China races to build its own Tesla as economy slows and subsidies dry up – CNBC, CNBC

****** BEIJING – When an idea strikes a chord with national ambition inChina, the result can be millions of dollars wasted and a handful of start-ups struggling to survive in a cooling economy.

In the last few years, venture capitalists rushed to pourbillions of dollarsinto the emerging electric vehicle industry backed by the Chinese government.

So far, it’s less clear how that bet has paid off. Take a look at the recent headlines:

Shares of US-listed (Nio, arguably China’s closest competitor withTesla, are down more than 130% this year to about $ 2. (each.)
• In November, Alibaba-backed XPeng tapped its own Chairman and CEO He Xiaopeng for a ($) millioninvestment round, in which electronics companyXiaomiparticipated as astrategic investor.
  • Shenzhen-basedBYD, which counts Warren Buffett as an investor, said in late October that net profits, ex-items,fell 130. 1% in the third quarter. The Hong Kong-listed shares are down 33% for the year so far.

  These are some of the handful of survivors from Beijing’s efforts over the last decade to accelerate the creation of China’s own electric car.

  Now, Chinese auto sales are in a slump, consumer subsidies for new energy vehicles are phasing out next year and economic growth is slowing.

  Start-ups did not expect the subsidies to last this long, said Rupert Mitchell, chief strategy officer at Chinese electric car company WM Motor, founded in by a former Volvo and Geely executive.

  “What was not in the business plans was that China would have its first fully blown automotive downturn in Chinese history, “he told CNBC in late November.

  **************** How it all started

  Wan Gang was an engineer for Audi in Germany before he returned to China in the early 2000 s. Within years, he became China’s minister of Science and Technology, despite not being a member of the Chinese Communist Party.

  Wan convinced the central government to roll out a national strategy for developing new energy vehicles and battery technology. Beijing was eager to jump at an opportunity to become a global leader in an emerging technology, which conveniently tied into efforts to combat pollution.

  As a result, the central government spent at least ********************************************************** .4 billion yuanin subsidies between 2014 and 2018, according to the Ministry of Finance.

  At the height of the subsidy-driven boom, the number of new energy vehicles sold in 2014 more than quadrupled from the year before, and multiplied by more than four times in 2018 to more than (***************************************************, 06 vehicles, according to data from China Automotive Industry Association accessed through Wind Information.

  In 2016, the Ministry of Finance said it found at least five companies cheated the system of over 1 billion yuan. That year, new energy vehicle sales grew just (**********************************************************%, data showed.

  High levels of subsidy misuse are not uncommon in China.

  Between 2001 and 2014, about half of Chinese companies receiving direct grant subsidies for research and development were non-compliant, using the funds for other things such as private consumption and investments with higher returns. That’s according to a forthcoming working paper from Philipp Boeing and Bettina Peters, both researchers at the ZEW – Leibniz Center for European Economic Research. The study did not cover consumer subsidies.

  The research did indicate that misuse of funds declined with time and that the actual effectiveness in Chinese government policy in spurring research and development, if monitored, Increased and non-compliance was wiped out, Boeing said in an interview.

  But he noted there is little impact on productivity in the long term, which is a core problem for China’s economy .

  Path to profitability****************

  Some young companies that rode on China’s electric vehicle boom, however, are still confident in growth.

  XPeng aims to reach breakeven in about two years, with the expectation the company is able to put about(******************************************************, (vehicles on the road) , Brian Gu, president and vice chairman of XPeng, said in an interview in late November. That’s about 10 times what the company has sold since it began deliveries last December for its first commercially available vehicle.

  WM Motor’s Mitchell expects the company can break-even in the next 20 months, as the start-up puts greater effort into consumer marketing. The company is in the process of raising $ 1 billion, which he said would “fully finance” the automaker until a public offering.

  Other companies are just starting to bring new electric vehicles to the market.

  Aiways, a Shanghai-based start-up that touts its certification to sell to the European Union, announced in December it will begin deliveriesof its U5 SUV. Guangzhou-based GAC Nio – a joint venture between the traditional automaker and the start-up – is set to reveal its first all-electric SUV under the Hycan brand on Friday.

  Nio Was not available for comment ahead of the company’s annual product launch event on Saturday.

  Meanwhile, the first“Made in China” Teslasare set to hit the market early next year at a lower price that vies with Nio.

  “Looking at the last 11 years of Chinese government subsidies, we think their effect is more positive than negative, “said He Hui, senior researcher on China’s new energy policy at the International Council on Clean Transportation.

  ” We can’t say our new energy vehicles are number one, she said. “But our batteries are.”

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