Auto Industry

Charging more

Carmakers react to electric vehicle subsidy cuts


WM Motor’s boss Freeman Shen

The northern hemisphere rarely gets a blast of winter in April. But it is certainly coming for fans of the TV series Game of Thrones, who can’t wait for the start of the final season this month. That includes China, where the show is known as Game of Power.

One of ‘super fans’ of the franchise is Freeman Shen, founder of electric vehicle (EV) start-up WM Motor. Such is his devotion that he developed a series of car logos based on the royal houses in the series (think Stark, Lannister and Targaryen). Shen and his competitors are pitched in a similar battle for the hearts and minds of China’s next generation of car buyers. And winter shows signs of coming for some of these manufacturers, after the central government cut sales subsidies by more than expected in March.

Vehicles with driving ranges of less than 250km lost their subsidy altogether. The rest saw decreases ranging from 47% to 60%.

The authorities want domestic EV firms to concentrate on technology upgrades, after kickstarting the sector with at least $36.5 billion of subsidies since 2009, according to Washington’s International Institute of Strategic Studies. The hope is that the surviving firms will toughen up, readying them to compete with international brands including Tesla.

The US group started imports of its first mass-market car, the Model 3, into China recently. The March sales data is yet to be released, but early indications suggest that the new model has blasted straight into number one spot.

Commentary in the media has concentrated on whether the domestic producers will be able to contend with Tesla’s star power as the American firm starts to get more traction in the Chinese market.

As one netizen also put it: “Cutting subsidies was necessary, but once Tesla is fully here, all the other new energy vehicle firms will be dead anyway.”

One part of that prophecy will be tested later this year when Tesla begins rolling out domestically produced cars from its factory in Shanghai. By that point, the sales rankings will show whether a shake-up is underway. Until now, sales have been led by cheaper homegrown brands like BYD. In February its Yuan all- electric SUV was still ahead of the pack, selling 4,332 units, according to CleanTechnica. Overall EV sales rose 58% year-on-year in February, normally the slowest month of the year. However, analysts are unsure how price-conscious buyers will react to the subsidy cuts. They may decide that battery-powered cars have become too pricey, slowing down sales growth. Alternatively, interest in an EV purchase might pick up if the government shows signs of redirecting savings from subsidies into building a more extensive charging infrastructure.

Some of the start-ups say they welcome the subsidy cut because it will help their smarter technologies to prevail. WM’s Shen, who previously oversaw Geely’s acquisition of Volvo, says he is particularly pleased. “It’s positive for us because it removes the uncertainty that’s existed since the turn of the year,” he told WiC. “It favours manufacturers like WM that offer models with superior performance in terms of driving range.”

In February, WM got a spot in CleanTechnica’s sales rankings for the first time. It launched its first model, the mid-market Weltmeister EX5, a year ago, targeting drivers in Beijing because of its green licence plate policies. According to Wilson data, the EX5 was the top selling car in the capital this December.

As the sector waits to see how subsidy reductions will play out, some companies are showing signs of hitting a wall. The Nikkei reports that Singulato Motors hasn’t paid staff since December, for instance. And then there’s Faraday Future, backed by troubled entrepreneur Jia Yueting. It pitches itself as the first US-based, Chinese-backed EV firm (not least because Jia has sought refuge in the States since the collapse of his LeEco tech empire in China). But Jia still has a talent for fundraising, it seems. Local media is reporting that Nasdaq-listed games firm The9 will plough $600 million into a joint venture to produce a variant of Faraday’s luxury FF91 model in China under a new brand name, the V9.

Conscious of Jia’s complicated history, the cash is contingent on a number of triggers, not least Faraday securing land and local funding for the project.

© ChinTell Ltd. All rights reserved.

Sponsored by HSBC.

The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.