up, down, and sideways: innovation in china and …carnegie mellon up, down, and sideways:...

Carnegie Mellon

Up, Down, and Sideways: Innovation in China and the Case of Plug-in Electric Vehicles

DepartmentofEngineeringandPublicPolicy

John Helveston1

Erica Fuchs1

Valerie Karplus2

Yanmin Wang3

1. Engineering & Public Policy, CMU2. MIT Sloan3. Beijing Normal University

John Helveston Carnegie MellonDevelopment and Adoption of Plug-in Electric Vehicles in ChinaMarch 28, 20162

Research Questions

1. Is innovation happening amongst firms developing, producing, and selling PEVs? If so, what type?

2. Why are we observing such different forms of technological and business model innovations amongst firms developing, producing, and selling PEVs?


Scholars suggest innovation in China is limited to mass production

§ Scholars suggests China’s primary role is the scale-up of products and their production.

§ Trapped in lowest value segment in global production: o Innovations focused on product imitation, modularization, cost

reduction, and otherwise the commoditization of products (e.g. Brandt et al., 2010; Steinfeld, 2004; Ge et al., 2004)

o Incremental process innovations (e.g. Puga & Trefler, 2005)

§ Emerging, more complex role in global production:o Joining globalized production in different value chain segments

(Ernst & Naughton, 2008, 2012)

o Downstream innovation involving technology commercialization and redefinition (Breznitz and Murphree, 2011; Herrigel, 2010; Nahm, 2012)

Government push for more “自主创新” (indigenous innovation)


Institutions and Markets: Lenses into innovation in China

General China

Inst

itutio

ns (N

orth

,199

0)

• National innovation systems can create “institutional competitive advantage” (e.g. Freeman, 1995; Nelson, 1993)

• Can impact innovative performance of:• Firms (e.g. Kafouros et al., 2013)

• Entrepreneurial outcomes(e.g. Armanios et al., 2012; Eesley et al., 2013)

• Rate and direction of innovation(e.g. Scherer, 1980)

• Conflicting interests between regional and national institutions:Local interests undermining national goals for technology upgrading• Detrimental to innovation (?) or

enabling new forms of innovation centered around mass manufacturing capabilities (e.g. Nahm, 2014; Heilmann et al., 2013)

Mar

kets • Larger vs. smaller market size

(e.g. Acemoglu et al., 2003)

• More vs. less competition (e.g. Arrow 1962; Schumpeter, 1942)

• Market shift towards domestic consumption is deepening technological upgrading amongst domestic firms (e.g. Brandt et al., 2010)


Inductive grounded theory-building

§ Vehicle Sales Data: (Jan. 2003 – Dec. 2014)o CAAM annual sales (make, model): Hand-copied from annual automotive year bookso Gasgoo.com monthly sales (make model): Web-scraped using custom-built Python scraper

§ Archival data: o >30 news reports (Automotive News China, China Auto Web)o >30 published Chinese papers (subjects: historical accounts of domestic automotive firms,

innovation in China)

Case Study Firm Organization Position InterviewsJV Auto Firm Manager 7JV Auto Firm Engineer 3

CheryIndependent Auto Firm Founder 1Independent Auto Firm Manager 4Independent Auto Firm Engineer 5

HaikeIndependent Auto Firm Co-Founder/Engineer 1Independent Auto Firm Co-Founder 1

JiayuanIndependent Auto Firm Founder/CEO 1Independent Auto Firm Engineer 1

Kandi Independent Auto Firm Manager 2Consulting Firm Consultant 2Government Analyst 2Non-profit Consultant 2Non-profit Researcher 1University Researcher 3

News Outlet Reporter 137

Interviews (2014 – 2015): 37 in-depth interviews using snowball technique


Technology upgrading strategy since 1978: 以市场换技术 = “Exchange market for technology”

Joint Venture policy goal: technology transfer from foreign to domestic

Independent

JV

SAIC-VW

JV

SAIC-GM

JVParent

ShanghaiMotors


JV firms have relied on foreign brands/technology to gain market share

DataSource:ChineseAssociationofAutomotiveManufacturers(CAAM),ChinaAutomotiveIndustryYearbooks.

