Israel Corp's Chinese joint car venture has triple the number of expected orders in Europe.
At the end of last week, Chinese automaker and Israel Corporation (TASE: ILCO) joint venture Qoros Auto Co. Ltd. took another step on its journey to the market by publishing the first official pictures of its new family sedan car. At first glance the Chinese venture gives the impression of similarities with Israel Corp.'s electric car venture Better Place, which recently drove into a business pothole. Both ventures are engaged in the vehicle sector, both were established about the same time, and both place emphasis on the Chinese market. Israel Corp has invested between $250 and $400 million in each of the two ventures.
Qoros: Looking to Europe
However, while Qoros will probably at some point in the future enter the electric vehicle sector, the two ventures are very different, backed by completely different business philosophies. Better Place is a market-disruptive far-reaching business-technology gamble. The venture is attempting to offer drivers an alternative technology that clashes head-on with the conventional model of gasoline fuelled cars and gas stations. Its ability to succeed was and still is dependent on persuading a critical mass of customers to abandon their traditional transport habits.
Qoros's philosophy is the complete opposite: Israel Corp. has set up a company to manufacture mainstream gasoline cars and become "more European than Europe." While Israel Corp's partners are Chinese, car manufacturer Chery, and the factory is located in the Yangtze delta, but to all intents and purposes this is a standard development project that could have been implemented by Volkswagen or Hyundai. The engineers, designers, and even media strategists were hired in Europe. A large part of the basic engineering planning of the car was put in the hands of Austrian company Magna Steyr - an independent systems contractor for the European car industry. The gearbox and navigation systems and many other car components were purchased from known international manufacturers, and the car was planned to meet the most stringent European collision and emission standards and so on. Major effort was even put into the car's interior and exterior design to meet European consumer preferences with an unconcealed likeness to the Volkswagen Jetta.
The highly effective campaign to unveil Qoros is focused on Western Europe and especially the German market, which is a rock on which many previous Chinese cars have floundered. Senior figures in the German media have over the past few weeks been given a peep into the development process of the Qoros and its futuristic design and planning. Long articles in the German financial media accompanied the campaign and Qoros strove to present the company's senior European executives, some of whom have been recruited from BMW and Volkswagen.
A gamble but not a big one
Although Qoros is so far treading a tried and trusted path, there is an element of risk and uncertainty for investors that cannot be ignored. The European car industry is currently in crisis, which is even hitting the largest and longest-established manufacturers. The car industry is saturated with the major surpluses of innovative production capacity and European consumers who are fed up with anything that says it is "Made in China."
In contrast to Better Place, which pinned its hopes on Israel customers, Qoros rests on a broad and strong customer base of millions of customers in China itself, which alone could provide demand for 150,000 cars annually - even if Qoros fails to sell cars in Europe. Moreover, Chinese customers don't discriminate against new car brands.
It can also be assumed that the venture would not have got off the ground without support from the Chinese government as both Israel Corp. and Chery are well connected in very high places. Qoros provides the Chinese administration with two solutions: a serious bridgehead for Chinese car exports to Europe and the US and the possibility of eliminating or at least weakening 'the enlightened occupation' of the major European carmakers that earn tens of millions of dollars through joint manufacturing with Chinese carmakers for the domestic market which is hungry for foreign brands.
The Chinese connection
The great unknown in this story so far was the business motivation behind the entry of Israel Corp. into the Qoros venture as was also the case to a certain extent with Better Place. In proportion to the major investment so far, Israel Corp. has given the public only the minimum necessary information. The dry statistical announcements to the Tel Aviv Stock Exchange and occasional statements in the press over the years have hidden as much as they reveal. Even in recent months when Better Place has succumbed to a severe crisis, Israel Corp. has remained completely silent on the subject.
Some of the mist was cleared this month in a rare interview given by Idan Ofer in the Chinese magazine "Southern Weekly." Most people in the West will not be familiar with this magazine but it is one of the most authoritative business voices in China with a national circulation of 1.3 million. The magazine's correspondent was invited to Israel Corp. headquarters in Tel Aviv where he conducted a long interview with Ofer on a range of topics including Qoros and Better Place. Both ventures have the Chinese market in common.
It seems that both Qoros and Better Place fit into the Chinese business development plan of Israel Corp. and the Ofer family, which currently includes a range of joint ventures and independent companies in cleantech, and of course $840 million of annual sales in China of chemicals by Israel Chemicals Ltd. (TASE: ICL). According to the Chinese article, the Qoros venture began in 2005 after Israel Corp. learned that Chery was looking for a partner that would help it embed new technology and export cars to the US and European markets. Ofer said, "The venture meets the latest European standards and it can export cars to Europe including to the German market. "Qoros is already receiving major orders from German distributors, triple what we expected for the new car."
Ofer also spoke about Better Place in the interview. He said, "When we first heard from Agassi about the idea, we understood that it was tailor-made for the Chinese market because most new Chinese car buyers are open to new ideas."
The Chinese journalist was given a test drive in a Better Place electric car and spoke with a senior company executive who told him that Agassi had wanted to focus on building battery exchange stations and investors were more concerned about selling cars feeling that existing stations and recharging points were enough for current demand.
Published by Globes [online], Israel business news - www.globes-online.com - on December 25, 2012
© Copyright of Globes Publisher Itonut (1983) Ltd. 2012
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