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2020-05-12

China's Tesla a battle for survival in times of coronavirus,

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Challenged by Tesla's arrival in China last year, start-ups of domestic electric vehicles (EVs) struggled even before the economic shock caused by the coronavirus, but it has now become a battle for survival for some.

Sales of new energy vehicles (NEVs) fell in April for a 10th straight month, plummeting 43 percent from a year earlier in a market that now has 50 or so established start-ups competing with domestic giants like Geely, the state-owned FAW Group, and foreign brands like Tesla Inc and Volkswagen AG (VOWG p. DE).

"The difficulties encountered by EV start-ups, such as the decline in auto sales, a harsh fundraising environment and a reduction in subsidies, all began last year," said Brian Gu, Alibaba-backed Xpeng Motors president.

"The outbreak will exacerbate those problems that had already existed," said Gu, whose company delivered 16,000 vehicles in 2019.

Despite subsidies for EV makers and tax breaks for buyers, industry watchers fear that after the plunge in global oil prices, electric vehicles could become even harder to sell, making the technology a less attractive bet for both consumers and investors.

Due to the slide in sales caused by coronavirus, even Buffett-backed long-established EV maker BYD reported an 85 per cent drop in profit in the first quarter.

Still, Chinese Passenger Car Association (CPCA) secretary general Cui Dongshu noted some of the leading EV startups managed "okay" sales in the first quarter, listing Nio Inc, Xpeng Motors and Li Auto as examples.

But the downswing does not bode well for China's chances of reaching a target for NEVs - a category that includes plug-in hybrids, battery-only electric vehicles and hydrogen fuel cell-powered vehicles - accounting for 25% of all car sales by 2025 compared to the current 5%.

CUTTING COSTS, SEARCHING FOR FUNDING

An investor in WM Motor, which last year sold nearly 17,000 vehicles, was expecting EV manufacturers still producing on a smaller scale to fall by the wayside during this market contraction.

"Whoever hadn't started mass production of their car models by 2019 is likely to die. The outbreak will speed up their death, "said the investor, who had asked for anonymity.

WM Motor, backed by Baidu Inc, said it had canceled performance bonuses due to a failure to meet 2019 targets and delayed payments of annual bonuses and employee subsidies due to the economic challenges posed by the coronavirus epidemic.

According to the employees, some smaller EV makers resorted to salary cuts and lay-offs.

Volatile financial markets have made it more difficult for companies to drum up finance from share issues. Chinese EV makers only secured $200 million of new funding during the first quarter, according to data from PitchBook.

Gu declined to comment on Xpeng 's plans for an IPO, which launched P7 sedan models on April 27 and is planning to export G3 sport-use vehicles to Norway.

"Only the top-tier EV makers will be able to attract investors' attention in this environment," Gu said, adding that Xpeng has maintained an open mind for diversified capital sources.

Li Auto, also known as CHJ Automotive, submitted an initial U.S. public bid to raise at least $500 million in January, sources told Reuters. And since then, its founder has said that the firm has enough cash reserves to weather the impact of the virus.

Other companies have turned to the state for financing.

Nio, a trailblazer among these start-ups, established a new entity, Nio China, that secured an investment of 7 billion yuan ($986.78 million) from state-controlled investors.

Luchi Motor, one of the earliest EV startups in China, sold a controlling stake to Henan Province's investment company in March after failing to deliver cars as scheduled.

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Article Edited by | John Heine |

Jhon is an incredibly talented freelance writer. He has been working of about 18 months as a reporter for some internet based print-based newspapers. He brings together significant news reports from the Technology and entertainment areas. we hope you're doing well if you see any inappropriate phrases please let us know on our contact page at the bottom. thank you!    .

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