BAIC

New

Energy

BAIC

BeijingChanghe

Foton

Huansu

HyundaiMercedes Benz

Suzuki

BYD

Chang'an

DS

Ford

MazdaSuzukiVolvo

Chery

Ciim

o

Citroen

Dongfeng Honda

Kia

Luxgen

Nissan

Peugeot

Venucia

Audi

Besturn

FAW

Haima

Mazda

Toyota

Volkswagen

Xiali

Benz Mitsubishi

Soueast

Changfeng

Ever

us

FiatGACGonow

Honda

Mitsubishi

Toyota

Trumpchi

Geely

Volvo

Hawtai

JAC

JianglingLifan

Baojun

Buick

Cadi

alla

c

Chevrolet

MGMaxus

RoeweSkoda

Volkswagen

Wuling

Lotus

Zotye

Honda

BAIC

BYD

Chang'an

Chery

Dongfeng

FAW

Fujian

GAC

Geely Jonw

ayHawtai

JAC

JianglingYemaLifan Q

oros

SAIC

SGYoungman

ZXAuto

Zotye

2014 Passenger Vehicle Sales in China (Total = 19.7 million)

3.24

5.222.94

2.08

1.78

1.18

0.48

0.46

0.44

0.20

0.17

0.16

BMW

Jinbe

i

Zhonghua

Brilliance0.43

Great Wall

Haval

0.61Great Wall

Box size indicates market share

OEMSales

BrandIndependentJoint

Venture (JV) JV Parent

Firm TypeLegend

BAIC

New

Energy

BAIC

BeijingChanghe

Foton

Huansu


Suzuki

BYD

Chang'an

DS

Ford

MazdaSuzukiVolvo

Chery

Ciim

o

Citroen

Dongfeng Honda

Kia

Luxgen

Nissan

Peugeot

Venucia

Audi

Besturn

FAW

Haima

Mazda

Toyota

Volkswagen

Xiali

Benz Mitsubishi

Soueast

Changfeng

Ever

us

FiatGACGonow

Honda

Mitsubishi

Toyota

Trumpchi

Geely

Volvo

Hawtai

JAC

JianglingLifan

Baojun

Buick

Cadi

alla

c

Chevrolet

MGMaxus

RoeweSkoda

Volkswagen

Wuling

Lotus

Zotye

Honda

BAIC

BYD

Chang'an

Chery

Dongfeng

FAW

Fujian

GAC

Geely Jonw

ayHawtai

JAC


oros

SAIC

SGYoungman

ZXAuto

Zotye


3.24

5.222.94

2.08

1.78

1.18

0.48

0.46

0.44

0.20

0.17

0.16

BMW

Jinbe

i

Zhonghua

Brilliance0.43

Great Wall

Haval

0.61Great Wall


OEMSales



Firm TypeLegend

BAIC

New

Energy

BAIC

BeijingChanghe

Foton

Huansu


Suzuki

BYD

Chang'an

DS

Ford

MazdaSuzukiVolvo

Chery

Ciim

o

Citroen

Dongfeng Honda

Kia

Luxgen

Nissan

Peugeot

Venucia

Audi

Besturn

FAW

Haima

Mazda

Toyota

Volkswagen

Xiali

Benz Mitsubishi

Soueast

Changfeng

Ever

us

FiatGACGonow

Honda

Mitsubishi

Toyota

Trumpchi

Geely

Volvo

Hawtai

JAC

JianglingLifan

Baojun

BuickCa

dial

lac

Chevrolet

MGMaxus

RoeweSkoda

Volkswagen

Wuling

Lotus

Zotye

Honda

BAIC

BYD

Chang'an

Chery

Dongfeng

FAW

Fujian

GAC

Geely Jonw

ayHawtai

JAC


oros

SAIC

SGYoungman

ZXAuto

Zotye


3.24

5.222.94

2.08

1.78

1.18

0.48

0.46

0.44

0.20

0.17

0.16

BMW

Jinbe

i

Zhonghua

Brilliance0.43

Great Wall

Haval

0.61Great Wall


OEMSales



Firm TypeLegend


Plug-in sales dominated by independent, non-JV brands

DataSource:EVSalesBlog(http://ev-sales.blogspot.com/)

