Afton Chemical presents Made in China: energizing the export market

Made in China: energizing the export market

August 2020

© 2020. Afton Chemical Corporation is a wholly owned subsidiary of NewMarket Corporation (NYSE:NEU). 08/20.

The information in this bulletin is, to our best knowledge, sure and accurate, but all recommendations or suggestions are made without guarantee since the conditions of use are beyond our control. Afton Chemical Corporation and its affiliates disclaim any liability incurred in connection with the use of these data or suggestions. Furthermore, nothing contained herein shall be construed as a recommendation to use any product in conflict with existing patents covering any material or its use.

2

Made in China: energizing the export market Chinese OEMs are still largely unfamiliar to most mature market consumers, despite their role in accelerating electric vehicle technology thanks to strategic government support. While their overseas market is still small compared to domestic sales, exports are set to grow in significance worldwide with eMobility acting as the driving force.

Get a glimpse into the future with Afton’s guide to who’s doing what.

China Top 10 Export OEMs 4

CNHTC DAQING VOLVO

4.4

JAC

4.5 5.8

GEELY GWM

6.5

CHANGAN

6.8 8

BAIC

8.6

DONGFENG

9.6

CHERY

By some considerable margin, China is the world’s largest automotive market. Over 21 million new cars were produced and sold there in 2019; whilst down two million from its peak a few years ago, China is still bigger than the US or European markets and represents a third of sales worldwide.

New car sales are typically stimulated by various government incentives, making China responsible for around half of global sales growth.

2019 New Car Sales China Brilliance Automobile Group 3% Chery Automobile Group 3% Great Wall Motor (GWM) 4%

Other total 4%

SAIC (Shanghai Automotive Industry Corporation (Group)) 26%

Changan/Chana (Changan Automobile (Group)) 6% Geely Holding Group 7% BAIC Group 8% Guangzhou Automobile Group 10%

FAW (China FAW Group Corp.)

15% Dongfeng (Dongfeng Motor Corporation) 14%

Source: Marklines

For years, Chinese automakers focused on domestic sales.

Consumer purchase decisions were driven primarily by cost and safety concerns, rather than technology and design. That has been gradually changing, and in 2019 over three-quarters of a million Chinese-made cars were exported; 80% of this volume came from just 10 OEMs. Exports are mainly targeted at developing markets, which is why consumer awareness of Chinese auto brands still remains fairly low in mature markets.

28.5

SAIC

0

5

10

15

20

25

30

China Top-10 export OEMs, 2019, x10k units. Source: CAAM

Established brands in China This lack of awareness sits in stark contrast to Chinese consumers’ familiarity with foreign marques. Overseas brands made up over half of China’s new car sales in 2019 and of the top ten brands, four were German, two Japanese and only four domestic. Sales have been fuelled by the increasing desire, aspiration and affluence of city dwellers and their demand for quality and reliability. Volkswagen, for example, has remained at or near the top of Chinese sales charts pretty much since its arrival in the mid 80s.

Opening up the Chinese market to overseas brands, in many cases through joint ventures, has given domestic OEMs an essential drip feed of well-developed vehicle technology and manufacturing expertise over the years. A well-known Chinese proverb states: ‘Better to grow slowly than to stand still’; perhaps an apt way to describe the country’s automotive industry thus far.

All that is now poised to change. That’s not just because COVID-19 sent the Chinese auto industry into temporary freefall, with an 80% drop in YOY sales in January and February 2020. It’s because Chinese OEMs are finally on the front foot with new technology – particularly when it comes to eMobility.

Years of investment now appear ready to bear fruit – not just at home, but in the much-coveted markets of Europe and the US.

China’s drive for electrification Huge barriers such as refined designs and tight emissions regulations make entry into today’s well-established auto market a near-impossible challenge. However the Chinese government has been instrumental in pushing innovation and electrification as an alternative.

State subsidies, incentives and quotas have greatly helped

© 2020. Afton Chemical Corporation is a wholly owned subsidiary of NewMarket Corporation (NYSE:NEU). 08/20.

