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Taiwan Goes for the Globe

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With a components industry specializing in electrical machinery, Taiwan stands poised for a leading position at the heart of the rising electric vehicle industry. The next step will be independent brands and entry into new markets.

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Taiwan Goes for the Globe

By Elaine Huang
From CommonWealth Magazine (vol. 424 )

A new age in Taiwanese electric vehicles is upon us!

In mid-April, even as the global auto industry followed the U.S. auto industry in its plunge into gloom and doom, the 2009 Shanghai Automobile Industry Exhibition took up where the North American International Auto Show had left off earlier in Detroit, loudly touting the latest wave of zero-emissions electric vehicles.

And Taiwan is hot on their heels.

The Executive Yuan's five-year, NT$30.3 billion national energy plan includes spending on electric vehicle technology. In late May the Industrial Technology Research Institute (ITRI), Automotive Research & Testing Center, Metal Industries Research & Development Center, Chungshan Institute of Science & Technology, and the Hua-Chuang Automobile Information Technical Center, part of the Yulon Group, came together under the auspices of the Ministry of Economic Affairs' Department of Industrial Technology to form the Taiwan Electric-powered Vehicle Research and Development Alliance. The alliance is taking aim not only at the international electric-powered vehicle supply chain but also at the independent development of electric scooters, light electric vehicles (LEVs) and electric-powered buses.

The alliance sanguinely projects this year as a prime opportunity for the transition of Taiwan's auto industry, forecasting a potential NT$300 billion in production value related to electric vehicles by 2020.

With the century-long dominance of the U.S. auto industry in decline, it is green vehicle leader Japan and the emerging market of China that are leading the charge toward electric-powered vehicles and cracking the door of opportunity into the automotive production chain.

Taiwan has previously never been able to really crack the global auto market and lacks production autonomy.

"The popularity of electric vehicles has provided Taiwan with a once-in-a-lifetime opportunity," says Wang Han-ying, deputy director of the ITRI's Mechanical and Systems Research Laboratories.

The power configuration of the automobile has undergone a radical transformation with the appearance of electric vehicles, moving from combustion engines to motors powered by fuel cells.

"In the age of the electric vehicle, electronics and electrical machinery will be the heart and soul of the vehicle, and this presents an opportunity for a Taiwanese components industry that specializes in electrical machinery," says Su Chin-ho, director of the Corporate Synergy Development Center, a training institute for the industry. A long-time advisor to Taiwan's automotive components industry who even investigated proposing that the Taiwanese government allow a production line for Toyota's popular Prius hybrid in Taiwan, Su is brimming with expectations for future prospects.

For instance, Taiwan's Fukuta Electric and Machine Co. Ltd. supplied the motor powering the Tesla Roadster, a high-performance electric sports car that wowed the U.S. auto industry last year, and Chroma ATE Inc. provided the car's power supply regulator.

Even leading power supply manufacturer Delta Electronics Inc. has been quietly keeping close pace with the latest developments in electric vehicles for years through its investment in Amita Technologies Inc., which develops fuel cells.

"Considering core technologies and competencies, Delta Electronics is best placed to develop key power chain components for electric vehicles, including fuel cells, fuel cell control systems, power regulation systems and other components," Delta's corporate vice president for electric vehicle business Simon Chang says candidly.

Every Taiwanese company in the field, large or small, from makers of complete vehicles to component manufacturers, is eager to get in on this once-in-a-lifetime global automotive opportunity.

Complete Vehicles: Luxgen Seeks Beachhead

After years of contract manufacturing for Nissan, Yulon Motor Co.'s newly launched subsidiary Luxgen Motor Co. is hoping to gain a beachhead in the China market with its new independent brand and ride the current wave of China's electric vehicle revolution.

From top to bottom, Yulon employees have been burning the midnight oil, holding countless meetings and performing continuous testing on behalf of the Luxgen venture. Eying the many international automakers that are expected to bring their own fully electric-powered vehicles to market between 2010 and 2012, Yulon Motor president Chen Kuo-rong remains uneasy. If the Luxgen brand cannot be launched in the fiercely competitive China market within two years, it will already be too late.

"In the past Taiwan lacked a platform for a complete vehicle," Chen says. "Luxgen can play the role of that platform by bringing Taiwan's electrical machinery companies aboard."

For example, HTC Corp., a specialist in smart electronics, is one of the key suppliers for Luxgen, Taiwan's first domestically produced electric vehicle, expected to hit the market in the second half of this year.

The key element in determining the success or failure of the Taiwanese EV are the fuel cell systems, which account for 40 percent of the cost of the vehicle. For some time, a quiet campaign has been underway in Taiwan to develop these systems, through a framework of joint investments via equity swaps among major business groups.

Getting to the Heart of the EV

At the Central Taiwan Science Park, a Toyota Prius drives into the facilities of Changs Ascending Enterprise Co., Ltd.

A Prius – the hybrid car that has become something of an icon for the green movement, and sells for a whopping million Taiwan dollars plus – may be a surprising choice for a humble company vehicle, but such are the priorities of Changs Ascending Enterprise, maker of cathode materials for lithium-ion batteries, and the world's first company to receive a patent in that field.

