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Morocco’s Auto Industry Is in Full Gear

Over the past few years, Morocco has established itself as a leading manufacturing hub for automobiles in Africa, surpassing South Africa as the biggest exporter of passenger cars on the continent. The North African country is well-placed geographically as well as economically (thanks to the African Continent Free Trade Agreement) to export cars to European markets, especially France, Spain, Germany, and Italy. While the market continues to grow and gain importance among auto manufacturers, it is to be seen if it can disrupt Asian auto manufacturing hubs in the future.

With the capacity to produce over 700,000 vehicles per year and employing about 220,000 people in the sector, Morocco has gained mass appeal as a leading automotive manufacturing hub in the African region. Several international auto manufacturers, such as Renault, Peugeot, and Volkswagen have set up units in Morocco and have been growing their exports from the market. The Moroccan government signed 25 separate trade agreements with several auto and auto parts manufacturers across the EU and the USA and this is estimated to drive the Moroccan automobile market to be worth US$22 billion by 2026. Moreover, the government has stated that it wants to reach a production capacity of 1 million vehicles by 2025.

Investments

Several companies have established presence in Morocco as a cost-effective gateway to the European markets, the largest of them in terms of production numbers being Renault. Renault was the first global auto manufacturer to enter Morocco in 2012 and has plants in Tangier and Somaca (Casablanca). The plants have a respective capacity of about 400,000 vehicles and 85,000 vehicles annually. The automaker has already exported more than 1 million vehicles from its Morocco plants and has further signed agreements with the Moroccan government to expand auto production in the country.

French automaker Peugeot (Group PSA) is another major automobile manufacturer in this country. In 2019, Peugeot opened a US$600 million plant in Kenitra, north of Rabat, which produces the Peugeot 208 at a capacity of 200,000 vehicles annually.

Other carmakers operating in Morocco include Volkswagen, which shut down its plant in Algeria in 2019 and moved it to Morocco. In a similar move, in 2021, Korean automobile giant, Hyundai, decided to suspend its production in Algeria and move it to Morocco, cementing Morocco’s position as the go-to manufacturing hub for automobiles in North Africa.

In addition to the presence of several leading car manufacturers, the country also houses a large number of parts manufacturers and has successfully leveraged backward integration. An American player, Lear, operates 11 production sites here for the production of automotive seating and electrical systems. Similarly, Chinese aluminum automotive parts manufacturer, Citic Dicastal, set up two plants in the Kentira region for the production of six million aluminum rims annually that it aims to supply to the Peugeot plant. In addition, auto part companies such as France-based Valeo, US-based Varroc Lighting Systems, and Japan-based Yazaki and Sumitomo also established presence in Morocco.

Morocco’s Auto Industry Is in Full Gear by EOS Intelligence

Apart from large international parts manufacturers, the country also houses several local players that support and provide parts to the automobile giants. The government has been promoting partnering with local suppliers to provide a boost to the domestic industry. In 2021, Morocco’s leading automobile manufacturer, Renault, entered into a strategic agreement with the government to increase local sourcing to US$2.9 billion by 2025 (from 2023 forecast of US$1.7 billion) and increase local integration to 80%, up from 2023 forecast of 65%.

While Morocco continues to cement its place as a leading auto manufacturing hub in Africa, it is simultaneously aiming to position itself as a preferred hub for EV and EV component production. In 2017, the government signed a deal with a Chinese electric automobile manufacturer, BYD Auto, to build a new plant in the Tangier region. The plant will be spread over 50-hectare and will employ about 2,500 personnel. However, its opening is facing delays and no date of completion has been announced yet.

In October 2021, a leading EV manufacturer, Tesla, deployed its first two supercharger stations in Morocco, marking its first foray into the African continent. While the EV giant has not announced its formal entry to the market yet, usually deploying supercharging stations and service centers has been its first step in entering a market.

