Automotive News Europe — 2023-10-16
Automotive Industry
The future for two of China’s worst-selling electric car brands just got even bleaker.
China Evergrande New Energy Vehicle Group, the EV maker that’s part of the defaulted property developer and which in early 2019 bragged it would one day take on Elon Musk’s Tesla, has lost a staggering $10.8 million for each battery-powered vehicle sold in its short existence — or $14.4 billion on the around 1,300 of its vehicles registered, according to Hyperdrive calculations based on the company’s financial filings and car insurance industry data.
Privately held WM Motor, which last week said a Shanghai court has accepted a pre-restructuring application as it grapples with financial difficulties, has seen sales collapse by more than 90 percent despite a slew of paycuts and staff layoffs to reduce expenses.
Like Evergrande NEV, which at one point had a market value more than Ford Motor Co., it’s a significant come down for WM Motor. Established in 2018, it showed so much promise — in investors’ eyes at least — that it attracted the backing of Baidu Inc. and Tencent Holdings.
As the pair tread water waiting for sales to materialize, signs of further consolidation in China’s too-crowded EV sector are looming large. At the same time, dominant players like Tesla and BYD Co. are getting even stronger — the top 10 EV makers are on track to account for around 80 percent of all EV sales this year.
“If we look at these EV companies with minimal sales from a credit perspective, their main problems are a very high execution risk in strategy, sustained negative free cashflow and liquidity risk,” said Jing Yang, the director of China Corporate Research at Fitch Ratings. For those automakers, it’s “very hard to access the bond markets. Their refinancing risk becomes elevated if equity investors and banks walk away.”
Data from China Automotive Technology and Research Center show that while there are around 91 active electric vehicle manufacturers, almost one-third of them are registering sales of less than 500 vehicles a quarter. Tesla, by way of comparison, shipped about 74,000 cars last month alone from its factory in Shanghai.
Brands such as Aiways, Zotye and Haima, for example, at their peak used to be able to move hundreds or even thousands of new-energy cars a quarter. But for the second quarter of 2023, their new registrations stood at no more than 20 vehicles, the data from CATARC show.
Based on the Herfindahl-Hirschman Index, a metric used by academics and regulators to evaluate competition and measure market concentration, the sector is hovering around a threshold that would mark a transition from overcrowed to moderately concentrated.
Select investors are continuing to back the most promising upstarts.
Xpeng in July scored a $700 million investment from Volkswagen Group under which the German automaker will hold a 4.99 percent stake in the Chinese company and have an observer board seat. A probe into Xpeng’s head of procurement won’t disrupt business or production processes, Xpeng said last week, confirming a local media report of a corruption investigation at the company.
Nio, which has yet to make profit but aims to double sales to 250,000 EVs this year, has meanwhile sold a 7 percent stake to an entity controlled by Abu Dhabi for about $740 million and is considering raising another $3 billion in the Middle East and locally, people familiar with the matter said last month.
And there are still companies trying to muscle into the EV market, like Xiaomi Corp. The Chinese smartphone maker is now holding talks with established automakers on potential production partnerships as it waits for Beijing to approve a license that would give it the right to manufacture EVs itself.
But with sales growth of new-energy vehicles in China slowing and exports more than doubling last month as domestic demand slumps, it’s hard to see how stragglers like WM Motor and Evergrande NEV can stick around for the long term. Their demise, if it eventuates, should send a chill through many other hangers on too.