The last time an Israeli company wrote a page in the history of the international automobile industry was in 1961 when Autocars Co. Ltd. produced a small sports car by the name of "Sabra" and marketed it in the West. But over the next two years, the industry's radar will once more be zeroing in on an Israeli company and this time it won't be writing a mere page but an entire chapter.
The joint car production venture that Israel Corp. (TASE: ILCO) recently entered into with Chinese vehicle manufacturer Chery Automobile, has just been given the green light. The venture first gained attention through a notice by Israel Corp the Tel Aviv Stock Exchange (TASE) in early 2007 about a deal to make an investment in a vehicle production venture with Chinese company Chery Automobile. Towards the end of December, the company issued another announcement, in which it said that the government of China had approved the joint venture. In keeping with its usual style, Israel Corp's announcement was short on details, and merely repeated figures included in earlier announcements such as the size of its investment in the project - $225 million, and a further $180 million in loan guarantees, in exchange for a 45% share in the venture.
At the forefront of Chinese exports
"Globes" has discovered that this is a project of strategic importance to the global automobile industry. We'll start by saying that Chery is not just another one of the dozens of independent Chinese vehicle manufacturers now fighting to survive and find their own niche in the local and export markets. Chery is controlled almost entirely by the Chinese government, and it has been chosen to serve as the "arrowhead" in the penetration of the West by Chinese vehicles in the coming years and expunge the image of immaturity the West had about the first cars to come out of China. The Chinese government views this project as one of "national honor" of no less importance, economically and symbolically, than the hosting of the Olympic Games later this year.
At the forefront of the spearhead is the joint venture with Israel Corp. This is the first vehicle production partnership involving an external company (not from within the automobile industry) to be approved by the Chinese government in recent years. The investment, so it appears, will far larger than the amount stated in the initial report, and the total will probably reach $1.5 billion. The exact amount will be probably be decided on at a later stage and it will be made conditional on the project's actual progress.
The model - Toyota and Lexus
The cars will be produced and marketed under a separate brand name from those of Chery, in a similar manner to the separation between Toyota and its luxury "Lexus" brand. Chery recently distributed a questionnaire to its agents worldwide asking for ideas for a name, although sources in China report that the car will be called "Quantum," after the US subsidiary that Israel Corp set up to participate in the venture. The sources says that the global marketing and export model for Chery and the Quantum will also be patterned after the Toyota/Lexus model, with cars marketed at separate showrooms and, if possible, through separate dealers as well.
As far as is known, Israel Corp will also take charge of building a global marketing network for the new brand, with priority given to the world's largest and richest market, the US. It may also become the franchisee for the new brand in Israel, alongside Kamor Motors Ltd. (TASE: KMRS), which will market Chery's "standard" models.
The Chinese media reports that production of the vehicles will be carried out at a super-modern plant in the town of Wuhu in the South Eastern Anhui province, with an initial production capacity of 150,000 units a year. This capacity will be on top of Chery's existing production, now estimated at more than 500,000 cars a year.
Backed by massive budgets for procurement, the plant will be equipped with the most advanced production technologies from the West, aided by engineering, robotics, mechanics, and production planning companies from Europe and the Far East. Although manual labor in China is cheap, this particular plant will have an abundance of robots and automation, and cutting-edge quality control procedures. Sources in China report that the new plant is expected to be up and running by October 2009, parallel to the completion of the development and trials of the new vehicle.
State-of-the art cars
Sources in China say that the cars to be produced under the auspices of the venture include an entire line of models, from small, but expensive family saloons, to niche vehicles, sports and luxury cars. Topping the range will be a new limousine of the dimensions of the Audi A8, which has been designed at the Pininfarina studio in Turin, Italy. The car, which is five meters in length and is currently being developed under the codename F11, will come with either a V6 three-liter, or a V8 four-liter engine - both modern and clean engines developed by Chery's subsidiary under the Acteco engine brand, with Austrian know-how. In China, incidentally, it will be called Xuanyuan, after the "Yellow Emperor", the legendary father of the Chinese nation.
Next in line will be an executive saloon with the dimensions of the Volvo S80, which will be based on the shell of Chery's A6 executive saloon, which will come onto the Chinese market in the near future. Also undergoing advanced trials at present is a large off-road model (codenamed P11), which will compete with models such as the Lexus RX 300, and whose design is somewhat reminiscent of Toyota's Land cruiser.
The range will also include a coupe', which has already been showcased at exhibitions in China under the name CC 6, and it could be followed by a coupe'-cabriolet model. The first model to come off the production lines will be compact and stylish, and will apparently be based on the M 11 model, which was also developed in Italy. The venture aims to produce cars that meet standards in the West for safety, quality, and emission levels.
The icing on the cake, according the sources, will be a new line of hybrid models (dual fuel engines), which will also come under the new brand, and compete with Lexus's hybrids. Chery recently announced its intention to begin mass production of hybrid cars from 2010 onwards, and sector sources believe that this project could in future, be coordinated with the electric car project that the Israel Corp. is promoting together with Shai Agassi. Agassi told the Knesset Interior and Environmental Affairs Committee last month that talks were being held with the Chinese government on the introduction of electric cars and charging stations on the country's roads.
It should be stressed that so far there has been no official confirmation of the information featured here in Israel or China. Israel Corp said it would report any pertinent information in its announcements to the TASE as and when necessary. But one can assume that more information will be released over the next two years, as the project takes shape. Projects of this size are difficult to hide, especially considering that car manufacturers in the West now view Chinese exports as a long-term strategic threat.
Published by Globes [online], Israel business news - www.globes.co.il - on January 3, 2008
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