Magna aims to sell EVs in China through JV with BAIC

Magna International is jumping on the China EV band wagon. Well, that’s not entirely correct. It was already a major player in the EV component space. Now, Magna will form two joint ventures with Beijing Automotive Industry Holding Corp aka BAIC. One joint venture will focus on engineering, the other will manufacture pure electric vehicles.

The announcement Magna and BAIC would work together first came out in April of this year. That announcement proclaimed the agreement was between BAIC and Magna Steyr, the Austria-based contract vehicle manufacturer that is part of Magna International.

The actual JV was announced in mid-June, but the parties were Magna (no Steyr) and BAIC. That is because Magna has decided to refer to all its subsidiaries as simply Magna, Klaus Drobnak, vice president fuel systems for Magna Steyr, oops, I mean Magna, told me.  Drobnak heads up Magna Steyr’s Asia business. Magna Steyr is known for engineering and manufacturing vehicles for other companies.

Magna International’s supplier business has long had a thriving presence in China. Its components are in pretty much every foreign brand car in China and many domestically-badged vehicles as well. Why jump into vehicle manufacturing in ‘China now, I asked? China “is a large market, BAIC is a strong partner. We see is as a good opportunity for us,” says Drobnak.

I saw that coming. The large market, that is. In 2017, China was the world’s largest market for electric vehicles, including battery electric and plug-in hybrid electric vehicles. Some 700,000 BEVs and PHEVs, plus a few hydrogen fuel cell vehicles, were sold in the Middle Kingdom in 2017. BAIC’s EC series of electric vehicles was far and away the top seller.

By 2025, “the forecast for (sales of) all electric vehicles in China is 5 million,” says Drobnak. That is the government’s target, I remind him. But given that this is China, that target will likely be met.  Government regulations are another compelling reason to start producing EVs in China now.  Automakers must produce a certain number of electrified vehicles each year because of several government policies, which I wrote about for Wards Auto and you can read about here.

“We think (electric vehicles) is going to be a strongly growing segment,” says Drobnak. A good bet.

Of course, the main customers for electric vehicles in China thus far have been government fleets.  That doesn’t worry Drobnak. “The first (markets for EVs) are always fleets,” he says. Drobnak figures Chinese consumers concerned about pollution will warm to electric vehicles.  He also thinks that the daily driving behavior of China’s city-dwellers fits well with the range of electric vehicles.

One market driver Drobnak isn’t counting on are vehicle registration policies making EVs license plates easier or cheaper to obtain. Though they are major reason behind consumer EV sales in many large cities now, Drobnak figures those incentives will vanish as the volume of EVs on the road rises.

China’s healthy purchase subsidies are also scheduled to be phased out in a few years.  Drobnak didn’t sound too worried about that. The price of EVs is “definitely coming down” as volumes increase, he says. As for batteries, which account for the bulk of an EVs cost, their price is also coming down as volumes increase and cell manufacturers become more capable, says Drobnak. “I am positive the sale price (for electric vehicles) will go in the right direction,” he says.

Two JVs

Magna will be the majority owner of the engineering joint venture with BAIC; the Chinese company will be the majority owner of the electric vehicle JV.  The partnership hasn’t been approved by the central government yet, but BAIC is owned by the Beijing municipal government. “Our expectation is (the two JVs) will be approved,” says Drobnak.

BAIC, through its Beijing Electric Vehicle subsidiary, already produces the EC series, which with sales of 13,169 units in 2017.  But those are small, inexpensive EVs. With the JV, BAIC will move into higher-priced segments.

The engineering JV will develop a smart EV platform suitable for a medium or premium segment model. Drobnak declined to say what style of vehicle the JV would make, but there are plenty of clues.

Magna contracts to produce one other all-electric vehicle, the just-launched Jaguar I-PACE SUV.

Magna Steyr produces the Jaguar I-Pace EV.

The SUV/CUV segment in China is the fastest growing. You be the judge of what style vehicle the Magna BAIC JV is likely to produce.

Production will be at a brownfield plant –meaning an existing plant BAIC owns — in Zhenjiang, in east China’s Jiangsu province. That plant has an annual production capacity of 180,000 units. Start of production is set for mid-2020, says Drobnak.

Zhenjiang is on the banks of the Yangtze River between Suzhou and Nanjing. That puts it smack in the middle of a technology and manufacturing hotbed in China, as well as near automakers SAIC – GM, and SAIC VW. There should be a good supplier base there, but a lot of competition for staff.

Magna has 51 manufacturing plants in China producing components ranging from electrical systems to structural and powertrain components to transmissions. It has more than 22,600 employees in China. The new JVs will boost that by more than 3,500.

Why did you decide to form a joint venture with BAIC rather than another automaker, I asked? “BAIC group has been a customer to our engineering and components for quite a while. This came out of our regular business discussion,” says Drobnak.

Beijing just said it will allow foreign automakers to own 100 percent of an electric vehicle manufacturing company. Why not go it alone, I asked Drobnak?

Most automakers are sticking with a Chinese partner, he points out.  Magna is no different. Also, BAIC is will be the new entities’ first and primary customer, he adds.

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