BEIJING – Chinese manufacturers Nio, Xpeng Motors and Li Auto have jointly raised about $ 12.5 billion on the U.S. market in 2020, capitalizing on growing investor interest in electric cars driven by the recent rise in Tesla stock.
China’s electric vehicle market is approaching a major crossroads, with major government subsidies coming to an end after 2022 and new players tearing in for a piece of the pan. All three companies are desperate to take money raised in the U.S. to expand their sales networks and turn a profit to survive this trend.
Nio, founded in 2014 and which ranks internet services company Tencent Holdings among its investors, raised $ 3 billion just this month through new stock offerings. In total, the automaker has received $ 6 billion in new currencies this year, including government investment.
Nio is famous for the ES6 electric sports utility vehicle, which starts at 358,000 Yuan ($ 54,700). Despite carrying a higher price tag than Tesla’s popular Model 3, the ES6 has been gaining new fans through word of mouth.
“It’s been a lot of families looking for a second vehicle, or younger buyers who are fond of high-tech stuff,” said one dealer in Guangzhou who has sold out of the SUV.
Nio sold a total of around 37,000 vehicles in the first 11 months of 2020, up 110% from the same period in 2019. Although the company is still far behind Tesla, it is in seventh place the China EV passenger market.
“Our cars are better than gasoline vehicles at the same price,” Chief Li Bin said at an event in Beijing this month.
But the company has yet to turn a profit. Nio has fixed heavy costs, in part because it maintains an annual capacity of 200,000 vehicles. China Guosen Securities estimates that the automaker must sell up to 180,000 units annually to be fair.
The automaker’s December bid will fund “research and development of new products and next-generation autonomous drive technologies” as well as “expansion of a sales and service network,” the company said.
Nio is also aiming to expand its battery replacement service, in which customers exchange used batteries for new ones instead of waiting for them to recharge, to 1,000 places from around 140 right now. Construction is believed to cost around $ 480,000.
Expanding the Nio line beyond its current three models is another priority.
“It will lose customers if it can’t keep up with something new,” Tang Jin at Mizuho Bank said.
China’s EV market can be broadly divided into a luxury segment aimed at retail buyers and a budget segment targeted at tour-sharing operators and other industries. Nio focuses on the former, as do partners like Xpeng and Li.
Although Li currently only makes one hybrid plug-in model, it is developing electric cars and is treated as an EV manufacturer in the industry. The company went public in the U.S. in July, and then Xpeng in August. Both have raised billions on the stock market, despite only offering a handful of models and not turning a profit.
Their fundraising advantage is part of a larger increase in EV-related stocks. Tesla shares have jumped more than 600% in 2020, and the company entered the S&P 500 index on Monday. Nio has also gone up a lot this year.
Approximately 1.12 million new EVs, fuel cell vehicles and plug-in hybrids were sold in China from January to November. The figure is relatively flat on the year despite a coronavirus outbreak, with November sales doubling from a year earlier. The country hopes to raise the purchase of electric cars by encouraging rural sales and prioritizing license plates for EVs.
Competition is growing. Foreign players like Volkswagen and Toyota Motor are planning further inward moves into China, while non-auto companies like real estate developer Evergrande Group are fishing for a piece of the market as well.
China also plans to eliminate subsidies for the purchase of EVs by the end of 2022. The subsidies do not already apply to Nio vehicles, as they are priced above 300,000 Yuan, but the EV sector could total loss of steam when they expire.
“Competition between EV startups and established manufacturers will heat up,” said one analyst. “Startup testing will go against a test of how quickly they can strengthen their sales framework.”
Companies like Nio could also be hurt by the growing Sino-American tension, with Washington moving to tighten requirements for U.S.-listed Chinese businesses.