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The future of the automotive industry is likely to be electric. And if that’s the case, China appears to be a big part of the picture. Money Mind reports.
A staff member connects a charging cable to an electric vehicle (EV) at a charging station in Liuzhou, Guangxi Zhuang Autonomous Region, China, July 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 the autonomous intergovernmental organization IEA.
Of all the electric cars in the world, 47 percent were in just one country: China. China is also home to 99 percent of the world’s electric buses.
China is also a major electric vehicle maker, but industry observers note that the pioneers in the market were not proper 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 from traditional automakers whose focus was not on the premium sector.
But industry watchers say Tesla’s entry into China in 2013 sparked a change.
READ: China-Led Shift Towards Electric Vehicles to Help End ‘Age of Oil’: Study
“In recent years, we’ve had all these Chinese EV startups comparing their products to Tesla, so they actually started from the higher end,” said Ms Jing Yang, director of corporate research at Fitch Ratings in Shanghai. .
China’s electric vehicle makers are now accelerating their international growth plans.
All three leaders in the home electric vehicle sector have been successfully listed in the United States.
Frontrunner Nio was listed on the New York Stock Exchange in 2018. Its share has risen more than 300 percent since then.
In July this year, Chinese electric vehicle company Li Auto debuted on Nasdaq, raising $ 1.1 billion.
This was followed by Xpeng’s successful listing on the New York Stock Exchange in August.
According to Lim Chee-Kiang, managing director of Urban Science, these companies find the US market attractive because it is very liquid, with high price transparency.
GROWING COMPETITION
These Chinese electric vehicle startups have also sought to compete with attractive sales prices.
A compact SUV from NIO is priced 25 percent lower than its rival, the Tesla Model Y.
Ms. Jing Yang said Chinese electric vehicle manufacturers can offer low prices because they prioritize volume over profitability.
On top of that, Chinese electric vehicle companies are focusing on building a brand, which is not an easy task in a market with more than 400 brands.
Ultimately, however, the growth of these companies must translate into profits.
Tesla took a decade to generate annual profits.
Lim of Urban Science points out that it is very difficult to get a good margin on the sale of a new car. And that means manufacturers must find other ways to monetize their product. This could be through subscription services, providing value-added services, or monetizing data.
This challenging path to profitability means multiple rounds of financing will be needed.
China’s electric vehicle manufacturers are also facing increasing competition. Tesla has become the first foreign automaker to have a wholly-owned factory in China.
READ: Tesla plans to produce electric car chargers in China
READ: Volkswagen explores a new sales model for electric vehicles in China
And outside of China, many traditional automakers are entering the electric vehicle market.
Volkswagen, the world’s largest automaker, is investing $ 86 billion in electric and digital vehicle technologies.
“It will be very difficult to make a profit, so everyone needs at least one, two or three rounds of financing.
“And before you get the ROI with very low margins on each vehicle, expect a payback period of 10 to 15 years if the numbers get close,” said Bernd Pichler, Bentley Motors Asia Pacific Regional Director.