The information in this bulletin is, to our best knowledge, sure and accurate, but all recommendations or suggestions are made without guarantee since the conditions of use are beyond our control. Afton Chemical Corporation and its affiliates disclaim any liability incurred in connection with the use of these data or suggestions. Furthermore, nothing contained herein shall be construed as a recommendation to use any product in conflict with existing patents covering any material or its use.

3

Made in China: energizing the export market drive New Energy Vehicle (NEV) development and adoption.

Some individual mega-cities limit in the number of new vehicle registrations permitted each year – except for pure electric vehicles, which have therefore shown considerable growth.

Though some like Shanghai and Guangzhou are relatively loose, restrictions in Beijing are well-established. Further industry stimulus comes from a mandate that Chinese batteries must be used in all domestic BEVs. Both traditional OEMs and start-ups can access all manner of NEV development subsidies, but there is a stick as well as a carrot. OEMs are governed by a complex dual-credit system that requires them to improve the fuel efficiency of their ICE vehicle range and to sell a minimum number of NEVs each year. In practice, this has tended to encourage NEV sales ahead of ICE efficiency improvements. Legislation in draft currently aims to redress the balance and may increasingly promote hybrid rather than pure BEV solutions.

State-owned SAIC Motor is China’s biggest automaker, one of the traditionally named Big Four, and the leading exporter of cars by some margin; possibly helped by the familiar heritage of its core brands. SAIC positions itself as an innovator offering reliability, with marketing that suggests a growing focus on visual appeal.

MG vehicles, alongside Roewe (using technology bought from Rover, the brand name being excluded from the sale package), are already successfully exported. The electric MG ZS, for example, is reaching into Western Europe as of late 2019 and is positioned as a stylish yet practical family car.

The emissions credentials of its NEVs are what will likely help China unlock the door to mature markets overseas. NEV sales more than doubled 2018-2019 to over one million, reaching a market share of around 5% and then remaining fairly stable (-4%) in 2019 during a year in which ICE sales shrank significantly. European, Japanese and US manufacturers have also made strides, with some – for example Tesla – achieving considerable success in China in their own right.

Tax breaks for Chinese new car buyers have been extended to end of 2022 in the wake of COVID-19. Additionally, China is looking well beyond its borders to continue this growth.

Supporting the future of EVs The most critical state support for electrification comes in the form of infrastructure, which includes China’s strong commitment to building a broad and effective charging network as well as establishing dedicated autonomous driving zones (for geofenced robotaxis, in the first instance) within its larger cities.

Chinese OEMs have not only embraced electric vehicle development and production, many are investing in the whole value chain. Their interests and investments range from battery technology and management systems, faster charging and hybrid control units, to fuel cell, hydrogen and alcohol vehicles; even extending to 5G and satellite networks that will enable fully connected and autonomous driving.

So, what new marques and models might we expect to see outside China in the not too distant future, and which OEMs produce them?

These brands are complemented by joint ventures. SAIC VW has just finished a new NEV plant that will produce VW, Audi and Skoda EVs from October 2020. All will be based on VW’s new energy MEB platform. It also has joint ventures with GM, focusing on higher margin brands such as Buick and Chevrolet, while maintaining its entry-level presence through the Baojun brand, in association with GM and Wuling.

SAIC’s continued development of PHEV, battery management and fuel cell technology is complemented by its strategic alliance with Alibaba Group, aiming to lead intelligent connected vehicle solutions using 5G.

Chery Also state owned, Chery is the next biggest car exporter.

With ‘Fun to Drive’ as its company slogan, it has increasingly prioritized design, quality and reliability in its marketing to compete against European and US brands and foster favour with a young, demanding consumer base. It produces the Karry, Chery and Cowin domestic brands, exporting its Arrizo sedan, and the Tiggo and Jetour SUVs – of which the Tiggo e is its electric compact SUV offering.

SAIC Motor

© 2020. Afton Chemical Corporation is a wholly owned subsidiary of NewMarket Corporation (NYSE:NEU). 08/20.

The information in this bulletin is, to our best knowledge, sure and accurate, but all recommendations or suggestions are made without guarantee since the conditions of use are beyond our control. Afton Chemical Corporation and its affiliates disclaim any liability incurred in connection with the use of these data or suggestions. Furthermore, nothing contained herein shall be construed as a recommendation to use any product in conflict with existing patents covering any material or its use.

