted for are not known.
Chery's own-brand vehicle sales; model plans <Present> (In early 2014)
* Passenger cars:
  21 versions under 11 models in five segments (A00, A0, A, B and SUV)
* Existing markets:
  Sold in 80-plus countries (over 100 countries and areas according to other sources) other than China including exports. Chery has 1,100 distributors and 900-plus service stations outside China (as of July 2014).
* Sales brands:
  Reduce four brands (four logos) to a single brand (single logo with four series variants).
  <Previous brands> Four brands (logos): namely Chery, Karry, Riich and Rely
  <New brands> Single brand and logo under Chery with four series variants namely QQ, Tiggo, Fulwin and Arrizo
<Model plans>
  To set life cycle of each model to 5 years.
  To launch at least one all-new model a year between January 2013 and the end of 2016 (including two SUVs and at least a mid-size model in total).
  To discontinue all previous models by the end of 2016 and replace them with a new lineup consisting of a series of all-new models that will satisfy consumers.
* To reduce the number of old models from approximately 20 to 7 or 8 by the end of 2014.
* To launch additional next-generation models in order to make up for the discontinuation of old models. To build a lineup of 11 to 12 new models in a mid- and long-term perspective.
* In 2013, Chery Automobile introduced strategic models, the Chery E3, Arrizo 7 and Tiggo 5. In 2014, the company will add the all-new QQ (second-generation QQ released in April) and the all-new SUV.
<Domestic marketing strategy>
  To correct the existing marketing style to suit the new model mix and brand strategy.
* To consolidate its 14 sales regions in China to only eight and grant greater sales rights to each regional sales center.
* To divide the regional distributors into two groups. The first group will sell the Fulwin 2, Chery A1, Chery A3 and Tiggo. The second group will sell the QQ, Cowin, Eastar and Chery E5.
Research and Development (R&D) <Organization>
* Chery Automobile has R&D facilities in Shanghai and Beijing. It also has such facilities in Italy, Japan and Australia.
* Main proprietary technologies: TGDI turbochargers, DVVT, CVT and new-energy technologies (as of the beginning of 2014).

 

New energy model plans and strategy for Chery brand

Present status and mid-term strategies for Chery-brand new-energy vehicle business <Production, R&D>
* A special production line was built at Chery New Energy Automotive Technology Co., Ltd., a subsidiary dedicated to the development and production of new-energy vehicles. The company produced over 10,000 units in 2013 and will produce 50,000 units in 2015.
<Model plan>
* The company was authorized in September 2013 by the government to produce 11 models of new-energy vehicles. Today, the company has two models in the market, the Chery QQ3EV and the Riich M1EV, as of the end of April 2014.
* Chery Automobile plans to launch one new model a year between 2013 and 2016. The company will launch three all-new models of medium- to high-end new-energy passenger cars, the Chery A16EV, Chery S15EV and the Chery M16PHEV.
<Technical developments>
* The company developed three core components: drive batteries, drive motors and electronic control units, and their associated technologies.
* The company also developed a low-noise, low-vibration and high-performance, compact range extender for generators.
* In October 2013, the company concluded a strategic partnership agreement with Guangzhou Automobile Group regarding joint development of new-energy vehicles.
<Components and technologies under development>
* Cutting-edge technologies for HVs, alternate-fuel vehicles and other eco-cars
* Range extenders, air-conditioning heat pumps, battery thermal management, high-pressure monitoring, storage battery for driving
<Use of core components>
* In April 2012, the company signed a purchase agreement with China BAK Battery, Inc. (CBAK) for high-output lithium-ion batteries for use on Chery Automobile's Riich M1EV (product code SQR7000BEVS184).
<Sales network>
* New-energy vehicle sales and service networks has been established chiefly in eastern China since 2012. They are located in cities designated by the government as new-energy vehicle test cities such as Shanghai and Hefei in Anhui, Shandong and Henan provinces.

