Weak China EV Makers’ Future Outlook to Become Even Bleaker 

The future for two of China’s worst-selling electric-car companies just got even bleaker.

(Bloomberg) — The future for two of China’s worst-selling electric-car companies just got even bleaker.

China Evergrande New Energy Vehicle Group Ltd., was dealt a setback by Dubai-based NWTN, a company that had agreed just two months earlier to invest $500 million. Last week, NWTN suspended support payments to the EV maker, which is affiliated with one of China’s most troubled property developers.

Closely held WM Motor, meanwhile, said last week that a Shanghai court had accepted a pre-restructuring application as it grapples with financial difficulties. It’s seen sales collapse by more than 90% amid a slew of pay cuts and staff layoffs to reduce expenses.

These are significant comedowns for once-proud companies: Evergrande NEV had ambitions in early 2019 to become the world’s biggest EV group within three to five years, while WM Motor attracted the backing of Chinese tech giants Baidu Inc. and Tencent Holdings Ltd.

As the pair tread water waiting for sales to materialize, signs of further consolidation in China’s crowded EV sector are looming large. At the same time, the likes of BYD Co. and Tesla Inc. are getting even stronger — the top 10 EV makers are on track to account for around 80% of all EV sales this year.

“If we look at these EV companies with minimal sales from a credit perspective, their main problems are a very high execution risk in strategy, sustained negative free cash flow and liquidity risk,” said Jing Yang, the director of China Corporate Research at Fitch Ratings. For those automakers, it’s “very hard to access the bond markets. Their refinancing risk becomes elevated if equity investors and banks walk away.”

Outside of WM Motor and Evergrande, over a dozen EV brands now face dwindling sales.

Data from China Automotive Technology and Research Center show that while there are around 91 active electric car manufacturers, almost one-third of them are registering fewer than 500 cars a quarter. Tesla, by comparison, shipped about 74,000 cars last month from its factory in Shanghai.

Brands such as Aiways, Zotye and Haima, for example, at their peak used to move hundreds or even thousands of new-energy vehicles a quarter. In the second quarter of this year, their new registrations slumped to no more than 20 vehicles, CATARC’s data show.

Based on the Herfindahl-Hirschman Index, a metric used by academics and regulators to evaluate competition and measure market concentration, the sector is hovering around a threshold that would mark a transition from overcrowded to moderately concentrated.

Select investors are continuing to back the most promising upstarts.

Xpeng Inc. in July landed a $700 million investment from Volkswagen AG, under which the German automaker will hold a 4.99% stake in the Chinese company and have an observer board seat. A probe into Xpeng’s head of procurement won’t disrupt business, Xpeng said last week, confirming a local media report of a corruption investigation.

Nio Inc., which has yet to make profit but aims to double sales to 250,000 EVs this year, has meanwhile sold a 7% stake to an entity controlled by Abu Dhabi for about $740 million. It’s considering raising around $3 billion from investors, people familiar with the matter said last month.

There also are still companies trying to muscle into the EV market, such as Xiaomi Corp. The Chinese smartphone maker is now holding talks with established automakers on potential production partnerships as it waits for Beijing to approve a license that would give it the right to manufacture EVs itself.

But with sales growth of new-energy vehicles in China slowing and exports more than doubling last month as domestic demand slumps, it’s hard to see how stragglers like WM Motor and Evergrande NEV can stick around for the long term. If they don’t survive, it will send a chill through the many other companies that are just scraping by.

–With assistance from Jinshan Hong.

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