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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?
John Helveston Carnegie MellonDevelopment and Adoption of Plug-in Electric Vehicles in ChinaMarch 28, 20163
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)
John Helveston Carnegie MellonDevelopment and Adoption of Plug-in Electric Vehicles in ChinaMarch 28, 20164
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)
John Helveston Carnegie MellonDevelopment and Adoption of Plug-in Electric Vehicles in ChinaMarch 28, 20165
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
John Helveston Carnegie MellonDevelopment and Adoption of Plug-in Electric Vehicles in ChinaMarch 28, 20166
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
John Helveston Carnegie MellonDevelopment and Adoption of Plug-in Electric Vehicles in ChinaMarch 28, 20167
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
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
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
BuickCa
dial
lac
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
John Helveston Carnegie MellonDevelopment and Adoption of Plug-in Electric Vehicles in ChinaMarch 28, 20168
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
Box size indicates market share
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
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
Box size indicates market share
OEMSales
Brand
BAIC Tesla
*Imported
IndependentJoint Venture (JV) JV Parent
Firm TypeLegend
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
Box size indicates market share
OEMSales
Brand
BAIC Tesla
*Imported
IndependentJoint Venture (JV) JV Parent
Firm TypeLegend
John Helveston Carnegie MellonDevelopment and Adoption of Plug-in Electric Vehicles in ChinaMarch 28, 20169
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
John Helveston Carnegie MellonDevelopment and Adoption of Plug-in Electric Vehicles in ChinaMarch 28, 201610
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
John Helveston Carnegie MellonDevelopment and Adoption of Plug-in Electric Vehicles in ChinaMarch 28, 201611
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
John Helveston Carnegie MellonDevelopment and Adoption of Plug-in Electric Vehicles in ChinaMarch 28, 201612
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
Organizational / Business StrategyNewer/Emerging
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)
John Helveston Carnegie MellonDevelopment and Adoption of Plug-in Electric Vehicles in ChinaMarch 28, 201613
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
Organizational / Business StrategyNewer/Emerging
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
John Helveston Carnegie MellonDevelopment and Adoption of Plug-in Electric Vehicles in ChinaMarch 28, 201614
Kandi Technologies: 异曲同⼯ (Different Tune, Equally Melodic)
Vertical BEV “vending machine”
New
er/E
mer
ging
Tech
nolo
gy
Organizational / Business StrategyNewer/Emerging
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”
John Helveston Carnegie MellonDevelopment and Adoption of Plug-in Electric Vehicles in ChinaMarch 28, 201615
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
John Helveston Carnegie MellonDevelopment and Adoption of Plug-in Electric Vehicles in ChinaMarch 28, 201616
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
John Helveston Carnegie MellonDevelopment and Adoption of Plug-in Electric Vehicles in ChinaMarch 28, 201617
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
John Helveston Carnegie MellonDevelopment and Adoption of Plug-in Electric Vehicles in ChinaMarch 28, 201618
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
John Helveston Carnegie MellonDevelopment and Adoption of Plug-in Electric Vehicles in ChinaMarch 28, 201619
Acknowledgements
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