 

 



A strategic tie-up for compact vehicles with Guangzhou Automobile Group

 Chery Automobile has been known as an ethnic own-brand manufacturer. In recent years, however, the company is forming partnership with foreign and other Chinese manufacturers.

 For instance, Chery Automobile has a joint production partnership for passenger cars with Israel Corporation which have global marketing resources. Joint production with Jaguar Land Rover (JLR), an affiliated company of Tata Motors, will start by early 2015. Chery Automobile reportedly has not given up the possibility of joint production project with Fuji Heavy Industries, a Japanese manufacturer. This project is facing difficulty in getting necessary approval from the Chinese government.

 As for tie-ups with Chinese manufacturers, Chery Automobile has a strategic partnership for compact vehicles with Guangzhou Automobile Group that has also tied up with Honda, Toyota and Mitsubishi Motors.

 

Building stronger ties with Guangzhou Automobile Group by sharing platforms for compact vehicles

 In October 2013, Chery Automobile concluded an agreement with Guangzhou Automobile Group regarding a tie-up project. The two companies had agreed to share platforms mainly for A-class or smaller passenger cars including minicars.
 In November 2012, Chery Automobile became the first Chinese automaker to form a strategic partnership with another Chinese automaker, Guangzhou Automobile Group. The two companies are working toward a broad-range partnership including development of assembled vehicles, driving systems, core components, R&D resources, energy-saving and new-energy vehicles, global operations, production and management.
 Guangzhou Automobile Group had invested CNY 1 billion in the development of an A-class platform for mini and compact vehicles. The first model built on the new platform, the GAC Trumpchi GA3, was launched in 2013. The two companies will share the A-class platform to expand their lineup of SUV and compact vehicles.

 

 



To expand commercial vehicle production in China

 Chery Automobile has set its production goal in China in 2014 at 560,000 vehicles (on factory shipment base). Its mid-term sales goal is set at 1 million vehicles including 400,000 units for export (further breakdown is unknown).

 Chery Automobile is constructing a new plant in Wuhu, Anhui province through one of its subsidiary companies, Chery Commercial Vehicle (Anhui) Co., Ltd. It is also buying out existing commercial vehicle plants in Guiyang, Guizhou province and in Kaifeng, Henan province. These are only some of the company's production restructuring plans aimed at strengthening bus, truck and other commercial vehicle business.

 Chery Automobile is establishing a new manufacturing company in Ordos, Inner Mongolia, for producing passenger cars, commercial vehicles and custom-designed vehicles to expand sales in western China. The new plant is slated to start operations in early 2015.

 The company is also establishing production facilities in Dalian, Liaoning, that may serve as an exporting plant or a joint venture plant with Fuji Heavy Industries.

 

Joint venture parts manufacturing company formed in Wuhu: Eyeing production of passenger cars and commercial vehicles as well under Kaiyi brand

 In January 2014, Chery Commercial Vehicle (Anhui) Co., Ltd., one of Chery Automobile's subsidiary companies, established a new manufacturing company, Wuhu Kaiyi Automobile Co., Ltd., in Wuhu. The new plant will start production in 2015. The company is authorized to engage in technical development of assembled vehicles and parts, production of automotive components, and sales of large-size vehicles other than 9-seat or smaller models and their parts.
 According to MarkLines interviews with employees of companies that have capital partnership with Chery Automobile, the new company has plans to assemble vehicles as well.
 The new company is capitalized at CNY 2 billion by Chery Commercial Vehicle (Anhui) and development and investment companies affiliated with the local government of the city of Wuhu, namely Jiangbei Development Co., Ltd. and Wuhu Construction Investment Co., Ltd. The plant's annual capacity for built-up vehicles is planned for 330,000 units after the first phase and 700,000 units after the second phase of construction.
 According to media reports, the new company will produce vehicles under the Kaiyi brand representing lower segment models than the Chery brand. Its first production model will be a strategic mini-van, also dubbed multi-purpose vehicle (MPV), based on the Karry Q26. The company will introduce more mini- and mid-size vehicles and SUVs under the new brand, such as the mini-vehicles and light-duty trucks under the previous Karry brand or the Cowin series models. It appears that many of them will be built on Chery Automobile's technical platform.