4

Made in China: energizing the export market

It has a dedicated lightweight aluminium EV platform to improve driving range and increase safety, which also features in its 3-door hatchback – the eQ1. This platform could be extended to its sedan and other SUV applications.

Cooperation with BAIDU Apollo has already supported mass production of level 2 autonomous tech; an L3 upgrade is expected in 2020.

Chery has a joint venture with Jaguar Land Rover, including a new R&D and powertrain plant that enables it to tap into the fastest-growing (and now biggest) segment in China, SUVs – particularly the luxury end of the market. In joining forces with China Unicom, Chery will also be developing 5G interconnected and intelligent driving applications.

Its DF Honda venture launched the first of 10 promised NEV models with its electric SUV, the Siming X-NV, in late 2019 – just as DF Renault launched a competitor, the K-EZ. ‘Move to Electric’ is the publicized strategy of DF Peugeot, which plans to launch three NEV car and SUV models in the first half of 2020.

BAIC Also state-owned, with the strapline ‘Your Wish – Our Ways’, the company offers numerous domestic models including Senova, Changhe, Wei Wang and Foton. It also has joint ventures with the likes of Magna, Mercedes Benz and Hyundai.

BAIC already exports its Senova and the EU300 BEV to developing markets around the world.

Dongfeng Currently operating under the strapline ‘Drive Your Dream’, Dongfeng is another of the Big Four state-owned Chinese automakers. Strong in heavy-duty as well as passenger vehicles, it has R&D and design centres in Germany and Sweden as well as China, and has become markedly more focused on styling and global consumer appeal in recent years.

Dongfeng’s own brands include the Joyear range of family cars and SUVs and the popular AX-7. With the aim of increasing EV sales to 30% of its total by 2022, it plans to roll out 20 new EV and hybrid models – traditionally targeted at the low to mid end of the market. Dongfeng is also working on the 2020 launch of its own premium NEV brand – currently codenamed ‘H’ – to target the mid to high end of the sector.

The company also runs numerous joint ventures with Kia, Renault, Infiniti, Yulon, Honda, Nissan, Peugeot and Citroen.

Dongfeng’s partnership with Infiniti is aiming for 25% electrified sales in 2022 with a target of 100% by 2025.

BAIC’s BJEV entity is dedicated to promoting electrification and makes considerable investment in NEV R&D. Its research focus is on battery pack, eMotor and eControl technology as well as intelligent connectivity. This drives forward its strategy of promoting high- and mid-end electric vehicles to harness the higher brand equity and profits that these can offer.

BAIC launched its pre-production ARCFOX N60 at the end of 2019. The ARCFOX is due to go into production in 2020 and is

© 2020. Afton Chemical Corporation is a wholly owned subsidiary of NewMarket Corporation (NYSE:NEU). 08/20.

The information in this bulletin is, to our best knowledge, sure and accurate, but all recommendations or suggestions are made without guarantee since the conditions of use are beyond our control. Afton Chemical Corporation and its affiliates disclaim any liability incurred in connection with the use of these data or suggestions. Furthermore, nothing contained herein shall be construed as a recommendation to use any product in conflict with existing patents covering any material or its use.

5

Made in China: energizing the export market based on BAIC’s electric vehicle platform, IMC. It will boast a steel-aluminium body, a combined range of over 600km, and claims 0-100kmh in just 5 seconds. Interactive features will allow the car to employ voice, gesture and facial recognition.

Changan Another of the Big Four domestic players is state-owned Changan, with a broad range of SUV models. The company name means ‘lasting safety’ and its slogan is Driving Forward with You! Increasingly more oriented towards styling, the company has brought together designers from around the world to increase desirability, as well as promoting the latest connectivity.

Its volume brand, Haval, is the domestic SUV leader and a successful export, now also being manufactured in Russia.

Haval markets itself on quality and strong cost performance, offering a sensible investment that continues to show good residual values.

