(Yicai Global) Feb. 22 -- Investors in the electric vehicle sector should start to see returns by 2023, but whether traditional carmakers, new firms, or both will dominate the market remains to be seen, according to the managing director of Legend Capital Ltd., the venture capital arm of Legend Holdings Ltd.

"Investment in electric vehicles will yield results within five years," Li Jiaqing said in a recent interview.

Profit is concentrated upstream when an industry first gets going, with little return on manufacturing vehicles, Li told reporters. But as the downstream sector grows, and brands strengthen, the value chain shifts toward the auto industry, he said. This is the case today. No EV company has strong bargaining power, but as EVs reach a certain scale, producers will see earnings increase, Li said.

The traditional car industry is an ecosystem built on original equipment manufacturers, meaning entire industry chain operations center on their schedules. Driverless technologies will lead to a new ecosystem that will not rely on their production schedules, said Fan Qihui, executive director of Legend Capital. But it is impossible for such technologies to mature within five years, according to Li.

To see self-driving cars deployable in general complex scenarios may take 10 to 20 years, Li added. No more than five leading Chinese companies can now design and build them. Legend Capital has been investing in driverless tech. A year ago, for example, it led a CNY100 million (USD15.7 million) B-round of funding for Zongmu Technology Co., a Shanghai-based startup that focuses on self-driving tech.
 

Timing Is Key

Over the longer term, the auto industry will rely on 'big money,' by which time it will have gone beyond the reach of Legend Capital. Today's investors need to be clear about three things: direction, technical development path, and team. Once clear on this trio, they should invest in relevant startups as soon as possible instead of waiting for the situation to become clearer.

"Timing is very important," Li said. "If you invested in Byton and Nio five years ago, the timing was too early. You should have invested in battery production equipment instead."

For an industry to develop well, it must have the necessary equipment, said Ge Xinyu, executive director at Legend Capital. "During the Gold Rush in the Western US, spades and jeans were the best-selling items," he said. Companies in the EV industry that landed early investment from Legend Capital, such as Wuxi Lead Intelligent Equipment Co. and Shanghai Putailai New Energy Tech Co., have already gone public.
 

Aside from industry mapping and investment timing, another strategy Legend Capital uses is regional. For example, it invests in areas where equipment manufacturing thrives, such as the Yangtze River Delta region.

The firm aims to support startup entrepreneurs who are tactful leaders in their respective industries, namely people who lead their sectors in technology and are capable of accumulating and extending tech achievements to new scenarios, Ge added.

Once EVs really start swarming, various issues such as charging and replacement of imported chip sensors will arise, Li said. Every technical update or upgrade brings new players into the market. That will be the focus of Legend Capital's investment for the next three to five years, he said.