Chinese electric vehicle groups braced for wave of consolidation

The future appeared bright for Shanghai electric vehicle start-up Aiways when it was founded in 2017. Led by former Volvo and state auto executives, the company counted tech giant Tencent, ride-hailing group DiDi and battery champion CATL among its investors.

But six years later, Aiways has never been profitable, suspended production at a key factory, and is struggling to pay its staff and sell its vehicles.

“We have been pushed into a dead end, only hoping the government can return justice to us,” employees wrote in an August letter shared with the Financial Times, asking officials to start bankruptcy proceedings and for the company to pay them outstanding wages. 

A collapse in sales among scores of auto groups in China is fuelling expectations for a wave of consolidation that will leave only a handful of companies in the world’s largest car market.

While some of China’s carmakers are becoming household names, such as Warren Buffett-backed BYD, hundreds of others that proliferated during an investment boom over the past decade now face an uncertain future.

There are approximately 50 domestic EV brands in China that produce pure-electric cars and plug-in hybrids, according to information compiled by research company MarkLines.

But by 2030, “there will be between 10 and 12 major Chinese automakers operating on a large scale”, said UBS analyst Paul Gong.

Since Tesla sparked a price war in China late last year, the pace of industry consolidation has picked up. WM Motor, another EV start-up based in Shanghai founded by a former chair of Volvo China, told creditors last week that it had started restructuring proceedings in early October.

Other Chinese companies Singulato Motors and Levdeo became involved in bankruptcy proceedings in recent months, while Shanghai-based EV start-up Enovate suspended production in April.

“Price cuts are the new normal in China’s car market, which will keep going on until smaller car companies are eliminated,” said Zhang Xiang, visiting professor in the engineering department of Huanghe Science and Technology University.

Exporting is widely regarded as one of the solutions to overcapacity in China’s EV sector. But US President Joe Biden’s Inflation Reduction Act, which is aimed at undermining China’s dominance in critical sectors, and the EU’s newly launched anti-subsidy investigation into Chinese EVs have added to uncertainty over the viability of the strategy. 

Beijing has also tightened issuance of EV production licences in an attempt to tackle growing overcapacity. Annual utilisation rates at EV factories across the country will only be 33 per cent in 2023, Citigroup analysts projected in a May note.

“After those smaller carmakers are knocked out, only a small portion of their production capability will be acquired and reused by other car companies while most will go to complete waste,” said Zhang.

Aiways distinguished itself from other local peers born out of China’s subsidy-driven EV boom with an early and successful focus on overseas markets. But its recent difficulty has put the spotlight on weak sales and funding challenges across the industry.

The group, led by Volvo’s former China sales chief Fu Qiang and a former executive of state-owned carmaker SAIC, Gu Feng, established a subsidiary in Germany only five months after its inception.

Data from Aiqicha, a Chinese corporate information provider, showed that Aiways has raised more than Rmb33bn ($4.5bn) since its founding. As of the end of 2022, Aiways exported a total of 6,259 cars to more than 15 countries including Germany, France, Costa Rica and the UAE. That amount was more than domestic rivals Xpeng and Nio, according to data from the company and the China Passenger Car Association.

But Aiways has struggled to gain traction in China. The group’s sales rose from 2,698 in 2021, a year after it launched its first EV, to 4,626 cars in 2022, according to data from Wind. That compares to more than 151,000 battery powered cars sold in September by BYD, the country’s top car producer.

In January 2022, Zhang Yang, a former vice-president at rival Nio, was appointed as chief executive, replacing co-founder Gu Feng in a management shake-up to boost sales.

However, in July control of the company was handed over to a “temporary governance” working group, led by co-founder Fu and former Chinese central banker Zhu Xiaohua.

In a last-ditch attempt at turning profitable, Zhu and Fu were now drawing up plans to restructure and sell vehicles overseas under a new entity and brand name, said employees.

Aiways said it had started paying employees in China a few weeks ago. 

“Aiways has halted its production and is in process of getting new funding and direction for a restructured company . . . Mr Zhu and Mr Fu took over and the strategy is to sell cars to overseas market,” the company said in a statement, adding that the Aiways’ China and Europe teams were working on the plan.

Industry insiders are not optimistic that the changes will be successful.

“They were the first to go to Europe but they were never really well capitalised and hoped to generate revenues from vehicle sales that never materialised,” said Tu Le of Sino Auto Insights, an advisory company.

Aiways’ investors were now wary of “throwing good money after bad”, said Le.

The question remains of what the state of other carmakers will be as a price war continues — and how much money will have been spent before the shake-out. As Zhang of Huanghe Science and Technology University says: “Technology is advancing fast . . . car production lines built four or five years ago don’t carry much utility value.”