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Eggs on the menu: He Xiaopeng

The old joke about why the chicken crossed the road is taking on new meaning in China. Within a decade, the main obstacle to getting from one side to the other could take the form of a high-speed egg on wheels. That’s according to He Xiaopeng, founder of XPENG Motors, who told the Fortune Global Tech Forum in Guangzhou last week that car design is on the cusp of radical change. He believes that vehicles will start to take on a more egg-shaped design as autonomous driving transforms the relationship between car and driver. It should also become a lot safer for people to cross the road because ‘assisted driving’ will take the lead in 50 to 90 of every 100 driving hours.

XPENG’s forthcoming model, the P7, will encompass Level-3 autonomous driving (automated cruise control and parking) although He acknowledged that there’s some way to go before fuller automation across the sector, which needs “hundreds of millions of kilometres of data to make this kind of machine-learning move forwards”.

Freeman Shen, the founder and CEO at rival start-up WM Motor, agreed that 5G will be a game changer for the auto industry in terms of data processing. But he also told the Fortune forum about the potential impact of V2G (vehicle-to-grid) on the power sector as the electric vehicle revolution gathers pace.

At the end of October, WM signed a strategic alliance with State Grid alongside three other carmakers (BAIC, GAC and BYD) to provide more charging stations. But it isn’t only about consuming power – Shen envisages a time when drivers make money from cars that double as mobile power banks, helping the grid to balance peaks and troughs in electricity demand.

Both men talk powerfully of their long-term visions. But right now, the message is crowded out by headlines about the industry’s short-term prospects. The inevitable shakeout of domestic EV producers is accelerating in tandem with the reduction in government subsidies, which began in June. Shen believes subsidies will be completely scrapped by the end of 2020 and Bloomberg backs this up, reporting government plans to cut them a year ahead of schedule, subject to a few more months of sales analysis.

The situation isn’t looking healthy, especially for smaller domestic producers more reliant on subsidies. Others are rapidly adapting. For example, SAIC only managed to hang on to the number two spot for sales with its Baojun E Series car because it upgraded the battery to 24 kWh, which meets the new minimum subsidy threshold.

It’s also clear that foreign producers are starting to have a greater commercial presence and local experts believe this will become more pronounced during 2020.

Cleantechnica ranked Tesla’s Model 3 third in China by September sales. Earlier this month, Tesla also began trial production of the Model 3 at its Shanghai factory: an achievement given that it only broke ground on the facility in January. That foreshadows domestically-made Model 3s that could be sold at more competitive prices, propelling Tesla up the rankings.

BMW took the number five slot in September with its 530Le, while Volkswagen is in pre-production of its electric ID series at its joint venture with SAIC in Shanghai.

However, the government is unlikely to hit its two-million sales target for EVs in 2020. The China Passenger Car Association is now forecasting 1.3 million sales this year and 1.6 million in 2020 (there were 1.26 million in 2018). And in the meantime, former high-flying brands are fighting for survival. The most high profile is New York-listed NIO, whose share price has crumbled from a peak of $10 in March to just under a fifth of that level this week. The stock has been swinging wildly on rumours about whether it has secured funding to keep up with an estimated $500 million cash burn during the second quarter.

Meanwhile XPENG has raised fresh funds to stay in the game for the longer term, announcing a $400 million capital raising this week. This was a “renewed endorsement of our long-term strategy, execution capability and prudent business model”, said founder He Xiaopeng (see WiC443 for our first Q&A with XPENG). WM Motor is currently raising an even larger $1 billion.

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