In addition to this, in 2021, STMicroelectronics, an EV chip producer announced that it was set to open a new Tesla-dedicated EV chip production line at its facility in Bouskoura, Morocco, following a win of a contract with Tesla. Following this, STMicroelectronics also signed a strategic cooperation agreement with Renault to supply electric and hybrid vehicle advanced semiconductors for Renault’s Dacia Spring EVs range, starting 2026. While currently the Dacia Spring EV model is produced in China, chip production in Morocco raises prospects of the current electric model or any future models to be manufactured in Morocco, especially for the European market. This places Morocco in a strategic position to also become a leader in EV manufacturing in the African subcontinent.

Government initiative

While Morocco has a strong geographic advantage, given its proximity to several European countries that makes it an ideal export market, political stability is another factor contributing to the sectors growth. The Moroccan government offers a single window outlet at its Ministry of Industry and Trade, which makes it much easier for international players to do business as compared with other countries that are more bureaucratic and complex in their dealings. Moreover, the government is known to be consistent with their policies, which is critical for auto manufacturers looking to make long term investments.

The government has made tremendous efforts and investments in developing Morocco into a global auto manufacturing hub. Morocco has about 60 free trade agreements with Europe, the USA, Turkey, and the UAE, a fact that facilitates easy trade and exports.

In addition, the Moroccan government provides several tax benefits to companies setting up manufacturing units in the country. It offers zero tax for the first five years and 15% tax for the subsequent years. Moreover, it provides full exemption on value added tax and a 15-year exemption on business and occupation tax.

Apart from fiscal benefits, it has also constantly invested in infrastructure to ensure smooth operations with regards to both manufacturing and transportation. In 2015, the government allocated US$7.8 billion towards development of infrastructure including roads, airports, etc.

Moreover, in 2018, the government inaugurated the US$4 billion Al-Boraq high-speed rail line linking the two key auto manufacturing hubs, Casablanca and Tangier. The Al-Boraq line is also linked to the Tanger Med port, which is a key port for all exports to Europe. The Tanger Med port has also become the largest port in the Mediterranean region post its phase II development in 2019. The port now has a capacity of 9 million twenty-foot equivalent units, surpassing Spain’s Algeciras and Valencia ports in capacity. The development and expansion of the rail link and the ports have facilitated smooth export from Moroccan manufacturing plants to European markets.

Furthermore, the government also facilitates staff training through the creation of the Automotive Industry Training Institutes (Instituts de Formation aux Métiers de l’Industrie Automobile (IFMIA)). The training support centers address recruiting and competency development needs of companies operating in the sector. While three of the centers are managed by the Moroccan Automotive Industry and Trade Association (AMICA) at Casablanca, Kenitra, and Tangiers, the fourth center is run by Renault and is located at Renault’s Mellousa plant. The Moroccan government provided about US$10 million for the construction of the Renault training center, which has more than 5,000 students (about 4,200 of them work for Renault). This way the government provides comprehensive and all-encompassing support to the sector, which in turn is expected to permeate to the development of the local vendors and suppliers as well.

Other than this, Morocco enjoys the obvious advantage of low cost labor (although this is something common to the entire African region). The cost of labor in Morocco is about US$1.5 per hour, which is about one-fourth of that in Spain and much lower than many East European nations. Since companies such as Renault produce their entry level cars in Morocco, labor constitutes a high portion of the overall costs.

EOS Perspective

With strong political support, advantageous geographical location, and low labor costs, Morocco seems to have all the right ingredients for a booming auto industry. The sector has been witnessing exponential growth over the past few years and has already overtaken South Africa as the largest automobile manufacturer in Africa.

While the industry currently caters to the manufacturing of low cost models, it is also slowly creating a niche space for itself in the EV market, which is considered the future of the automobile sector. Moreover, the sector is creating an entire automobile ecosystem by encouraging and promoting backward integration, especially through the participation of local auto part suppliers and vendors.

