TOKYO -- Wanxiang Group is putting the auto business on notice: It intends to become a force capable of rivaling Western and Japanese manufacturers of green cars and components.
China's largest autoparts supplier plans to spend 200 billion yuan ($30 billion) over the next 10 years on facilities for developing and producing electric and other light-on the-planet vehicles, along with parts for them. The company intends to capitalize on the technologies of U.S. businesses it has acquired; it expects increased production volumes to bring down costs.
With such a massive investment, Lu Guanqiu, Wanxiang's founder and chief executive, is essentially staking the company's future on clean cars.
The company is headquartered in a relatively modest building in a suburb of Hangzhou, Zhejiang Province. The street is lined with fruit shops and sundry stores. Don't let the humble environs fool you -- Wanxiang is one of the world's top 20 autoparts suppliers, with annual sales of around $20 billion.
Its axles, brakes and other chassis parts are sold to a wide range of customers, including Japanese automakers and luxury marques like Audi of Germany. Now it plans to concentrate its resources on electric vehicles and plug-in hybrids.
In an interview with The Nikkei, Lu said the 10-year, 200 billion yuan investment plan focuses on four segments: batteries, electric buses, electric cars and parts for such vehicles.
On an annual basis, that translates into about half what Denso, Japan's largest autoparts maker, devotes to R&D and capital outlays. Lu said he will pour all cash reserves and all profits earned from other fields into these endeavors.
The principal goal for the time being is to lower the prices of batteries -- the core component of electric vehicles -- by two-thirds, according to Lu. Wanxiang, which currently supplies batteries to more than 10 automakers, plans to double its production capacity in the next three years.
The company aspires to become the world's No. 2 supplier of batteries for electric vehicles in five years; it has yet to crack the top three.
Wanxiang has grown by acquiring foreign companies with competitive technologies. In 2013, it bought A123 Systems, a bankrupt manufacturer of electric car batteries that had received U.S. government funding. In 2014, the Chinese supplier purchased the bankrupt Fisker Automotive Holdings, now Karma Automotive, which makes high-end plug-in hybrids.
Wanxiang started developing electric vehicles on its own in 1999 but struggled to produce marketable products. Since acquiring A123, the Chinese company has been developing cutting-edge electric car tech in the U.S. Its green car business is taking off, according to a senior executive of a battery materials company that supplies A123.
Room to grow
Lu said he has harbored ambitions to manufacture cars since the 1980s. He believes his company has a good shot at becoming competitive in electric and fuel-efficient vehicles -- though not in conventional gasoline-powered cars, where established automakers have too much of a head start.
When it comes to passenger vehicles, Wanxiang will focus on plug-in hybrid technology for the time being, due to the lack of recharging infrastructure in most markets. The company aims to roll out new Karma cars in the U.S., possibly by this summer. Lu envisions selling the vehicles in China in three to five years.
Buses are a different story. Wanxiang plans to manufacture electric ones straight away. This is because buses generally run on fixed routes, which makes it easier to set up charging stations. Wanxiang has established a company to manufacture electric buses in a partnership with SAIC Motor, China's largest automaker.
The Chinese market for green vehicles is still small. "New energy cars" -- a term that covers electric vehicles and plug-in hybrids -- accounted for only 330,000, or 1%, of all new car sales in China in 2015. But the growth was sharp: 3.4 times more of the cars were sold, compared to the previous year.
Strong support from the Chinese government means the green pie is likely to keep expanding. Beijing sees cleaner cars as a weapon in its fight against severe air pollution in major cities. It offers an array of incentives to promote sales, including subsidies for buyers and preferential treatment when applying for a license plate.
Beijing wants cumulative sales of electric cars and plug-in hybrids to reach 5 million by 2020.
The long view
Foreign autoparts makers also see opportunity in China's push for cleaner traffic. Germany's Bosch opened a plant to manufacture electric car batteries in Jiangsu Province in 2015. Panasonic is building a battery factory in Liaoning Province, aiming to bring it onstream in 2017.
Lu appears unfazed by the competition and is willing to be patient. "If I don't succeed, my son will continue the effort," he said. "If he doesn't make it, my grandson will."
Born to a farming family in Hangzhou in 1945, Lu in 1969 established a plant to make agricultural machinery with 4,000 yuan he had pooled with several other farmers. This was the beginning of Wanxiang. Some call Lu the most successful farmer-turned-entrepreneur in China.
In 1979, the company specialized in manufacturing parts for imported cars. In 1983, Lu acquired control of management. Since then, the company has grown steadily, powered by China's economic rise.
Last year, Lu was one of the 10 richest individuals in the country, with family assets totaling 65 billion yuan. Most Wanxiang Group companies are privately held.
Lu has close ties with Chinese President Xi Jinping, who served as the top Communist Party official in Zhejiang Province. He accompanied Xi to the U.S. on two occasions. The president once described Lu as "a symbol of the reform and opening-up policy."