#71 The Shape of Things to Come

There’s something remarkable going on in China’s automotive industry. Yes, there’s growth, but there’s more to it. Chinese automaker BYD that is backed by Warren Buffet’s Berkshire Hathaway, Inc has set up a Chinese 50-50 joint venture with Daimler in late May. The goal of the joint venture is to jointly design and produce an all-electric vehicle for the Chinese market. This will add a new dimension to Daimler’s expansion in China. Having recently experienced above average sales growth, Daimler also has plans for an engine factory in China – the first one ever outside of Germany. Naturally, Daimler as a corporation thinks of opportunities first and I, as an academic, think of the risks first. Joint ventures haven’t been known to be among the easiest ways to cooperate across borders, especially in China. This one, however, seems to be on a straight trajectory to success. The Chinese government is reported to have announced that it will order 100,000 of the new vehicles come out of the Daimler-BYD joint venture. Although details of the agreement haven’t been made public yet, the government is expected to honor its commitment by 2012. What’s interesting about this is that initial plans to subsidize private consumers for buying electric cars seem to have been scrapped after they drew criticism from the Chinese Communist Party for benefiting mostly the nouveau riche in China. Someone has been doing an excellent job lobbying the Chinese government. For once, it seems that what’s good for an automotive manufacturer will also be good for the environment. And for BYD, the deal is a godsend, too. After record increases in 2009 (by an astonishing 160 percent), it had to announce in early August that it’ll cut its sales targets by 25 %. Obviously, ‘too big to fail’ exists in other countries, too…

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