SHANGHAI (BLOOMBERG) - Tesla's new Shanghai plant has churned out its popular Model 3 sedans for the past six months, catapulting the company atop the electric car sales chart and piling the pressure on cash-strapped local rivals. There was another casualty last week.
Byton Ltd is at least the third sizeable electric vehicle (EV) upstart to throw in the towel since Elon Musk started his made-in-China offensive, after Bordrin Motors and Jiangsu Saleen Automotive Technology wound their operations down earlier this year. They fell victim to plummeting demand amid the trade war and coronavirus pandemic, and as the government scaled back the subsidies that turned China into the world's biggest EV market with hundreds of producers.
Yet Tesla, in just half a year, grabbed a hefty slice of that shrinking pie - and its portion keeps getting bigger. The market leader's sales now approach a quarter of the total tally for EVs, the China Passenger Car Association (PCA) said on Wednesday (July 8), as wealthier buyers are drawn to Tesla's brand cachet. That's making life difficult for the slew of local contenders and risks exposing the multibillion-dollar Chinese EV push as a bubble.
"It is more and more difficult for EV start-ups to raise funds," said Cui Dongshu, secretary general of PCA. "New-energy vehicles have not yet been popularised on a large scale - so it is like the situation where there is not enough food in the temple, and some of the monks are forced out."
The Chinese government infused massive amounts of money into the alternative-energy vehicle sector over the past two decades, persuading foreign carmakers such as Tesla and Volkswagen to start manufacturing EVs in the country. A market that was initially dominated by local companies became more competitive, turning investors increasingly cautious on the fledging local start-ups. At one point last year, there were almost 500 EV manufacturers registered in China.
William Li, founder of Chinese electric car maker NIO Inc, foresaw the local contenders' predicament two years ago. In an internal meeting in May 2018, Li predicted that Tesla managing to set up production in China within three years would trigger the demise of many local rivals, according to people familiar with the matter. NIO declined to comment.
About 18 months later, the first Teslas rolled off the US company's assembly line in Shanghai. Monthly Tesla registrations in China now exceed 10,000 and helped the company beat global delivery estimates in the latest quarter.
Many start-ups' troubles worsened during 2019 while Tesla constructed its facility. Out of about 100 Chinese start-ups developing electric cars, a diminishing group of just 11 succeeded in raising funds last year, according to Bill Russo, founder and CEO of Automobility Ltd in Shanghai.
The total haul of 27 billion yuan (S$5.37 billion) was split between NIO, Lixiang Automotive, Byton, WM Motor Technology, Xpeng Motors Technology, Bordrin, Enovate Motors, Aiways Automobile, Singulato Motors, Leap Motor and Hozon New Energy Automobile, according to Automobility.
Byton and Bordrin succumbing to market realities so soon after their latest fund-raising rounds shows the cut-throat nature of the capital-intensive business. Sales of new EVs fell 35 per cent to 85,600 units in June, PCA said.
FChina Evergrande Group, the indebted property developer that's expanding to EVs, in March reiterated a pledge to become a powerful automobile player even as losses at the business swelled and its first product was delayed.
Miao Wei, the minister for industry and information technology, said five years ago that the government wanted to add a few "catfish" into the EV market, referring to newcomers and foreign rivals that would help spur innovation and bring in advanced technology. The end result would be a more robust and healthier market for those that survive.
The start-ups already selling - companies such as NIO, WM Motor and Xpeng - are in a relatively better position than those that aren't as far along with product development, PCA's Mr Cui said. Indeed, NIO, which secured US$1 billion in additional funds from a regional government this year, sold a record 3,740 vehicles in June.
In contrast, start-ups that have yet to offer a product are at the biggest risk of suffering, said PCA's Cui. They still require significant funding to get their business off the ground, and the challenges in obtaining that could speed up mergers and asset sales.
"There are too many EV companies chasing too few customers with constraints on capital," Automobility's Mr Russo said. "Consolidation is inevitable."