THE CHINESE ELECTRIC CAR VENTURES IN A RACE FOR FIRST PLACE
▶ State support and tech-company cash has seeded a crop of smart-vehicle start-ups that are competing with established makers
Henry Xia jumps into the burnt toast-coloured electric car he helped to build as co-founder of Xpeng Motors Technology and commands it to play Green Day’s 21 Guns. He asks the car about traffic conditions and starts driving. The 35-yearold is the most senior car executive at a Chinese car maker that hasn’t delivered a single vehicle, doesn’t own a factory and hasn’t obtained a production licence from the government. At least not yet.
What the four-year-old start-up has is backing from tech giants Alibaba, Foxconn Technology and Xiaomi founder Lei Jun. Xpeng expects to raise more than $600 million this month from investors that include Alibaba, valuing it close to $4 billion.
In a test drive of Xpeng’s first crossover around a drab cement office park in Guangzhou, the roomy 4x4 drives smoothly, with a Tesla-like panoramic windscreen and sleek exterior.
But it’s the voice controls, streaming music, live video, driver-tracking maps and other software that reveal the auto ambitions of the company’s Chinese tech backers. Xpeng is making the equivalent of a smartphone with a steering wheel.
Mr Xia explains why the company nicknamed this car
David: “We’re going up against Goliath,” he says, referring to the hundreds of car makers churning out electric vehicles in China, where half of the world’s EVs are sold. “It’s not about the physical car any more, which anyone can now manufacture,” he says, “but about building a robot on wheels.”
Xpeng is primed to capitalise on a trade tussle that is already jacking up car prices. As China hits back against the US with retaliatory tariffs, import duties on American-made cars have increased to 40 per cent. But perhaps the bigger opportunity comes from Tesla’s still-diminutive presence in China, creating an opening for local start-ups to hawk cheaper, technology-centric electric vehicles.
Tesla reached a preliminary agreement last week with the Shanghai government to build China’s first car-production facility wholly owned by a foreign maker. Tesla expects car production to start within two years of starting construction and to churn out 500,000 cars per year in China two to three years after that.
But Tesla has made lofty promises before, only to delay plans. It will also have to clear government approvals and obtain permits. With just $2.7 billion in cash, Tesla must absorb what Bloomberg Intelligence estimates to be a $10bn cost to build the plant.
Finding capital is less of a concern for the local start-ups trying to outrun Elon Musk. China is offering financial and political support for EV companies as it attempts to lead the world in the field, fuelling the rise of Xpeng and hundreds of other rivals. President Xi Jinping pledges to open markets and curtail protectionism, even as he lavishes assistance on domestic makers of electric cars, artificial intelligence and semiconductors.
China’s electric-car buyers get price subsidies of as much as $10,000 per vehicle and can also dodge licence plate restrictions that impede sales of petrol-powered cars.
That support, combined with ample cash from China’s tech leaders and the comparative ease of building EVs instead of traditional cars, has seeded a crop of start-ups competing with established car makers such as BYD, Beijing Automotive and Zhejiang Geely.
Those established Chinese car makers have also benefited from Tesla’s slow arrival. Beijing Automotive sold 78,000 units of the budget BAIC EC180, China’s best-selling battery-powered car last year, five times Tesla’s China sales. Its sticker price in Beijing starts at 49,800 yuan (Dh27,371). The price of Tesla’s bigger Model S increased to 1.47 million yuan after the recent tariff hike.
At least four other EV start-ups have already joined Xpeng in surpassing $1bn valuations, including Nio, WM Motor Technology, Byton and Youxia Motors. The larger group of start-ups cannot all survive, warns Bloomberg New Energy Finance analyst Nannan Kou, especially as China phases out EV subsidies in the next two years.
“Tesla has shown building a car company is a cash-burning operation,” Mr Kou says. “Only those start-ups with the most capital from big backers will fend off the intense competition.”
It didn’t have to be this way. Shortly after Tesla started selling its Model S in China in 2014, Shanghai officials asked Mr Musk to build a factory, said Ding Lei, one of the negotiators. Tesla insisted on sole ownership, rather than working with a Chinese partner. Neither side budged.
“If Musk agreed with the proposal Pudong offered at that time, Tesla could have been totally different,” says Mr Ding, who founded EV start-up Huaren Technology R&D last year and credits Tesla’s absence for the opportunity.
He Xiaopeng first took notice of Tesla in 2014, after Mr Musk shared some patents. That was the year Mr He sold his web browser, UCWeb, to Alibaba for close to $5bn.
Tesla’s patent trove convinced him that self-driving cars would inevitably become data-collecting hardware devices that tech companies would monetise through apps and services. He recruited five engineers and sunk several hundred million yuan of his own into starting Xpeng, while keeping his day job as the leader of Alibaba’s digital entertainment business.
On the day his son was born, Mr He took a call at the hospital from Jixun Foo, a Shanghai managing partner for GGV Capital and an Xpeng investor. His advice: go and run Xpeng full time. “I wanted my son to grow up and feel proud his dad was doing something more meaningful than working on a web browser,” says Mr He.
While accepting Mr He’s resignation in May 2017, Alibaba CEO Daniel Zhang insisted on investing in Xpeng. Two weeks later, Mr He struck a deal over breakfast at Alibaba executive vice chairman Joseph Tsai’s Hong Kong home. Alibaba would become Xpeng’s second-largest shareholder, and Mr Tsai would join the board.
Mr He acknowledges the considerable odds facing Xpeng. With a global supply chain spanning hundreds of thousands of parts, Tesla and other start-ups have struggled to ramp up production quickly. “There are 300 EV companies in China,” Mr He says.
“In China, if you’re just copying from others, you are going to die. It’s the companies that learn from those like Tesla that will survive.”