China's Internet Car Firms Compete With Wallets; Big Spenders May Win
Yang Haiyan
DATE:  Aug 21 2018
/ SOURCE:  Yicai
China's Internet Car Firms Compete With Wallets; Big Spenders May Win China's Internet Car Firms Compete With Wallets; Big Spenders May Win

(Yicai Global) Aug. 21 -- China's internet carmakers hold opposite views about how much money they need to burn to reach success, and those who spend less may suffer from losses in sales caused by a lack of brand recognition and necessary infrastructure, such as charging stations.

New auto firms need at least CNY20 billion (USD2.9 billion) to successfully make cars in the game, according to NIO's founder William Li and Xpeng Motors's Chairman He Xiaopeng, while rivals Aiways and Qiantu Motor disagreed. "A car can be made for CNY20 billion or for CNY2 billion. Each enterprise, whether with more money or less money, has its own way to join the battle," Qiantu's Chairman Lu Qun told Yicai Global in an interview. 

Some of the country's big new players, such as Shanghai-based WM Motor Technology has raised CNY20 billion and Guangzhou's Xpeng has secured CNY10 billion, while NIO has garnered USD2.4 billion through its six rounds of funding, as well as by loans from the Bank of Nanjing. 

Shanghai's Aiways has raised CNY7 billion with the rationale that by staying frugal, the company can retain its independence. "If you raise CNY10 billion once, you will dilute the stake of original shareholders and the management," Chief Executive Gu Feng said, adding that the lower shareholding ratio is, the fewer new investors will join. The firm has taken in industrial investors in its first two rounds, and capital funders only in its third one.

Frugal Spenders May Lack Ecosystems 

The price for independence may be paid in a lack of brand awareness, marketing channels, physical store presence, and charging stations.

"Who will buy a made-in-China sports car for almost CNY700,000 (USD102,300)?," analysts wondered, saying that Qiantu's brand is still too weak to gain a high-end status while they casted clouds over the sales of the firm's first electric sports car K50 which was released earlier this month. Beijing-based Qiantu has raised CNY3 billion in funds so far. 

The core of the intelligent vehicle ecosystem lies in operation rather than manufacturing, head of Xpeng He said. The firm will set up more than 100,000 charging stations before the end of 2020, and build 10 marketing outlets to first-tier cities, such as Beijing, Shanghai, and Shenzhen this year, which explains the need for sizeable funds. Xpeng plans to raise CNY30 billion by the end of 2019.

Shanghai-based NIO is at the top in terms of its brand recognition, while suffering losses of CNY10.9 billion in only two years and a half. The firm filed for an initial public offering in New York on Aug. 13 to get more funds and the prospectus shows that costs related to operations and eco-chain building in its early stages may have even exceeded the sum put into research and development. NIO will bring 60 to 80 power stations to the reach of its clients before the end of this year.

In addition to building a brand and setting up necessary facilities for charging electric cars, raising funds is also a way to hedge against future volatility. "Expanding the fundraising channel is beneficial to us to strengthen our anti-risk capabilities, which will help us maintain our opportunities when facing capital pressure at a troubled time," said Xpeng's He.

Qiantu, in turn, did not worry about the funds. "Since the rollout of new product K50, our company will rapidly usher into the period with returns. With the successive introductions of other products, we will gradually make profits," he said, adding that patience is needed because the automotive industry may be slow at start but it spurs large profits later.

Editor: Emmi Laine 

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Keywords:   Startups,Internet Vehicles,FINANCING,Business Strategy Analysis