Saturday, 2024 April 13

As China’s EV sector matures, decades-old automakers enter the fray

Although electric vehicles still have a long way to go before they can overtake cars with internal combustion engines in market share, consumers’ transition to EVs is taking place. To meet this new demand, global automobile enterprises are electrifying their new vehicles.

Even companies that are not in the automobile business are making entries. In late 2021, Apple was rumored to be working on a fully autonomous electric vehicle. The same situation is unfolding in China, where the likes of Huawei and Xiaomi are developing their own EVs or EV-related products.

This is a huge departure from this sector a decade ago, when companies like Nio, Li Auto, and Xpeng had to construct their supply chains from scratch, build up sales channels that at the time did not exist, and introduce the concept of plug-in vehicles to consumers who may not have been particularly interested.

This time around, the new players in China’s EV sector are flush with cash, resources, and business experience.

Who are the newcomers?

Aside from tech companies, some of the enterprises that are developing EV design and production capabilities include state-owned automakers that are household names in China but unknown everywhere else.

The notable point about these automakers, which are known for being manufacturers of trucks and consumer vehicles since the 1950s, is that they are tapping their existing automaking expertise to rapidly create new EV models fit for the road.

Take Dongfeng Motor Group as an example. Just four months after launching its EV brand, Voyah, it delivered the Voyah Free in Shenzhen in mid-December 2021. The vehicle came in hybrid and pure electric options, and was embedded with a driving assistance system with 20 functions, such as automatic parking and lane centering. As of January, Voyah has shipped 6,791 cars to buyers.

Another state-owned enterprise, the Shanghai-based SAIC Group, launched IM, an EV brand whose name stands for “intelligence in motion,” in November 2021. The IM L7, which ​​is a high-end, medium-sized electric sedan that comes equipped with autonomous driving software, is now being assembled on its production lines. IM said it will release a new model in April.

The list goes on for major car companies that have EVs in their pipeline: Great Wall Motors has developed an electric line called Soul, and Guangzhou-based GAC Group has Aion.

This has presented new opportunities for major tech companies that have developed deep tech or AI capabilities. In November 2021, a top executive of Chang’an Automobile said the company was working with Huawei and battery supplier CATL to launch a high-end electric vehicle brand.

Numerous tech companies, like Xiaomi, have also chosen to carve their own path into the EV sector. In March 2021, Lei Jun, the company’s CEO and chairman, announced at the company’s annual launch event that Xiaomi will invest a total of USD 10 billion into car-making over the next 10 years. It was a bold move since the company is known as a phone brand with a catalog of consumer electronics products.

Elsewhere, Baidu is considering producing its own EVs, and has reportedly negotiated with automakers Geely and GAC Group to set up a joint venture. And electric bike maker Niu’s founder Li Yinan announced that his company had formed an EV arm, NiuTron, in mid-December. NiuTron has secured a USD 500 million Series A investment and aims to deliver its first cars to consumers in September 2022.

From underdogs to pioneers

Nio, Xpeng, and Li Auto were founded in the mid-2010s. After years of building up their operations and laying the foundations for China’s EV market, all the while being viewed by existing automotive companies as upstarts that would flame out, they have finally broken even.

Over the years, the three EV makers had to endure public attacks from major automakers. In 2018, the chairman of Geely Automotive, Li Shufu, characterized EV startups as shams that were invoking internet connectivity and electrification to damage public and investor interests.

That same year, Wang Xiaoqiu, who was vice president of SAIC Group at the time, told Chinese reporters that “EV startups are unreliable at making cars.”

These criticisms may have seemed valid at the time, particularly since the EV makers were experiencing deep losses. Before Li Auto’s IPO in 2020, it was RMB 4.1 billion (USD 650 million) in the red, an amount that was accumulated over the span of three years. Nio’s net loss in 2019 was nearly three times that, RMB 11.4 billion (USD 1.8 billion).

2020 was a turning point for Nio, Xpeng, and Li Auto, which all achieved positive gross profit margins for the first time. In particular, Li Auto managed to obtain a profit margin of 19.8% in Q3 2020, the highest among its peers.

The three companies recorded steady growth in their sales numbers. Xpeng delivered 263% more vehicles in 2021 compared to the year before, Nio sold 109% more vehicles year-on-year, and Li Auto’s deliveries increased by 177% in the same period.

Nio’s market cap in February was USD 38 billion, Xpeng had a USD 22 billion market cap, while Li Auto was worth USD 24 billion. By comparing those figures with SAIC Group’s USD 33 billion, Chang’an’s USD 12 billion, and Dongfeng’s USD 1.7 billion, the EV upstarts have come a long way.

​​Latecomers’ advantages

Based on local media reports in China, there were nearly 50 electric vehicle startups in 2015. Since then, most have gone out of business, and only a handful—like Nio, Li Auto, and Xpeng—are still in operation.

One of the factors differentiating those who were merely ambitious from real EV manufacturers in the making was capital, specifically large amounts of cash that were committed as long-term investments. Li Bin, Nio’s founder and CEO, used to warn new entrepreneurs that building an EV business from the ground up takes at least RMB 20 billion (USD 3.2 billion).

After observing the processes that successful EV startups went through over the past years, major automakers have prepared sizable war chests before entering this arena. SAIC Group’s IM Motors has obtained tens of billions of yuan by raising funds from investors, while Dongfeng Group announced in December that it will invest RMB 7 billion (USD 1.1 billion) for Voyah, which counts Alibaba as one of its shareholders.

These recent entrants are now part of a relatively mature market that has benefitted from favorable government policies and infrastructure buildout, such as for charging piles. They are also able to source advanced components more easily than their counterparts who were building EVs in the mid-2010s, with consumers gradually overcoming reach anxiety due to battery limitations.

According to a report by the Evergrande Research Institute, the average distance that pure-electric passenger vehicles can travel on one charge has increased from 211.6 km in 2017 to 391.4 km in 2020.

At the same time, batteries are becoming cheaper. According to a survey by Bloomberg New Energy Finance, the average price of electric vehicle batteries dropped 89% from 2010 to 2019.

No longer strictly a luxury, there are now EVs made for low-end and mid-tier markets. According to data compiled by the China Passenger Car Association, 169,000 new energy vehicles were sold in November 2021—a 136.5% increase from the same month in 2020.

All of these factors, plus the existing vehicle manufacturing know-how that conventional automakers possess, made the transition to plug-in vehicles less costly. Again, this forms a contrast against the backgrounds of EV startup founders.

Li Bin, who established Nio, and Li Xiang, who formed Li Auto, both founded websites that published content about the automobile sector. He Xiaopeng, the man behind Xpeng, was a co-founder of the developer behind the UCWeb browser and served as a senior executive of Alibaba’s Mobile Business Division—neither of which were related to the auto sector.

For now, EV owners are a distinct minority in China. Plug-in vehicles only accounted for 2.1% of all cars and trucks in the country at the end of June 2021. But the many companies operating in this sector are laying the foundation for much broader adoption going forward. They are building the future of cleaner vehicle emissions.

As Li Xiang posted on WeChat, “It is absolutely a good thing to welcome new players in any sector. It helps attract public attention and elevate consumer awareness overall.”

This article first appeared on 24/7 Tech. KrEurope is authorized to translate, adapt, and publish its contents. The original text was translated and adapted by Dong Han and Julianna Wu.

KrASIA Connection
KrASIA Connection
KrASIA Connection features translated and adapted high-quality insights published on 36Kr.com, the largest and most influential technology portal in Chinese language with over 150 million readers across the globe.
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