 

Dalian branch plant: Increasing annual production capacity to 300,000 units of medium- and high-end passenger cars with an eye on production of Subaru-brand vehicles

 Chery Automobile has a branch plant in Dalian Free Trade Zone (reclamation land in Dayao Bay) for producing completely-built-up vehicles. The plant, operated by Chery Automobile Dalian Branch, has already started small-lot production in June 2014. The plant expansion work (phase 2) is now under way. It has been reported that the plant has annual capacity for up to 200,000 units of medium- and high-end passenger cars after the first phase of construction work. Its annual capacity will be reportedly increased to 300,000 units when the plant is completed as an exporting plant.
 The first phase of the construction work (building area of 300,000 square meters on a 1,200,000-square-meter site) was completed in August 2012. The plant has already adopted production standards based on Volkswagen's product rating standard and Japanese plant management standard. The Dalian plant will produce new models for the new series including Tiggo 5 SUV and the New Eastar, and some export models.
 A sum of CNY 4.7 billion was invested in the first phase including CNY 3 billion in fixed asset investment such as stamping, welding, coating, assembling and plastic production lines. The welding line has 108 robots (laser welders are not used). The modularized assembling line is capable of concurrently assembling four models. Up to eight different models may be produced simultaneously on the coating line.
 The Dalian plant has a test course within its premises. In consideration of the possible joint production of Subaru vehicles with Fuji Heavy Industries (FHI), Chery Automobile reportedly is leaving extra areas in the existing stamping, welding, coating and assembling plants that will accommodate additional production in the future.

 

Guizhou bus coachwork plant: Expanding large-size bus production business

 Chery has acquired a bus coachwork company in Guiyang, Guizhou province, Guizhou Wanda Coach Co, Ltd., through its commercial vehicle subsidiary. The bus coachwork company was reorganized as a bus manufacturing company, Chery Wanda Guizhou Coach Co., Ltd., in the city of Guiyang (Xiaomeng Industry Park Zone). Its first bus, the Chery Wanda large-size bus, rolled off in April 2013.
 As of July 2014, the company is manufacturing medium- and high-end route buses (as competitors to the Coast buses produced by Sichuan FAW Toyota Motor Co., Ltd.) and high-end light utility vehicles (previous Rely series). The company will build a lineup that will consist of 15 series models including buses and new-energy vehicles.
 The first phase of the plant construction work began in September 2011 with site area of 345,000 square meters. As of July 2014, it has single-shift annual capacity to produce 6,000 vehicles (3,000 buses, 3,000 light utility and other commercial vehicles). The company has plans to increase its production capacity to 30,000 units in 2020. Its cumulative sales within five years after start of operation are set at CNY 10 billion.
 A supplement parts and other production facility is under construction as of April 2013 with a total investment of CNY 800 million. The new facility has a building area of 140,000 square meters on a 200,000-square-meter-site.
▽A bus company in Wuhu: Temporarily closed down
 In June 2014, Rappan Buses Co., Ltd. located in the city of Wuhu, Anhui province (Jiujiang Economic Development Zone) was temporarily suspended from business. Chery Automobile owns 42% of the company's capital. The company was established in January 2011 and has a test course within the 333,300 square-meter plant site. It has annual capacity to produce 1,500 vehicles.
 The company's main lineup includes high-end light buses for government organizations and other official vehicle markets and medium- to large-size high-end buses. It was striving to export and expand sales to Europe, U.S. and other advanced markets. In May 2012, the company was even certified by Australian Design Rules (ADR) required for exporting its products (buses) to Australia.

