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China's electric vehicle start-ups race for leading position

The future of the automobile industry is likely to be electric. And if that’s the case, then China looks sets to be a big part of the picture. Money Mind reports.

China's electric vehicle start-ups race for leading position

A staff member hooks up a charging cable to an electric vehicle (EV) at a charging station in Liuzhou, Guangxi Zhuang Autonomous Region, China, Jul 31, 2017. (Photo: Reuters)

SINGAPORE: The growth of the electric vehicle has been nothing short of electrifying.

In 2010, there were 17,000 electric cars on the world’s roads. By 2019, that had grown to 7.2 million, according to autonomous inter-governmental organisation IEA.

Of all the electric cars around the world, 47 per cent were in one country alone – China. China is also home to 99 per cent of the world’s electric buses.

China is also a major manufacturer of electric vehicles, but industry watchers note that the pioneers in the market there were not home-grown names.

EVOLUTION OF THE ELECTRIC VEHICLE MARKET

The electric vehicle market has evolved over the years. The first to enter the market were local manufacturers of traditional automakers whose focus were not on the premium sector.

But industry watchers say, Tesla’s entry into China in 2013 sparked a change.

READ: China-led shift to electric vehicles to help end 'oil era': Study

“In recent years, we’ve got all these new Chinese EV startsups benchmarking their products to Tesla, so they actually started from the high end,” said Ms Jing Yang, director for corporate research at Fitch Ratings in Shanghai.

China’s electric vehicle manufacturers are now accelerating their international growth plans.

All three leaders in the domestic electric vehicle sector have successfully listed in the United States.

Frontrunner Nio listed on the New York Stock Exchange in 2018. Its shared have climbed more than 300 per cent since.

In July this year, Chinese electric vehicle start-up Li Auto debuted on the Nasdaq, raising US$1.1 billion.

This was followed by Xpeng’s blockbuster listing on the New York Stock Exchange in August.

According to Mr Lim Chee-Kiang, managing director of Urban Science, such companies find the US market attractive because it is highly liquid, with high price transparency. 

RISING COMPETITION

These Chinese electric vehicle start-ups have also sought to compete with attractive selling prices.

A compact SUV by NIO, is priced about 25 per cent lower than its rival, the Model Y by Tesla.

Ms Jing Yang said Chinese electric vehicle makers are able to offer low prices because they prioritise volume over profitability.

On top of that, Chinese electric vehicle companies are focusing on building a brand name – not an easy feat in a market with more than 400 brands.

Ultimately though, the growth of these companies has to translate to profits.

Tesla took a decade to turn in an annual profit.

Urban Science’s Mr Lim points out that it is very hard to make a good margin on a new car sale. And that means manufacturers need to find other ways of monetising their product. This could be through subscription services, providing value-added services, or monetising data.

This challenging path to profitability means that multiple rounds of funding will be needed.

China’s electric vehicle makers also face increasing competition. Tesla has become the first foreign carmaker to have a wholly owned factory in China.

READ: Tesla plans to produce electric car chargers in China

READ: Volkswagen explores new sales model for electric vehicles in China

And outside China, many traditional automakers are entering the electric vehicle market.

Volkswagen, the world’s biggest carmaker, is investing US$86 billion in digital and electric vehicle technologies.

"It will be very difficult to to make a profit, which is why they all need minimum one, two or three rounds of funding.

"And before you have the return on investment with very thin margins on every vehicle, you're looking to 10 to 15 years of payback period if the numbers are coming," said Mr Bernd Pichler, regional director, Asia Pacific, Bentley Motors.

Source: CNA/aj

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