Its Wey brand targets instead the luxury SUV segment, targeting a younger urban audience, and has plans to enter Europe in 2021 and the US in 2023. Wey is pursuing global SUV leadership with a mix of hybrid, PHEV and ICE offerings.

It has one joint venture with Mazda and another one with Ford.

Changan’s CS series, including the petrol CS35, is currently exported.

Ora is Great Wall’s electric car budget brand, with which the company is targeting markets such as India.

Changan’s NEV strategy is called Mission Shangri-La. It aims to sell only NEVs from 2025 onwards and plans to launch 30 models by accelerating its R&D – both alone, and with selected partners. Targets include ultra-rapid 5-minute charging for 100km and a range of over 1000km.

Its 2nd gen hybrid powertrain system is ready for production during 2020, and Changan is also improving battery assemblies, battery management systems and wireless charging technology. Its L3 autonomous driving tech should also reach the mass production stage in spring 2020.

Great Wall Motors SUV manufacturer Great Wall Motors was the first privatelyowned Chinese OEM to go public. It has since invested heavily in building technical expertise.

With its overall emphasis on ‘clean tech’ rather than pure eMobility, Great Wall is working on petrol engine efficiency and lower emissions in parallel with its NEV R&D. The latter spans battery, e-motor and e-control systems and platform development for PHEV, BEV and fuel cell vehicles (FCEV).

GWM’s first fuel cell platform is due to be revealed during 2020, launching at the Winter Olympics in Beijing.

BMW signed a joint venture with Great Wall to create Spotlight Automotive in 2018; its new plant, to be built by 2022, will soon be producing all-electric Mini cars for China.

© 2020. Afton Chemical Corporation is a wholly owned subsidiary of NewMarket Corporation (NYSE:NEU). 08/20.

The information in this bulletin is, to our best knowledge, sure and accurate, but all recommendations or suggestions are made without guarantee since the conditions of use are beyond our control. Afton Chemical Corporation and its affiliates disclaim any liability incurred in connection with the use of these data or suggestions. Furthermore, nothing contained herein shall be construed as a recommendation to use any product in conflict with existing patents covering any material or its use.

6

Made in China: energizing the export market Geely Privately-owned Geely is the domestic leader. Until recently its export models were limited to the Emgrand sedan and hatchback. Many of its brands will be familiar, though, including Proton, Lotus, Polestar and Volvo. The latter’s reputation for safety has helped the brand’s popularity. Geely also owns the London Electric Vehicle Company, which launched the UK’s new electric black cab in 2018.

The 2015 ‘Blue Geely’ campaign set an ambitious target for NEVs to represent 90% of annual sales by 2020. Like most OEMs, this figure is still under 10%, although progress has been made. Geely is working on a number of NEV roadmaps, including Hydrogen and Alcohol vehicles, and its PHEV and BEV solutions feature in existing models.

Geometry, launched in 2019, is Geely’s premium domestic NEV brand. The Geometry A sedan, designed to take on Tesla’s Model 3, offers L2 autonomous driving and sells in Singapore and Europe. The Geometry C aims to become the world’s first mass-produced self-driving all-electric SUV with a target launch date of 2022, the year Geely sponsors all-electric autonomous transportation for the 19th Asian Games.

faster and more accurate GPS-based autonomous driving features. There’s even talk of making a flying car one day…

Other large domestic OEMs While some key OEMS in China have remained smaller players in the export market to date, the sheer number of sizeable domestic players is notable. These include but are not limited to: FAW (First Automobile Works) was, as the name suggests, the first automotive company in China and is also one of the Big Four. Well known for its commercial vehicle heritage, it also produces a high volume of domestic passenger cars. Its wellestablished brands, such as Bestune and Hongqi, sit alongside joint ventures with VW and Toyota. FAW plans to launch a luxury electric SUV in China during 2020, promising L4 (hands off) autonomous driving capability.

Geely has also just signed a new EV joint venture with Mercedes Benz called Smart Automotive, to launch Smart BEVs in China in 2022.