There is clearly no contention that the North Africa is the leader in the automobile space in the region, however, it is still a long way before the region is a serious competitor in the global auto export market to countries such as China, India, Korea, or Mexico, which are global leaders. A lot will depend on how it manages to develop competencies beyond cheap labor and supportive policies, especially with regards to attracting premium and luxury models. While it has the potential, it will be difficult to displace leading hubs that are already competent in the space.

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China Accelerates on the Fuel Cell Technology Front

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For the past decade, China has been on the forefront of the New Energy Vehicles (NEVs) revolution. Although most of its focus has been on battery-powered electric vehicles (BEVs), the government has recently also begun to put its financial might behind hydrogen fuel cells for vehicles. Unlike battery-powered vehicles that need regular and long-periods of charging (therefore are more suitable for personal-use vehicles), hydrogen fueled vehicles do not need frequent refueling and their refueling is quick. This makes them ideal for long-distance buses, taxis, and long-haul transport. However, the existing infrastructure to support fuel cell-powered cars is limited. Thus, despite having inherent benefits over electric vehicles (especially in case of commercial vehicles), fuel cell vehicles fight an uphill battle to build a market for themselves in China, owing to the challenges in acceptability, infrastructure availability, and sheer economies of scale.

Over the last decade, the Chinese government heavily backed the production and sale of electric vehicles through substantial subsidies, investment in infrastructure, and favorable policies. This resulted in the sector picking up rapidly and reaching 1.2 million vehicles sold in 2018. However, the government has begun to reduce the subsidies provided to the sector and the focus is slowly shifting to fuel cell vehicles.

How do fuel cell vehicles work?

Fuel cell vehicles use hydrogen gas to power their electric motor. Fuel cells are considered somewhat a crossover between battery and conventional engines in their working. Similar to conventional engines, fuel cells generate power by using fuel (i.e. pressurized hydrogen gas) from a fuel tank.

However, unlike traditional internal-combustion engines, a fuel cell does not burn the hydrogen, but instead it is chemically fused with oxygen from the air to make water. This process, which is in turn similar to what happens in a battery, creates electricity, which is used to power the electric motor.

Thus, while fuel cell vehicles are electric vehicles (since they are solely powered by electricity), they are similar to conventional vehicles with regards to their range, refueling process, and needs. This makes them ideal for long-haul commercial vehicles.

Chinese government bets big on fuel cell vehicles

Under China’s 13th Five-Year Plan, the government has laid out a Fuel Cell Technology Roadmap, in which it aims to operate over 1,000 hydrogen refueling stations by 2030, with at least 50% of all hydrogen production to be obtained from renewable resources. In addition, it has set a target for the sale of 1 million fuel cell vehicles by 2030.

To achieve these ambitious targets, the Chinese government plans to roll-out a program similar to its 2009 program – Ten Cities, Thousand Vehicles, which promoted the development and sale of battery electric vehicles and hybrid vehicles. It currently plans to promote fuel cell vehicles in Beijing, Shanghai, and Chengdu. Considering the vast success garnered by this program, it is likely that the government will also be successful in achieving similar targets for fuel cells.

Moreover, while the government is phasing out subsidies for BEVs, it is continuing them for fuel cells. As per the government guidelines issued in June 2018, US$32,000 purchase subsidy is available for fuel cell passenger vehicles, while US$48,000-US$70,000 purchase subsidies are available for fuel cell buses and trucks. However, for the buses to receive subsidy, they are required to drive a minimum of 200,000 km in a year.

While the government is phasing out subsidies for BEVs, it is continuing them for fuel cells. As per the government guidelines issued in June 2018, US$32,000 purchase subsidy is available for fuel cell passenger vehicles, while US$48,000-US$70,000 purchase subsidies are available for fuel cell buses and trucks.

Moreover, the government also provides subsidy for the development of hydrogen refueling stations. A funding of US$0.62 million is available for hydrogen refueling stations having a minimum of 200kg capacity.

