China holds the key to cars of the future

The announcement on Christmas Eve 2009 that the final hurdles for the buy out of the Volvo brand by the Chinese Geely Motor Car Company had been overcome came as no surprise to the workers on the assembly lines of plants in Gothenburg, Sweden and Gent, Belgium.

Parent company Ford had put Volvo, known for safety and middle of the road exclusivity, on the market for more than a year. Ford had previously sold the iconic UK Jaguar and Land Rover brands to an Indian car manufacturer in the run up to the Volvo sale.

Marketing people in the car business use the term "DNA" to describe what is the essence or core of the brand they are selling. But if you mix the DNA of two brands you create a centaur - a fabled four-legged animal with a man's head and torso upon a horse's four legs, which is still recognisable as a mixture of two brands. In case of the Chinese manufactured centaur of the future I suggest you have to look under the cellular bonnet to see the sub cellular bodies - the mitochondria - that provide the car with its power.

What is the reason for a Chinese company to buy a Swedish brand from an American-owned mother company? Some would say the Chinese do it to spite the US and finally prove that they are the new manufacturing super power. However, I think there might be a more strategic long term view.

In a recent article in the Financial Review it was revealed that China owns 97 per cent of known deposits of rare Earth minerals. This fact was first alluded to by the former supreme leader of the Chinese Communist Party, Deng Xiao Ping, who in a speech delivered in the 1970s, in the context of looming global oil crisis, said: "The Middle East has got its oil but China has got its rare Earth minerals."

The meaning of this nebulous statement made more than 30 years ago is that when the oil reserves of the world inevitably peak, and we enter a carbon restrained future: rare Earth magnets used in electrical engines is the next key strategic resource, giving the owner of this resource the same power as the oil-rich Middle East countries enjoyed in the '70s.

There is a largely unreported struggle raging for dominance in the rare earth mineral resources. Australia is one player in this race to develop promising deposits of rare earth but the exploration companies are facing intense pressure from Chinese firms wanting to continue the monopoly on rare earths. GM with its Volt electrical car has put forth its case to the US Government on the importance of access to rare earth magnets for efficient engines for the new all-electric vehicle. The US Government has responded by opening up old mines in California to provide the minerals needed for the domestic production of rare earth magnets.

I suggest we are nearing this conjunction of events and China is readying itself to take up the mantle of car manufacturing superpower by buying up intellectual property owned by an American company but developed by European engineers.

In my view China is not going to spend any time or money in the research and development of better petrol-fuelled combustion engines for the brands of cars they own. To do so would only prolong the influence and power of the Middle East.

The most likely scenario is that China has adopted a long term plan to build electrical engines to power Chinese-made cars of the future. As a first step in building a full-scale electrical engine that can propel a four-wheeled vehicle weighing up to 1000 kilograms, Chinese engineers are busying themselves developing smaller electrical rare-Earth-magnet containing engines that are powering that most ubiquitous vehicle on Chinese roads - the bicycle.

There are a number of companies in Australia that are importing Chinese-made electrical hub engines powered by compact lithium ion polymer battery packs as found in mobile phones. These importers can testify to the performance and steadily increasing quality of Chinese-manufactured electrical engines and batteries.

In the future, I believe we will be driving an ice blue European-looking car powered by a red-hot Chinese-manufactured electrical engine on our roads.

Or perhaps most of you, like me, will prefer to commute on a red US-manufactured bicycle equipped with a blue electrical engine made in China. If the roads in the rapidly growing Australian mega cities become even more congested, we may all have to get on our bikes to get anywhere in a hurry.