Auto Industry

Leading the charge

Among Tesla’s latest competitors in China is little known start-up XPENG


Electrifying prospects: He Xiaopeng, the man behind XPeng cars

Which company produced the world’s best-selling electric vehicle in 2017?

Take a cursory glimpse at the headlines in Western newspapers and Tesla might seem the obvious contender, given how often the name crops up.

But the US company did not reign supreme last year. Nor did any other international start-up or even a private sector entity.

Last year, the top-selling title went to a Chinese state-owned enterprise: Beijing Automotive Group (BAIC).

Its zippy little city car, known as the EC-Series, sold 78,079 units, according to CleanTechnica statistics.

This not only enabled BAIC to steal BYD’s Chinese crown for the first time since 2013, but it also helped it to beat Nissan, which had previously held the yearly record for worldwide sales (the Leaf in 2014).

BAIC’s triumph is paving the way for a backdoor listing of its electric vehicle (EV) subsidiary, Beijing Electric Vehicle (BJEV), in Shanghai. According to Reuters, the company will be valued at $4.5 billion, which means it has some way to go before it catches up with BYD’s $24.74 billion market capitalisation. Tesla itself has a valuation of more than double BYD’s, although the company’s critics say they want to see more focus on profits, and fewer promises about changing the world.

Tesla may prove the growing band of sceptics wrong after a difficult 2017. CEO Elon Musk has been promising to produce 5,000 of the company’s new “affordable” Model 3 cars a week since last autumn. The latest goal is to hit this target during the second quarter this year, pending resolution of production glitches. But as WiC has reported, Tesla has struggled to break into the Chinese market. It has been stymied by import tariffs, which make the price of its cars uncompetitive, and a reluctance to set up a joint venture where it would avoid the tariffs by making cars locally – but at the cost of ceding 51% ownership of the JV to a Chinese carmaker.

That particular problem may soon be solved, with reports of late-stage discussions on a self-owned factory in the Shanghai Free Trade Zone. If the facility is built, it should become operational in about three years time, just as electric car ownership really starts to motor with China’s consumers. Tesla is also continuing to make substantial investments in its own charging network in China (the modern-day equivalent of putting money into gas stations). In fact, it opened the world’s three largest supercharging stations recently (50 power stalls each) in Beijing and Shanghai.

Globally, Tesla now has 8,496 stalls, of which 1,021 were in China at the end of last year. However, the number is unimpressive against the 127,434 stalls in total in China, which deploy a rival (and government-sanctioned) GB/T charging standard.

Late last year Tesla bowed to the futility of trying to go it alone and is now adding a second GB/T-compatible charging socket to cars it sells in the country.

Tesla has its own clone car in China too. XPENG Motors, also known as Xiaopeng, readily acknowledges that it used Tesla’s open-source patents to build its first prototype, the G3. The car, whose interior is modelled on Tesla’s Model S, went on display for the first time at the Consumer Electronics Show in Las Vegas last month.

Tesla opened up its patents in 2015 with the “aim of accelerating the advent of electric transportation” and creating a bigger pie to feed from. And in China, that revolution is speeding up. A total of 603,300 electric vehicles were registered in 2017, compared to 336,000 in 2016. Some analysts believe the figure is going to break the one-million mark in 2018, which will keep the government on track to hit its goal of five million electric vehicles on the road by 2020. According to CleanTechnica, passenger EV sales broke through 3% of total sales for the first time in late 2017.

Start-up carmaker XPENG may be a newcomer, but it has some serious backers after completing its Rmb2.2 billion ($348 million) funding round in late January. Its founder He Xiaopeng previously established mobile internet software and services provider UCWeb, before selling it to Alibaba in 2014. The tech giant is now one of XPENG’s leading shareholders with a stake of 10.03% in December, according to Caijing, and it led the latest investment round, which included IDG and Foxconn.

The deal marks Taipei-based Foxconn’s first foray into the electric vehicle sector and Caijing wonders whether Terry Gou’s contract manufacturer is hoping to emulate its OEM success in the mobile phone sector by diversifying into cars.

IDG says its own investment in XPENG is likely to be one of the most important it makes in 2018. “Cars are the most important product bringing the technology and data revolutions together,” IDG partner Yang Fei told Caijing.

The target customers for the XPENG vehicle are the internet-savvy, millennial generation. And a report from McKinsey last year underpins the company’s optimism about attracting them, finding that Chinese consumers value connectivity three times more highly than American or German ones.

However, even though XPENG had raised Rmb5 billion prior to its latest fundraising, it is still some way behind two other start-ups: Nio and WM Motors. As we wrote in WiC391, Nio recently raised $1 billion in capital, giving it a $5 billion valuation (Tencent is one of its main backers). Founded by tech entrepreneur Li Bin, Nio launched its first mass-production car in January. The ES8, which has a retail price of Rmb448,000 ($70,824), is a seven-seat SUV with a 500km range and an in-car assistant called Nomi (know me) that interacts with drivers.

As Izzy Zhu, its user development vice-president, tells the Financial Times: “A car isn’t just a cold machine. It’s more like a companion with emotions and warmth.”

Nio’s main rival on the funding front is WM Motors, which was founded by Freeman Shen, the former Geely executive who brokered arguably the most successful auto acquisition in Chinese history (buying Sweden’s Volvo). And surprise, surprise: Baidu (the final leg of the BAT troika) is a significant investor.

Until recently WM had maintained a very low profile despite raising $2.2 billion of its own capital. In December, it unveiled the Weltmeister EX5. If the preliminary reports are correct, the car is going to be one of the cheapest on the market (with a rumoured retail price between Rmb200,000 and Rmb300,000) and the capacity to run for 600km on a single charge. The choice of name pays homage to the premium brand status of German goods in China (Weltmeister means ‘world champion’).

An unwelcome sideshow to the progress of the Chinese start-ups is the unfolding debacle at US-based Faraday Future. The Verge recently published an internal memo that berated Faraday employees for trying to “submarine” the company from within by leaking confidential information. It reports that founder Jia Yueting was able to raise an undisclosed amount of cash for the EV maker in December. But he is still holed up in the US and has yet to return to China, defying a court order to settle debts at LeEco, the parent group (see WiC392).

A group of former Faraday executives have now pitched up at China-based start-up Byton. Given the problems that local investors have had getting capital to the US for investment in American businesses, it remains to be seen whether they will fare any better in raising cash on Chinese soil.

Plenty of media commentators believe that China’s electric car manufacturers will dominate within a decade. But that impression has yet to filter down to Chinese netizens, who often seem disenchanted with the product offering from homegrown manufacturers. “Our industry is only propped up by policy incentives,” writes one. Another adds, “We’ll only be able to say we’ve made it if we sell our electric cars to Western countries.”

Perhaps that day will come sooner than they think. This week the influential investment advisory firm Dunne Automotive decided that one of its monthly missives needed a new title. “Now might be just the right time to rename this newsletter,” it wrote. “The Chinese Are Coming seems no longer quite accurate. The fact is the Chinese are already here.”

Dunne’s newsletter also pointed out that the number of Chinese-owned automotive companies in the US has now reached 53. “The Chinese are installed in cities across America – and very active. It is just that most Americans have not taken notice,” it warned.

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