2014 Plug−in Vehicle Sales in China (Total = 59,143)

BYD

Chery

Kandi

JACSAICSpringo

Venucia

Zotye

BAIC

BYD Chery

Kandi

JACSAIC

Tesla*

Dongfeng

Zotye

18,439

12,592

8,605

7,542

5,234 3,831

1,368 950 582


OEMSales

Brand

BAIC Tesla

*Imported

IndependentJoint Venture (JV) JV Parent

Firm TypeLegend

*Imported

“Selling gas cars makes money! The business case (for EVs) is weak. Margins (for CVs) in the west are only 3-5%, but in China they're around 10%!”- Former manager for JV firm


BYD

Chery

Kandi

JACSAICSpringo

Venucia

Zotye

BAIC

BYD Chery

Kandi

JACSAIC

Tesla*

Dongfeng

Zotye

18,439

12,592

8,605

7,542

5,234 3,831

1,368 950 582


OEMSales

Brand

BAIC Tesla

*Imported


Firm TypeLegend


BYD

Chery

Kandi

JACSAICSpringo

Venucia

Zotye

BAIC

BYD Chery

Kandi

JACSAIC

Tesla*

Dongfeng

Zotye

18,439

12,592

8,605

7,542

5,234 3,831

1,368 950 582


OEMSales

Brand

BAIC Tesla

*Imported


Firm TypeLegend


Chery Haike Jiayuan Kandi

Ownership & Funding:

Wuhu Gov’tPrivate

InvestorsPrivate

(Crowd sourced)Private

Investors (KNDI)

Year Est.: 1997 2012 1982 2012

Tech. Origins: Auto parts Formula racing BEVsBatteries, CVs,

BEVs

Products:CV,

BEV, PHEVFlywheel Hybrid

TransmissionLSEV,BEV

BEV, Car Share Service

2014 Domestic Sales:

357,585 CVs8,605 BEVs NA NA

BEV Car share: Hangzhou (20k),

9 other cities (14k)BEV Sales: 11k

2014 Exports: 108,238 CVs NA 500 BEVs NA

2015 Milestones:5,337 BEVs Jan. – Jun.

Begin pilotproduction

Obtain license,begin LSEV sales

~20k BEV sales, car share in 9 cities

Overview of Case Study Firms

eQ BEVFlywheel

Transmission1 Lingzu LSEVBEV Car

Share Tower

Chery (Wuhu)

Haike (Changzhou)

Kandi (Hangzhou)

Jiayuan (Nanjing)

1: http://www.chk-net.com/en/images/productbanner.jpg


New

er/E

mer

ging

Innovating Up / Down (Technology) and Sideways (Business Strategy)Te

chno

logy

Organizational / Business Strategy

Newer/Emerging

Old

er

Older

“DOWN”Combining / redefining older

technologies in innovative ways to enter new markets

“SIDEWAYS”Combining technology with new organizational and

business strategies to enter new markets

“UP”Advancing the technological

frontier of the industry to enter new markets


Chery Auto: 脚踏实地 (Stepping on Solid Ground)

eQ BEVPrice: $15k

QQ5 CVPrice: $6k - $8k

New

er/E

mer

ging

Tech

nolo

gy

Organizational / Business StrategyNewer/Emerging

Old

er

Older

Chery

Innovating “UP” with BEVs

Institutions:

Early protection critical for transitioning from parts supplier to automaker

Markets: Began PEV R&D at founding in 2001 to “capture the opportunity”– Assistant Manager to CEO


Haike Technologies: ⼤巧若拙, ⼤道⾄简 (“Dumbing down is the way up”)

FlywheelDifferential

Planetary Gear

Electric Control Motor

New

er/E

mer

ging

Tech

nolo

gy


Old

er

Older

Haike

Innovating “DOWN” with low-cost flywheel hybrid transmission

Institutions:

Chose Changzhou as headquarters “for it’s strange level of support” (free office space, low pilot production facility rent)– Haike Co-founder

