Can FAW achieve its bold revival plan for Hongqi?

Yang Jian

Automotive News | 2018-11-2

SHANGHAI -- China FAW Group Corp., seeking to revive its ailing Hongqi brand, will focus the marque on developing, marketing and selling battery electric vehicles, fuel cell EVs and self-driving technology. The plan is ambitious -- but is it achievable? 

FAW, China¡¯s oldest automaker, created Hongqi in 1958, initially as a limousine brand for government agencies. Since the 1990s, it has introduced sedan models for Hongqi.

But the brand now has only three products: a limousine, a full-size sedan and a compact car, and its sales have remained small. For the first three quarters of this year, Hongqi delivered fewer than 20,000 vehicles. 

For many years, Hongqi, along with FAW¡¯s two mass-market brands, Besturn and Xiali, have been propped up by profits FAW gained from its passenger-vehicle joint ventures with Volkswagen Group, Toyota Motor Corp. and Mazda Motor Corp.

When the Chinese government reassigned Xu Liuping from another major state-owned automaker, Changan Automobile Co., to lead FAW in August 2017, Xu set out to rebuild Hongqi. 

FAW laid out its plan Tuesday. 

Hongqi will produce its first battery EV this year and will roll out 15 battery EV models by 2025, according to the plan.

This part of the plan makes business sense. Hongqi likely will encounter less competition on the domestic battery EV market than in China¡¯s traditional luxury car market, which is largely in the hands of global brands.

But the rest of plan is questionable. 

FAW wants to quickly add autonomous driving features to Hongqi¡¯s products, starting with production of vehicles that offer Level 3 autonomy in 2019 and Level 4 autonomy in 2020 before achieving fleetwide autonomous driving in 2025. 

At Level 3 autonomy, a vehicle drives itself in most situations, though it requires a driver to take control when the need arises; at Level 4, a vehicle can operate itself in virtually all driving scenarios except for extreme conditions. 

FAW also expects Hongqi to lead other brands in the domestic market in introducing fuel cell EVs. The brand is due to put a small fleet of fuel cell EVs into operation next year. 

Advanced technologies as they are, high-level autonomous driving and fuel cell EVs are complex and face steep hurdles in commercialization.

Globally, vehicles offering higher than Level 2 autonomy are still being tested and are not ready for the market. 

At Level 2, the automated system takes control of a vehicle during acceleration, braking and steering, though its driver must be ready to intervene at any time if the system fails to respond.

Also, like many other countries, China has yet to promulgate technical standards for autonomous vehicles. 

Fuel cell EVs are costly to develop and need fueling stations, which are rare in China. 

The technology leadership FAW seeks to establish for Hongqi is impressive. 

And the state-owned automaker has won financial backing for the effort. Last week, the company signed letters of intent with 16 domestic banks for more than 1 trillion yuan ($143.4 billion) in credit lines for Hongqi as well as its other business units. 

But unless FAW¡¯s management can figure out how to market the products it has planned for Hongqi to customers, much of the effort will be made in vain and a big portion of the money it will borrow from the banks will be wasted.

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