In addition to these national subsidies, state-wise subsidies are also available for several regions such as Guangdong, Wuhan, Hainan, Shandong, Tianjin, Henan, Foshan, and Dalian. Local subsidies differ from region to region and are given as a ratio of the national subsidy. For instance, it equals 1:1 in Wuhan, while it is 1:0.3 in Henan province. On the other hand, local or state subsidies are cancelled for BEVs (except buses).

Apart from subsidies given to fuel cell infrastructure and vehicle manufacturers, the price of hydrogen is also heavily subsidized, making it cheaper than diesel in many cases.

China’s fuel cell vehicle market picks up steam

The government’s backing and subsidies have stirred interest of several international players towards China’s fuel cell vehicle market. Considering its success and dominance of the BEV market, these players are placing their bets on China achieving similar volumes and success in the fuel cell sphere.

Chinese companies have also begun to invest heavily in fuel cell technology companies globally. In May, 2018, Weichai Power, a Chinese leading automobile and equipment manufacturer, purchased a 20% stake in UK-based solid oxide fuel cell producer, Ceres Power. Similarly, in August 2018, Weichai Power entered into a strategic partnership with Canada-based fuel cell and clean energy solutions provider, Ballard Power Systems. As part of the strategic partnership, the company purchased 19.9% stake in Ballard Power Systems for US$163.3 million. In addition, they entered into a JV to support China’s Fuel Cell Electric Vehicle market, in which Ballard holds 49% ownership. Through this partnership, Weichai aims to build and supply about 2,000 fuel cell modules for commercial vehicles (that use Ballard’s technology) by 2021.

China Accelerates on the Fuel Cell Technology Front - EOS Intelligence

Global leader in industrial gases, Air Liquide, has also partnered with companies in China to be a part of the fuel cell movement. In November 2018, the company entered into an agreement with Sichuan Houpu Excellent Hydrogen Energy Technology, a wholly-owned affiliate of Chengdu Huaqi Houpu Holding (HOUPU), to develop, manufacture, and commercialize hydrogen stations for fuel cell vehicles in China. In January 2019, the company also partnered with Yankuang Group, a Chinese state-owned energy company, to develop hydrogen energy infrastructure in China’s Shandong province to support fuel cell vehicles in that region.

Another global player, Nuvera Fuel Cells (US-based fuel cell power solutions provider) has also engaged with local companies to foster growth in China’s fuel cell vehicle market. In August 2018, the company entered into an agreement with Zhejiang Runfeng Hydrogen Engine Ltd. (ZHRE), a subsidiary of Zhejiang Runfeng Energy Group based in Hangzhou. Under the agreement, Nuvera will provide a product license to ZHRE to manufacture the company’s 45kW fuel cell engines for sale in China. While the fuel cells will be initially manufactured in Massachusetts, it is expected that they will be locally manufactured by 2020.

In December 2018, the company signed another agreement with the government of Fuyang, a district in Hangzhou (in Zhejiang province), to start manufacturing fuel cell stacks locally in 2019. The agreement also includes an investment by Nuvera to establish a production facility in Fuyang region. These fuel cell stacks will be used to power zero-emissions heavy duty vehicles (such as delivery vans and transit buses), which comprise 10% of on-road vehicle fleet, but account for 50% fuel consumption.

In addition to the fuel cell energy producers, global car manufactures have also shifted their attention to fuel cell vehicles market in China. In October 2018, Korean car manufacturer, Hyundai, entered into a MoU with Beijing-Tsinghua Industrial R&D Institute (BTIRDI) to jointly establish a ‘Hydrogen Energy Fund’. The fund aims to raise US$100 million from leading venture capital firms across the globe to spur investments in the hydrogen-powered vehicle value chain. This agreement will help the Korean automobile manufacturer identify and act upon new hydrogen-related business opportunities in China and will eventually help pave the way for Hyundai Motors to make a foray into the Chinese fuel cell vehicle market in the future.

A bumpy road ahead for fuel cell vehicles

While the industry players are working along with the government to meet the ambitious targets set by the latter, fuel cell vehicles must overcome several challenges for them to be a realistic alternative to conventional and electric vehicles.

