Print Edition - 2019-06-20 | MONEY
Electric dreams in danger as funding dwindles for Tesla challengers
-, HONG KONG/BEIJING
Jun 20, 2019-
Last year, Wei Qing and his private equity investment team visited more than 20 Chinese electric vehicle manufacturing startups.The end result? They decided not to invest in any.
“There are too many uncertainties from when a company tells a story in the early stage, to when it produces a sample car and raises funds, to the eventual mass production,” said Wei, managing director at Shanghai-based Sailing Capital.
Wei, who declined to name the EV makers his team visited, said he thinks only a few of them will survive. Sailing instead decided to invest in an EV parts supplier, he added.
His concerns reflect what bankers describe as increasingly tough funding times for Chinese EV makers which must jostle for attention in a crowded sector and produce convincing arguments about future profitability despite government cuts to EV subsidies and plans to phase them out.
Numerous setbacks plaguing Tesla Inc in its quest for sustained profitability as well as a dramatic slide in sales and problems with some cars at Chinese startup Nio Inc have also put investors on their guard.
This year, Chinese EV makers have raised just $783.1 million as of mid-June compared with $6 billion for the same period a year earlier and $7.7 billion for all of 2018, according to data provider PitchBook.
One Hong Kong-based banker said he had been approached by at least a dozen EV makers seeking new funds but had to pass on most of them as they were not able to set themselves apart from the crowd.
Even fundraising efforts that have gotten off the ground are not moving as fast as EV makers would like.
“It is challenging,” said the banker who began working on one fundraising this year. “If you can get a meeting with investors, you can always tell a story, but some don’t even reply to your requests for a meeting.”
He declined to be identified as the negotiations were not public.
Eager to curb smog and jump-start its own auto industry, China has said it wants so-called new energy vehicles (NEVs)—which also include hybrids, plug-in hybrids and fuel cell cars—to account for a fifth of auto sales by 2025 compared with 5 percent now.
Those ambitions have spawned a plethora of EV startups competing not just with each other, but also global automakers and Tesla, which plans to start production in China this year.
About 330 EV firms are registered for some sort of subsidy, government data shows, although the number of more well established startups is much smaller, at around 50.
But amid criticism that some firms have become overly reliant on government funds, Beijing has reduced subsidies, raised the standards needed for vehicles to qualify and flagged they will end altogether after 2020.
That has led to sharp slowdown as vehicle prices rise. Sales of NEVs in May rose just 1.8 percent from a year earlier compared with 18.1 percent in April, and 62 percent growth for 2018.
Surviving in the current funding environment, requires much cost discipline, Daniel Kirchert, CEO at Nanjing-based EV maker Byton, told Reuters.
“Given the current situation, it is not enough for any startup to come up with good products and be fast to market. At least it’s equally important to manage cost. Not only fixed costs but variable cost,” he said. Byton, which is backed by state-owned automaker FAW Group and battery supplier Contemporary Amperex Technology Co (CATL) is one of a few EV makers with a fundraising round in train, seeking $500 million.
Published: 20-06-2019 10:15