 

Kaifeng plant in Henan province: Restructuring light truck and other commercial vehicle production

 Chery Automobile had a small commercial vehicle manufacturing subsidiary in Kaifeng, Henan province. The subsidiary company, Chery Automobile Henan Co., Ltd., was transferred in 2013 as part of the group's production restructuring initiative. It was transferred to Chery Holdings Limited, Chery Automobile's largest shareholder that has 40.97% ownership. Details of the transfer are unknown. However, Chery Automobile disclosed in a research conducted in March 2014 by a state-owned credit firm that the Kaifeng plant had annual capacity to produce about 50,000 fully-assembled vehicles.
 The Kaifeng plant, the construction work of which started in May 2010, remains operational as of July 2014. Approximately CNY 10 billion was invested in the plant construction. It was supposed to annually produce 200,000 units of Karry series mini vehicles and 80,000 units of light-duty trucks for construction and agricultural use.
▽Joint venture formed in Jiaozuo, Henan province for manufacturing and selling engines and engine components
 In February 2012, Chery Automobile and the local government established a joint venture, Ruiqing Automotive Engine Technology Co., Ltd. in Jiaozuo, Henan province. The new company specializes in the research and development, production and sales (export) of engines and their components. The company became operational in October of the same year with plans to increase annual production capacity to 250,000 units and eventually to 360,000 units.
 The joint venture mainly produces independently developed 372, 472, 372A and other small engines for the next-generation small-displacement models. The engines are also exported to outside China.

 

Ordos plant in Inner Mongolia: Currently under construction; to start operations in 2015

 Chery Automobile plans to complete construction of a new passenger car plant by 2015 in the city of Ordos (Dongsheng District) in Inner Mongolia. The plant reportedly has begun trial production (as of March 2014). The plant will initially produce auto parts before coachwork and assembly work of vehicles starts. When the operation gets on track, the plant will produce the Chery A13 SUVs, MPVs and pickups. Production will start with annual capacity of 200,000 units which will be eventually increased to 300,000 units.
 The company will invest CNY 20 billion in total in the new plant construction. The plant has a floor area of 1,314,000 square meters on over 4 million square-meter-site area (including 400,000 square meter site for vehicle assembly plant and 380,000 square meter site for auto parts plant). R&D center, component plants and other machining and supplement facilities will be affixed to the plant. The plant's annual sales plan is set at CNY 30 billion when the plant construction is completed. More than 10,000 workers will be hired.
▽Powertrain plant in Ordos starting production in 2014
 A Chery Automobile-affiliated powertrain manufacturing company, Ruirong Automotive Powertrain Co., Ltd., will produce powertrains that will be supplied to a passenger car branch plant which is also located in Ordos. It was once reported that the first phase of construction work would be completed and production would start in April 2014. However, actual progress has not been disclosed as of July 2014. It was also reported that small-lot production started in March 2014.
 The plant's annual capacity after the first phase construction is set at 300,000 units of the E4G13 type gasoline engines and 150,000 units of 4-speed automatic transmissions. The second phase construction will start as soon as the first phase is completed. Annual capacity after the second phase will be 350,000 units of engines (including additional 50,000 units of 3.0-liter V6 engines), and 200,000 units of transmissions (including additional 50,000 units of 6-speed automatic transmissions). The plant will hire approximately 800 workers.

 

 