Currently, the infrastructure for fuel cell vehicles is by far insufficient. More so, it is extremely costly to develop, costing about US$2 million to build a refueling station with a capacity of about 1,000 kg/day. While the government is investing heavily in developing hydrogen refueling stations (for instance, China Energy, China’s largest power company, has been building one of China’s largest hydrogen refueling stations in Rugao City, Jiangsu Province), it requires long term partnerships and investments from private and global players to meet its own targets. Until an adequate number of refueling stations is constructed, especially on highway routes (facilitating truck and bus transportation), fuel cell vehicles will remain in a sphere of concept rather than commercial and mass use.

Another challenge faced by the industry is that hydrogen, the main fuel, is also considered to be highly hazardous, and storing and transporting it is currently difficult. Moreover, it is difficult to convince customers to purchase hydrogen-powered vehicles because of this perceived notion of hydrogen being unsafe. In addition to providing subsidies and incentives for building fuel cell vehicles, the government must also invest in marketing campaigns and enact policies that raise awareness about hydrogen in fuel cell vehicles as a safe and green energy.

In addition to providing subsidies and incentives for building fuel cell vehicles, the government must also invest in marketing campaigns and enact policies that raise awareness about hydrogen in fuel cell vehicles as a safe and green energy.

A lot of new technologies are also being explored to further make transporting and storing hydrogen safer. A German company, Hydrogenious Technologies, has developed a carrier oil that can carry hydrogen in a safe manner. This oil is non-toxic and non-explosive and thus makes transporting, storing, and refueling hydrogen safe. Moreover, using hydrogen mixed with this carrier oil to refuel fuel cell cars follows a similar refueling process as that of a conventional car, with one cubic meter of the oil carrying about 57kg hydrogen, which in turn is expected to give a car a driving range of 5,700km. However, the carrier oil is still in its nascent stage of development and would take time and resources to gain commercial applicability.

However, one of the largest challenges that fuel cell vehicles face is direct competition from battery electric vehicles. BEVs have a 10-year head start over fuel cell vehicles whether it comes to government support, technological development, infrastructure, or acceptability. Moreover, BEVs are cheaper both in terms of cars price and cost of running, which is an important factor for consumers. In addition, BEV players are constantly working towards reducing charging time and increasing driving range. Since both are green technologies, it is likely that the consumer prefers the one which has now proven to be a successful alternative to conventional vehicles in terms of pricing and supporting infrastructure. Although higher subsidies for fuel cell vehicles may help bridge the gap, it is yet to be seen if fuel cell cars will be able to give stiff competition to their green counterparts.

EOS Perspective

There is no doubt that the Chinese government intends to throw its weight behind the fuel cell technology for automobiles. In 2018 alone, the central and local governments spent a total of US$12.4 billion in supporting fuel cell vehicles. This has helped attract the attention of several local and international companies that want a share of this growing market.

It also helps that hydrogen as a fuel has several benefits when compared with battery power, the key advantages being short refueling time and long driving range. Moreover, some consider hydrogen to be a cleaner fuel when compared with battery power as the electricity required to create hydrogen (which is created by pumping electricity into water to split it into hydrogen and oxygen) can be derived from renewable sources from China’s northern region, which are currently going to waste.

Despite these inherent benefits, it will be difficult for fuel cell vehicles to catch up with battery-powered vehicles as the latter have significantly advanced over the past decade (leaving fuel cell vehicles behind).

