China’s car craze in the past decade has made some wild dreams come true. Companies started just a few years ago now challenge global brands in the domestic market. As the country enters the 12th 5-year development period, wheeled ambitions show little sign of fatigue, confronting repeated warnings about overinvestment. More than a dozen automakers target an annual capacity of 1 million vehicles or more in 2015 (the industry’s total projected capacity easily surpasses 40 million); among them, Hawtai Motor–sometimes calling itself Hawtai Auto–stands out for being the least known and perhaps the most daring. It aims not only to sell ten times more cars in 2015 than 2010 to catch up with its 1 million capacity planned (it delivered 81,400 passenger cars last year, ranking 31st among all auto manufacturers in the country), but to make almost all of them diesel-powered, a market for which is barely noticeable in today’s China.
Founded in 2000 in Rongcheng, Shandong (its headquarters were later moved to Beijing), Hawtai made its fortune producing Hyundai SUVs–Galloper, Terracan, and Santa Fe, the last two still in production and bearing now the Hawtai logo. Last December it pushed into the sedan market with the B11 (Modena), claiming it to be the first diesel sedan from China’s native automakers, but sold only 450 units of it in January, 868 in February.
"The development of B11, our first sedan, began three years ago. Applying diesel technology to sedan products, we want to offer the market something different, and achieve success in building a native brand through a unique route," Hawtai President Liu Zhigang said in a recent interview.
In the next three years, the company plans to launch six more diesel or diesel-electric hybrid passenger cars, including B35, B21, A-Class sedans, and SUVs. While its sales remained under 100,000 last year, its annual production capacity has reached 350,000, which is distributed in three places: Rongcheng of Shandong, Ordos of Inner Mongolia, and Yanbian of Jilin. This summer, a new factory will open in Ordos and be ready to roll out 200,000 A-Class sedans a year.
Already, Hawtai boasts the largest and most advanced diesel powertain plant in Asia. Using licensed technology from Italy’s VM Motori, the OED Engine Co. Ltd., a Hawtai subsidiary located in Ordos, can churn out 300,000 diesel engines meeting Euro IV or V emission standard and 450,000 automatic transmissions a year, and plans to increase both the engine and the transmission production capacity to 1 million.
Yet, Chinese reporters exposed last month that the Ordos base was mostly lying idle and growing grass, and Hawtai sold some of the land to real estate developers.
Compared with gasoline engines, diesel ones could be up to 30% more efficient, but are usually more expensive to build; a diesel 2.5L Great Wall Haval H5 SUV costs about 2,000 Yuan more than a 2.4L gasoline model on the same trim level. What’s more, diesel, with a similar retail price to gasoline, has been in short supply in China, as the country’s infrastructure construction boom requires largest fleets of diesel-powered trucks and other machines.
"Currently even big trucks cannot get enough diesel; there is nothing left for sedans. Supply is especially strained in winters in the north," Song Jian observed, a professor of auto engineering at Tsinghua University.
Looking to Europe, where diesels have about 50% of the passenger car market, Hawtai expects soaring sales of diesel sedans in China, and therefore a huge pay-off. "As oil prices continue to rise and consumers become better informed, diesels could account for 30% of passenger car sales in three years. That will be 4 million units a year, by a conservative estimate, which will greatly exceed our planned 1 million capacity, " said Xu Hengwu, President of OED Engine.
For many observers, that estimate is wishful and dishonest. In the US, where diesels are about as much unpopular, a JD Power analyst projects their share of the passenger car market will rise from the current less-than-1% to only 3.5% by 2015.
The Chinese government has provided no clear policy support for developing or popularizing clean diesel technology, while working hard to reduce "energy use per unit of GDP." For the auto industry, it prefers a clean-cut solution: electrification of cars backed by increasing use of green energies.
"The stakes are too high. If Hawtai wins, it will acquire first-mover advantages. But if it loses, it will lose everything," said Professor Song.