Lynk & Co will be the brand that spearheads Geely’s 2020 export initiative. Made in China and pitched as ‘a union of European design and technology with global production’, it aims to compete with existing top line brands. Only PHEV and EV models will be offered for export and the company’s focus will be on subscriptions, targeting younger consumers who don’t want the expense or long-term commitment of buying a car.

JAC jointly produces the NIO NEVs, has a joint venture with VW and also has a joint venture with Huawei for intelligent driving solutions. Its latest premium SUV, the ES8, has just achieved its promised 2020 launch in China.

In March 2020, Geely’s holding company began building the first non state-owned satellite production and testing facility in China, preparing to start launching its own low-orbit satellite network by the end of the year. This is to support greater data processing demand and high-speed connectivity, enabling

© 2020. Afton Chemical Corporation is a wholly owned subsidiary of NewMarket Corporation (NYSE:NEU). 08/20.

The information in this bulletin is, to our best knowledge, sure and accurate, but all recommendations or suggestions are made without guarantee since the conditions of use are beyond our control. Afton Chemical Corporation and its affiliates disclaim any liability incurred in connection with the use of these data or suggestions. Furthermore, nothing contained herein shall be construed as a recommendation to use any product in conflict with existing patents covering any material or its use.

7

Made in China: energizing the export market BYD (Build Your Dreams) offers advanced NEV technology across 11 sales models, and is a strong influencer in the domestic NEV market. Considerable experience and expertise in the fast-growing electric bus market, both domestically and overseas, has driven BYD’s considerable investment in battery technology. Its much-vaunted Blade Battery development, which claims superior power density and therefore driving range, is due to be mass-produced during 2020 and applied to the company’s Han model.

with L2 autonomy – with plans for mass production of L3capable ADiGO-equipped models soon.

Smaller domestic OEMs

2020 will see BYD dip its toe into the European electric car market with PHEV model the Tang EV600, starting in NEVfriendly Norway. This move will be followed by the European launch of its electric medium and heavy duty trucks later in the year.

Given the rapid pace of electrification in China and the attractive size of its domestic market, a raft of electric-vehicle start-up OEMs sprouted in the last five years or so including the likes of NIO, Li, XiaoPeng, Weltmeister, Enovate, Iconiq, Aiways, Leapmotor and Byton. With strategic support and infrastructure from the government for electric vehicles, and quality components available competitively from local tier-1 suppliers, breaking down the barriers to becoming an automaker seemed within reach. However, many have not been able to survive a shift away from BEV focus and the entry of Tesla to the Chinese market. Those that do emerge victorious and survive may become significant players.

Is the future electric?

The common thread between all these manufacturers is their unprecedented rate of development of electric vehicle platforms and technologies, with a strong focus on batteries, battery management systems, and hybrid and electric control systems.

GAC Motor Part of long-running state-owned GAC Group, GAC is focused mainly on passenger vehicles with domestic brands such as Trumpchi and joint ventures including Toyota, Mitsubishi and Fiat. It has a dedicated NEV arm producing EV and hybrid Trumpchi models as well as its own EV brand, Aion, which are targeting the US and European markets as well as domestic and emerging markets. GAC recently completed a joint venture factory with transmission supplier Aisin, including automatic transmissions and NEV with production beginning in 2020. Its intelligent connectivity system, ADiGO, features in the Aion S

If even half of these Chinese OEMs can deliver their challenging NEV targets over the coming years, we’ll likely see a lot more of these brands worldwide by 2025. With the surge towards the highest levels of autonomous driving, some of them may have no driver at the wheel – and others, no steering wheel at all.

Perhaps for the next five years, a more appropriate proverb for China’s auto industry might be: ‘Why walk when you can run?’

Or in the case of Geely, ‘Why drive when you can fly?’

© 2020. Afton Chemical Corporation is a wholly owned subsidiary of NewMarket Corporation (NYSE:NEU). 08/20.

The information in this bulletin is, to our best knowledge, sure and accurate, but all recommendations or suggestions are made without guarantee since the conditions of use are beyond our control. Afton Chemical Corporation and its affiliates disclaim any liability incurred in connection with the use of these data or suggestions. Furthermore, nothing contained herein shall be construed as a recommendation to use any product in conflict with existing patents covering any material or its use.