Tesla destroys electric startups in ChinaJuly 10, 2020
Over the past six months, the popular Tesla factory in Shanghai produced the popular Model 3 sedans, which brought the company to the top of the electric car sales schedule and increased pressure on local competitors.
Byton is at least the third significant EV rookie who is not in the best position since Elon Musk is ramping up production in China. At the same time, startups Bordrin Motors and Jiangsu Saleen Automotive Technology curtailed their operations earlier this year.
They were the victims of a sharp drop in demand in the context of the trade war and the coronavirus pandemic, and the government reduced the subsidies that made China the world’s largest electric car market with hundreds of manufacturers.
And yet, in just six months, Tesla took a hefty piece of this shrinking cake – and its share continues to grow. Market leader sales are currently approaching a quarter of the total number of electric vehicles, the China Association of Passenger Cars said Wednesday as wealthier buyers are attracted to the popularity of the Tesla brand. This complicates the lives of many local competitors.
“EV startups are finding it increasingly difficult to raise funds,” said Tsui Dongshu, PCA Secretary General. “Vehicles of new energy have not yet become widespread, so it looks like a situation when there is not enough food in the temple, and some monks are crowded out.”
Over the past two decades, the Chinese government has invested huge sums of money in the alternative energy vehicle sector, convincing foreign automakers such as Tesla and the Volkswagen Group to start producing electric cars in the country.
The market, which was initially dominated by local companies, became more competitive, which forced investors to be cautious about starting local startups. Nearly 500 electric vehicle manufacturers were registered in China last year.
William Li, founder of Nio, a Chinese electric vehicle manufacturer, foresaw difficulties two years ago. At an internal meeting in May 2018, Li predicted that, according to people familiar with this issue, Tesla, having managed to establish production in China over three years, would provoke the death of many local competitors.
After 18 months, the first Tesla electric car rolled off the assembly line of an American company in Shanghai. Tesla’s monthly production figures in China currently exceed 10,000 units, with the result that the company was able to exceed global shipments estimates in the last quarter.
The challenges of many startups intensified during 2019, while Tesla was building its business. According to Bill Russo, founder and CEO of Automobility in Shanghai, last year, out of about 100 Chinese startups developing electric cars, only 11 managed to raise funds (Nio, Lixiang Automotive, Byton, WM Motor Technology, Xpeng Motors Technology, Bordrin, Enovate Motors , Aiways Automobile, Singulato Motors, Leap Motor, and Hozon New Energy). They were able to sell products worth 27 billion yuan (3.9 billion US dollars).
Some startups were forced to stop their work and lay off employees. Other companies stopped receiving money, as investors do not see the future in their projects.
Miao Wei, Minister of Industry and Information Technology, said five years ago that the government wants to add a few “soms” to the electric car market, referring to newcomers and foreign competitors who will help stimulate innovation and introduce advanced technologies. The end result will be a more reliable and healthy market for those who survive.
Already selling startups – companies such as Nio, WM Motor and Xpeng – are in a relatively better position than those that are not so far from product development, Tsui said. Indeed, Nio, which received $ 1 billion this year from the regional government, sold a record 3,740 cars in June.
On the contrary, startups that have yet to offer a product are at greatest risk of suffering, said PCA Qu. They still need significant funding to start their own business, and problems in obtaining that can accelerate mergers and sales of assets.
“Too many electric vehicle companies are chasing too few limited-capital customers,” Rousseau said. “Consolidation is inevitable.”
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