Chinese EV Startups Face the Music

In an attempt to become a world leader in electric vehicles, China offered huge subsidies for the purchase of any Chinese-made EV until very recently. Now with the trade war, and defaulting firms sparking fears that the Chinese economy may be over-leveraged the subsidies are drying up. Without those juicy subsidies to boost sales, things aren’t looking so pretty for all those hot new Chinese EV startups or the billionaires who bankrolled them. Bloomberg has the story:

Some of China’s wealthiest tycoons steered billions of dollars into electric-car companies in order to fuel the country’s dreams of becoming a leader in the field. Now a reckoning may be looming as car sales slow and the government reduces subsidies for the nascent industry.

That leaves the flagship companies of Jack Ma, Pony Ma, Hui Ka Yan and Robin Li facing an increasingly steep path to profitability on their bets that electric vehicles can be smartphones-on-wheels connecting passengers to other businesses. Their capital, along with dozens of startups raising $18 billion, helped inflate an electric bubble that now looks to be in danger of popping.

Bloomberg

At least $16 billion of that investment will be lost.

With China considering further cuts to the subsidies for consumer purchases in order to force automakers to compete on their own, a shakeout is looming that not even the tycoons’ support may be able to prevent, said Rachel Miu, an analyst with DBS Group Holdings Ltd. in Hong Kong. “For the new kids on the block in the EV space, it’s a steep uphill climb,” she said.

Bloomberg

People loved the cars, until they had to pay for them. One they had to buy the cars with their own money, suddenly nobody was interested anymore. But the Chinese EV startups definitely get an A for effort:

Losses piled up with the overall sales slump [as Nio] plowed money into marketing and real estate. It sponsored a Bruno Mars concert and opened luxury clubs for NIO owners that feature showrooms, coffee bars and performance spaces. By August the company had opened 19 NIO Houses over 22 months, and combined rental expenses were equivalent to 6.3% of revenue during the 12 months ended March, according to Bloomberg Intelligence.

Bloomberg

Now that’s what I call putting capital to work! Can you believe they only sold 26,000 cars in a country with a population of 1.4 billion?

NIO lost $2.8 billion in the 12 months ended June on revenue of $1.2 billion, and its shares have plunged this year. The Shanghai-based company cut about 20% of its workforce through September, when Tencent injected another $100 million.

Bloomberg

Not bad. Almost visionary in their losses, some might say.

“Our sales have been under pressure since the subsidies went down,” NIO Chief Executive Officer William Li said. “It has come to a new era that one can only win customers with quality products and services.”

Bloomberg

Ouch, tough times. Now that subsidies are gone, the company may be forced to provide customers with quality products and services. That’s going to be a big adjustment.

One of the more startling entrants in the EV industry is property developer China Evergrande Group, which declared it wanted to be the world’s biggest manufacturer within three to five years. That means surpassing Tesla, which just opened a factory in Shanghai. 

Bloomberg

Mhm. For sure.

We don’t have any talent, technology, experience, or production base in manufacturing cars. How can we compete with the century-old automakers in the world?

Hui Ka Yan, Chairman & Founder of Evergrande

You tell me…

Whatever core technology and company we can buy, we will buy.

Hui Ka Yan, Chairman & Founder of Evergrande

What could go wrong?

Read the full story at Bloomberg

One thought on “Chinese EV Startups Face the Music

  1. Shhh… Don’t tell Evergrande that’s kind of the point of core technology- that you can’t just go out and buy it.

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