Released on forbes.com
Heng Shao, Forbes Staff
China’s State Council has approved new policies stimulating growth of new energy automobiles this week, including tax reductions for and direct subsidies to clean-energy car producers, and financial support for the construction of charging stations, 21st Century Business Herald reported.
This would be good news to Craig Bouchard, 59, who recently ventured into the electric car business in China through Cambelle-Inland, a U.S.-China investment firm he founded this year. His plan is to produce electric trucks for inner-city deliveries (a cash carrier, for example) and small electric vehicles that Chinese farmers can use to work their crops in the field (picture a golf cart with thicker wheels).
Though still at a very early stage of investment, Bouchard has recruited a group of celebrities to join the board as advisers, including Quincy Jones, who was music director for the 2008 Beijing Olympic Games, and Yue-Sai Kan, the first Chinese American to host a live broadcast from China and a fashion icon there. He’s met both Jones and Kan through a third board member, Clifford Perlman, former CEO of Caesars Palace casinos. Riding on their extensive Chinese connections, Bouchard is hoping to “meet people that matter” and to more adeptly navigate the Chinese government infrastructure – both are difficult but unavoidable tasks for any foreigner who wishes to hop on China’s growth wagon.
You would be absolutely right to think that none of these people seems to be an expert in car-making. Neither is Bouchard, who made his fortune from a 19-year banking career at the First National Bank of Chicago and later in the steel industry. With his brother James Bouchard, he co-founded steel distributor Esmark, a $4 billion business by 2008 that’s best known for its hostile takeover of Wheeling Pittsburg Steel Corporation. Later he founded another steel distributor Shale-Inland, revenue of which he says grew by 100 fold to $900 million in just three years.
Bouchard’s idea for the electric car project sprung from frequent business trips to China in the past two decades. As he watched the country’s bicycles replaced by gas-fueled cars and blue sky turned grey, Bouchard began to see electric cars as one solution, with tremendous monetization potential, to China’s deteriorating air quality. “The government will do anything that takes gas burning cars off the road,” Bouchard observes, recounting how his friend in Shanghai paid $15,000 for a license plate, under new policies meant to limit car purchases.
The Ministry of Science and Technology seems to favor electric cars in particular – the Minister has put on a show of driving a small electric car to the National People’s Congress meetings this year. The 2012 Development Plan of Energy Saving and New Energy Automobile Industry set the goal to increase China’s production capacity of electric vehicles to five million by 2020. Licking their lips at the market’s potential, Tesla opened its first dealership in China in January, and Detroit Electric announced its partnership with Geely in April. Domestic manufacturer BYD , backed by Warren Buffett’s investment and on tens of millions of government subsidies, has been selling the country’s first electric vehicle, the “e6,” since 2010.
But the reality of the electric car market hasn’t been as rosy. Figures released by the China Association of Automobile Manufacturers showed that less than 13,000 electric cars and have been sold in China in 2012. As Forbes contributor Jack Perkowski revealed from recent interviews with local car assemblers, “none are counting on electric vehicles for any meaningful amount of growth anytime soon.” High cost of research and production, and difficulty with building sufficient number of charging stations in Chinese cities’ high-density residential complexes, are among the principal reasons for the slow growth of the private electric cars market.
But Bouchard sees the market’s limitation to have little impact on his own business model. He argues that his target clients-corporations and even governments in the cities, and farmers in rural China-would have no problem finding space to build electric charging stations. The price issue wouldn’t be as prominent either, as rural household income rises and his company tries to construct cheap models for farmers. Bouchard says two initial designs of the vehicles have already been completed by a U.S.-based partner. He is also in discussion with two Chinese machine-manufacturers in China that have access to “extensive” distribution network of dealerships. A fourth partner from the U.S. is working to improve the technology of electric vehicles by either extending the battery life or increasing their speed. “What I aspire to is to be in business somewhere from one or two years from now,” says Bouchard.
The seed capital for the investment solely came from Bouchard and his partner Raj Maheshwari, the only other executive of Cambelle-Inland and the founder of Charlestown Capital Advisors, a financial advisor and merchant bank. Increasing expenses will be supported by “a very large private equity raise,” says Bouchard, though he declined to clarify the exact scale.
Perkowski, however, is suspicious of the new venture’s potential. The prospect is murky for building affordable electric vehicles, which probably means a couple thousand dollars apiece for each rural household. “It comes down to cost,” says Perkowski, “China has very rational consumers. They will only buy something if it meets functional need but is also affordable.” If the price is too high, Bouchard would have to rely on subsidies, which have been subject to swaying local government preferences. Perhaps the State Council’s new policy to directly subsidize carmakers will change the situation.
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