Company president Donny Chang formed the company in 1994 with his younger brother, then head of technical research at Cornell University's High-Energy Synchrotron Source (CHESS), to engage in the research and development of cathode materials for electric batteries.

"We certainly didn't just jump into this recently as EV's became hot," Chang says emphatically. "We've been in the lab a very, very long time."

Two years ago, when world oil prices spiked to more than US$140 per barrel, demand for greener, electric-powered vehicles took off. With a formula for manufacturing battery cathode materials in hand, Changs Ascending Enterprise had found its commercial opportunity. Wang Chuanfu, chairman of Chinese battery maker BYD Co., Ltd., quietly contacted Chang to purchase 20 metric tons of materials. The materials were actually destined to produce the batteries to power BYD's own EV, Chang says offhandedly.

"You need about 100 kg of lithium iron phosphate materials to produce one EV; that's 10 EVs to the ton," the 45 year-old Chang explains. "Ordinarily, 200,000 units of a given car model will be produced, and the U.S. has an auto market of 20 million units," he continues, sizing up the enormous potential demand for materials, his graying temples betraying the 16-hour days he spends in the lab.

"But that requires a capacity for stable mass production," he adds.

So in 2007 his small research-oriented enterprise with a staff of 50 turned to Formosa Plastics Group (FPG), which is famous for its tightly controlled mass production management processes.

Chang made a presentation to the seven-person executive board of FPG, and not long after, his company found itself teaming up with FPG subsidiary Formosa Biomedical Technology Corp. to jointly established Formosa Energy & Material Technology Corp., which will soon begin production at FPG's plant in Changhua. With FPG support, monthly production capacity will swell to four million metric tons, 10 times the capacity of Changs Ascending Enterprise's original production facility in the Central Taiwan Science Park.

In addition to Changs Ascending Enterprise, E-One Moli Energy Corp. in the Tainan Science Park is one of the few remaining Taiwanese companies that have been investing in lithium ion battery production during the past decade.

With the recent relocation of its Canadian production capacity to a neighboring site in the Tainan Science Park, E-One now has two production facilities boasting a production capacity of 10 million battery cores per month.

Even though E-One scored much-needed investment from Taiwan Cement Group, the battery maker proceeded to hemorrhage capital for years, leading Taiwan Cement chairman Leslie Koo to quip that he had "accidentally boarded a pirate ship." Yet after 10 consecutive years of piling up red ink, E-One last year posted NT$4.7 billion in operating revenue, its highest ever, and has transformed itself into Taiwan Cement Group's new green future.

German automaker BMW's Project i is currently utilizing E-One technology, incorporating the battery core used in the Mini E, a standard Mini Cooper converted to an EV.

Other reports indicate that American automaker Ford's joint EV venture with Magna International, charged with designing the new EV's body and chassis, will seek out E-One as a supplier. E-One has previously supplied batteries to Ford.

The backing of Taiwan Cement Group and international automakers has enabled E-One, the world's first successful maker of lithium ion batteries for power hand tools, to slide into the international EV supply chain.

"Our competitors, Samsung, LG and the big Japanese battery makers, are all much larger than us," E-One president Raymond Lee freely admits. "It's a battle of capital and perseverance."

E-One lacks of a formal alliance with a major automaker like LG has with General Motors or NEC has with Nissan, which offers those companies a stable sales conduit for their products. Lee does not deny that Taiwan's lack of top-to-bottom complete vehicle manufacturing plants necessitates that Taiwanese component manufacturers seeking to break into the international EV supply chain must rely on their own efforts in opening overseas markets to bring on business success.

Challenge 1: Understanding the Auto Industry

"The most important thing is to know cars," says Allen Sheng, vice president and general manager of the Automotives Business Unit for automotive electronics giant Universal Scientific Industrial Co., Ltd. "This is the area that upstart electrical machinery companies seeking to break into the automotive supply chain need to improve the most."

Delta Electronics is feeling as if it's under "cultural assault."

"Automotive products have a long life cycle – unlike the three months in the [consumer] electronics business. Quality assurance demands are strict, development times lengthy and front-end investment huge," says Delta corporate vice president Simon Chang. "Taking the plunge without recognition of this is exceedingly risky – seeing no result after five years is the norm."

Even a company like Delta is still learning the ropes, still learning the finer cultural points of the automotive industry, Chang admits.

Challenge 2: Government Backing

In the initial stages, EVs will remain hugely expensive and basic recharging facilities will be scarce, which presents significant barriers to their popularization.

Consequently, "the government role is very important," Yulon Motor president Chen Kuo-Rong concedes.

Compared to China's massive government effort to spur development of its EV industry – including designation of 10 urban areas as "electric vehicle model cities," subsidies for EV purchases, and even the world's first set of EV industrial standards and other measures to create the industrial conditions for EV development – Taiwan remains mired at the level of forming a loose industrial alliance, with no government entity visibly coordinating industrial and energy policy.

"We're hopeful that government efforts to promote EVs are not just sloganeering and that the pace can be accelerated," says Donny Chang.

In light of the all-out efforts of the Chinese government and Chinese automakers, Chang's comment seems to reflect what is foremost on the minds of his industry cohorts in Taiwan.

Translated from the Chinese by Brian Kennedy

Keywords:

好友人數