(Reference) Production volume of Chery Automobile's own-brand vehicles

Passenger cars
Type Model Production volume Y-o-Y
2010 2011 2012 2013 Jan.-Apr.
2013
Jan.-Apr.
2014
2013 Jan.-Apr.
2014
Sedan/
Hatchback
Cowin 1 31,898 28,622 15,464 6,995 4,951 0 -54.8% -100%
Cowin 2 70,661 53,689 31,510 22,007 9,224 3,639 -30.2% -60.5%
Cowin 3 77,292 42,668 20,551 4,326 153 4,615 -78.9% 2916.3%
Cowin 5 - - 1,229 25 25 0 -98.0% -100%
Fulwin 1.5L 32,663 31,787 22,404 15,220 6,702 1,958 -32.1% -70.8%
Fulwin 2box 1.5L 40,794 56,544 57,073 55,862 19,501 8,588 -2.1% -56.0%
QQ3
(0.8/1.0/1.1L, EV)
153,676 147,971 144,502 115,466 47,779 22,159 -20.1% -53.6%
QQme 330 90 - - - - - -
Eastar
(1.8/1.9/2.0/2.4L)
2,801 1,145 703 452 110 157 -35.7% 42.7%
Chery A1 15,067 20,663 18,596 8,954 2,552 4,364 -51.8% 71.0%
Chery A3 3box
(1.6/1.8/2.0L)
34,725 22,019 12,005 6,763 1,135 1,286 -43.7% 13.3%
Chery A3 2box
(1.6/2.0L)
23,668 15,483 7,247 2,598 1,119 84 -64.2% -92.5%
Riich M1 2/3box
(1.0/1.1/1.3/L, EV)
23,410 7,451 867 169 67 155 -80.5% 131.3%
Riich G5 2,319 1,719 1,267 501 269 4 -60.5% -98.5%
E5
(1.5/1.8L)
0 35,196 62,342 49,443 27,778 4,154 -20.7% -85.0%
B12 0 199 410 258 102 33 -37.1% -67.6%
A22
(1.3/1.6/1.8L)
0 1,432 11,902 1,122 683 5 -90.6% -99.3%
B16 - - 1,060 92 - - -91.3% -
★Arrizo 7 - - - 12,534 0 7,185 - -
★E3 - - - 31,268 - 22,828 - -
★New QQ - - - - - 1,099 - -
Total 509,304 466,678 409,132 334,055 122,150 82,313 -18.4% -32.6%
SUV ★Tiggo 5 - - 0 4,847 0 23,758 - -
Riich M1 Small SUV 18,101 14,428 13,066 12,528 2,124 2,713 -4.1% 27.7%
X5 0 1,922 785 393 14 63 -49.9% 350.0%
Tiggo 3/DR 64,586 98,855 105,258 77,112 28,445 9,579 -26.7% -66.3%
Total 82,687 115,205 119,109 94,880 30,583 36,113 -20.3% 18.1%
MPV Rely V5
(1.8/1.9/2.0/2.4L)
11,187 6,308 1,978 1,118 640 33 -43.5% -94.8%
Karry Youya 18,571 10,494 3,299 6,650 1,374 2,323 101.6% 69.1%
Karry Youyi 877 10 1 0 - - -100% -
Total 30,635 16,812 5,278 7,768 2,014 2,356 47.2% 17.0%
Mini van Karry Youyou 61,963 30,691 13,315 20,343 8,931 5,785 52.8% -35.2%
Karry Yousheng 2,167 1,520 456 240 -29.9% -47.4%
Karry Yousheng
second generation
1,564 717 0 0 -54.2% -
Total 61,963 30,691 17,046 22,580 9,387 6,025 32.5% -35.8%
Grand total (Passenger cars) 684,589 629,386 550,565 459,283 164,134 126,807 -16.6% -22.7%
Commercial vehicles
Type Production volume Y-o-Y
2010 2011 2012 2013 Jan.-Apr.
2013
Jan.-Apr.
2014
2013 Jan.-Apr.
2014
Small
commercial
vehicles
Mini truck 7,335 6,345 11,838 17,408 7,166 6,896 47.1% -3.8%
Light bus 0 1,692 1,548 475 125 467 -69.3% 273.6%
Total (Commercial vehicles) 7,335 8,037 13,386 17,883 7,291 7,363 33.6% 1.0%
Grand total
(Chery Automobile)
691,924 637,423 563,951 477,166 171,425 134,170 -15.4% -21.7%
(Notes) 1. Models in bold letters and marked ★ are Chery Automobile's all-new strategic vehicles that were launched recently.
2. The "Riich" and "Rely" brand models are currently in the process of renaming.

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