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China's Auto Sector: Electric Cars and Innovation?

|Includes: F, General Motors Company (GM), TM

This blog post was written by CMR Senior Analyst Ben Cavender

Seeing General Motors (NYSE:GM) dropped from the Dow one wonders at the future of the US auto industry and where growth in the auto sector is going to come from down the road.  GM will continue to be successful in Europe and in Asia as will other major auto makers like Ford (NYSE:F) and Toyota (NYSE:TM) but the real innovation may very well come from surprising places.

Auto makers in China are hungry and are investing heavily to become technology leaders rather than as companies known for making derivative products.  Auto news likes to make fun of Chinese cars and in some cases it is well deserved. There have been too many examples of cars that were blatant copies such as the Geely GE which looks suspiciously like the Rolls Royce Phantom.  But real innovation is happening.  Case in point, BYD, a Chinese battery maker, has succeeded in making an electric-hybrid that is likely to sell for half the cost of the Chevy Volt.  Backed by the Oracle from Omaha, Warren Buffet, BYD is releasing cute and energy efficient small cars that are starting to pop up on China's roads.  

See CMR Managing Director Shaun Rein's interview on CNBC Squawk Box about the auto sector in China.

 The Chinese Government in an effort to curtail pollution is also giving huge tax breaks to promote the use of electric cars.  While the infrastructure to charge cars needs to be built up, look for China to become a major hub of auto innovation in the next decade.

The seeds for success in the US and Western Europe have been planted and while the thought of driving Chinese might cause Americans to laugh, people laughed at Toyota too.