Moreover, China’s model of promoting green energy is yet to pass its ultimate test, i.e., to sustain and flourish without government support. Since the government has now begun to phase out its support to BEVs, it is to be seen if the large group of domestic electric vehicle makers can survive in the long run or the market will face significant consolidation along with slower growth. Thus it becomes extremely critical for the Chinese government and companies in this sector to understand the feasibility of the market post the subsidy phase. Fuel cell vehicle market should take advantage of learning from the experience of battery powered vehicles sector, which was the pioneer of alternatives to conventional combustion vehicles.

by EOS Intelligence EOS Intelligence No Comments

Turkey – When Being ‘The Gateway to Europe’ Wasn’t Good Enough

As with several emerging markets, Turkey’s automotive market slowed down in 2012. The ongoing crisis in Europe limited export opportunities (declined by 8% y-o-y) while domestic economic woes drove vehicles sales down (by 10% y-o-y). Although this came as a setback to the industry, which recorded strong growth during 2009-2011, the industry has bounced back as sales rebounded in the first two months of 2013.

In the last few years, Turkey, to the surprise of many industry experts, has emerged as an attractive automotive production destination. Several international OEMs, such as Ford, Hyundai, Toyota, Renault and Fiat, have set up production units in Turkey, largely to cater to growing domestic demand and as an export hub to Europe. At the same time, leading automotive OEM, Volkswagen, which has a significant presence in Turkey, remains an exception – Volkswagen does not have any plans to establish production capability in Turkey, and this has led Turkey’s Economy Minister to threaten the company with a 10% tax on the company’s imports.

The emergence of Turkey as an automotive production hub has primarily been driven by government incentives and subsidies to this sector. At the turn of 2013, the Turkish government announced incentives to encourage investment in the automotive industry as it targets USD75 billion in automotive exports over the next decade. Salient features of the incentives are as follows:

  • The investment scheme is an extension of a programme launched in 2009 and will offer tax breaks of up to 60% for new investments, up from 30% in 2012

  • Projects eligible under the latest revision include vehicle investments of more than USD170 million, engine investments of more than USD43 million and spare parts projects of more than USD11.3 million

  • Incentives in the lowest band include VAT and customs rebates, employee cost contributions and subsidies on land purchases

Turkey’s path to success as a preferred destination for manufacturing and as a growing automotive market has not been easy. There are several challenges facing the industry that have the potential to severely impact growth and expansion of the sector.

The Challenges

  • Overdependence on Europe for Exports – In 2012, Europe accounted for 70% of Turkey’s automotive exports and the country suffered in 2012 due to weak demand from the continent. As an immediate step to curb the impact of the ongoing Euro crisis, automotive OEMs are expected to shift focus towards the Middle East and North Africa to reduce its dependence on the unstable European markets.

  • High TaxationSpecial consumption tax and VAT raise the domestic purchase price of a vehicle in Turkey to 60-100% of the pre-tax price. For instance, the price of a Ford Focus 1.6 Trend without tax is EUR15,259 in Germany whereas the same vehicle costs EUR11,000 in Turkey. While the German government imposes a 16% tax, making the final price of the car EUR17,700, the Turkish government imposes a tax of 64.6% making the price EUR18,132. In this context, if Turkey becomes a full member of the EU, it will acquire a larger share of the European market because of lower price before taxation. Turkey also has a higher tax on luxury cars compared with the EU while tax on gas is also one of the highest in the world.

  • Resistance from Labour Unions in the EU – Labour unions in EU are against the transfer of automotive production to Turkey while some car producers prefer to move to other emerging economies such as China and India which have experienced rapid growth in productivity.


While automotive OEMs face several constraints in the Turkish market, the opportunities seem to outweigh the challenges. Using Turkey as a production hub to cater to regions beyond Europe, such as Middle-East and North Africa is a potentially significant opportunity for automotive OEMs. At the same time, booming domestic demand should continue driving growth of players such as Volkswagen, General Motors, Ford, Hyundai, Renault and Fiat.

Even though 2012 temporarily put the brakes on rapid expansion, the Turkish automotive industry is expected to remain an attractive destination for manufacturing and a promising market for sales.
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Part I of the series – Mexico – The Next Automotive Production Powerhouse?
Part II of the series – Indonesia – Is The Consecutive Years Of Record Sales For Real Or Is It The Storm Before The Lull?
Part III of the series – South Korea – At the Crossroads!

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