Markets: Virtually no HEV competition in China (JV requirements & patent block)


Jiayuan EVs: 存在就是合理的 (“If it exists, it must be reasonable”)

Lingzu LSEV$3,000 - $4,500

“Real car” conveniences

New

er/E

mer

ging

Tech

nolo

gy


Old

er

Older

Jiayuan

Innovating “DOWN” with low-speed EVs

Institutions:

Unable to acquire automotive production license without producing CVs

Markets: “An EV must be something that there is a real market for, that people are willing to purchase…so that’s why I aimed this product towards this market segment.” – Jiayuan Co-founder


Kandi Technologies: 异曲同⼯ (Different Tune, Equally Melodic)

Vertical BEV “vending machine”

New

er/E

mer

ging

Tech

nolo

gy


Old

er

Older

Kandi

Innovating “SIDEWAYS” with BEV car-sharing

Institutions:

Grew out of multiple Hangzhou government-sponsored demonstration andR&D projects

Markets: Solves PEV parking and charging infrastructure constraint by developingBEV “vending machine”


New

er/E

mer

ging

Multiple firms innovating in a wide variety of directionsTe

chno

logy

Organizational / Business Strategy

Newer/Emerging

Old

er

Older

“DOWN”Combining / redefining older

technologies in innovative ways to enter new markets

Haike

Jiayuan

“SIDEWAYS”Combining technology with new organizational and

business strategies to enter new markets

Kandi

“UP”Advancing the technological

frontier of the industry to enter new markets

Chery


Chinese firms innovating in variety of directions in PEV sector

Existing Theories Contributions

China’s primary role is the scale-up of products and their production:• Trapped in lowest value segment

in global production (e.g. Brandt et al., 2010; Steinfeld, 2004, 2010; Ge et al., 2004)

• More complex role in global production(Ernst & Naughton, 2008, 2012l; Breznitz et al., 2011;Herrigel, 2010; Nahm, 2012)

Chinese firms innovating in variety of directions in PEV sector:• UP: Advancing the technological

frontier• DOWN: Combining / redefining

older technologies in innovative ways

• SIDEWAYS: Combining technology with new organizational and business strategies


Contributions to Theory: Innovation & the Co-evolution of Institutions & Markets

Existing Theories Contributions

National Institutions

JV system leads to “passive” learning mode, leaving innovation capabilities undeveloped in Chinese JV parent firms(Nam, 2011; Howell, 2016)

JV system may be inadvertently protecting independent firms from tough foreign competition, enabling market opportunities

Regional Institutions

Conflicting interests between regional and national institutions, enabling new forms of innovation centered around mass manufacturing capabilities (e.g. Nahm, 2014; Heilmann et al., 2013)

Local protectionism may be serving as an incubator, allowing a wide variety of innovations to emerge

Markets

Market shift towards domestic consumption is deepening technological upgrading amongst domestic firms (e.g. Brandt et al., 2010)

PEVs meeting different market needs; size and heterogeneityof China’s domestic market may be enabling demand for the large variety of innovations


Institutions may need to evolve to support future expansion

§ Strong national innovation systems require firms to be exposed to global competition (Nelson, 1993)

§ As domestic firms grow beyond protected regional markets, institutions may need to evolve to support future expansion. o e.g.: Implementation of current national charging standard differs by

location, often favoring local charging infrastructure suppliers.

Chery Haike Jiayuan Kandi

2014 Domestic Sales:

357,585 CVs8,605 BEVs NA NA

BEV Car share: Hangzhou (20k),

9 other cities (14k)BEV Sales: 11k

2014 Exports: 108,238 CVs NA 500 BEVs NA

2015 Milestones:5,337 BEVs Jan. – Jun.

Begin pilotproduction

Obtain license,begin LSEV sales

~20k BEV sales, car share in 9 cities

Plug-in vehicle sector still young


Acknowledgements

ContactInfoEmail:[email protected]:www.jhelvy.comWechat (微信):jhelvy

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up, down, and sideways: innovation in china and …carnegie mellon up, down, and sideways:...

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