After having spent US$42 billion over the past six months, Chinese billionaire Hui Ka-yan finally unveiled Evergrande Group’s first-ever electric vehicle, the Nevs 93, last week.
The company, mainland China’s third-largest property developer by sales, said the car, being developed under its unit Evergrande Health, had gone into production in Tianjin. It did not specify how many vehicles it was making and when these would come to the market.
The June 29 launch, however, could not have come at a worse time for the new energy vehicle sector.
“It is a terrible time for any newcomer to join,” said Yale Zhang, head of Shanghai-based consultancy Automotive Foresight. Investors’ appetite for the sector “has cooled significantly”, he said.
Moreover, starting June 26, both central and local governments have rolled back as much as 60 per cent of the subsidies on the purchase of electric vehicles, affecting manufacturers on the basis of the driving ranges of their cars.
Paul Gong, an automobiles analyst at Swiss bank UBS, said the cut in subsidies could easily eat up five to 10 percentage points from the gross margin of electric cars, even considering cost cutting efforts by car makers.
Neil Wang, president for Greater China at market research company Frost & Sullivan, said: “It may take up to 10 years for automotive manufacturers to break even in this capital intense sector, and very few new entrants can survive till that day.”
China reported sales of about 1.3 million new energy vehicles last year, a jump of 61.7 per cent from 2017, according to the China Association of Automobile Manufacturers (Caam).
Market growth, however, is expected to slow down sharply in the coming years after the cut in government subsidies. By next year, two million such cars are expected to be sold, which translates into less than 20 per cent year-on-year growth.
Meanwhile, domestic car manufacturers will soon face challenges from overseas competitors, such as Tesla. The California-based company is building a huge factory on the outskirts of Shanghai, and plans to start production of its Model 3 by the end of this year.
“For global electric vehicle makers, production in China could help bypass tariffs, save manufacturing cost and logistics costs, thus increasing their appeal to Chinese customers,” said UBS’s Gong.
Evergrande, which said during its launch event it aimed to become the world’s largest maker of new energy vehicles in three to five years, has been on a shopping binge.
In January, Evergrande Health bought a controlling stake in National Electric Vehicle Sweden (Nevs) for US$930 million. Towards the end of the same month, it paid another 1.06 billion yuan (US$154.4 million) for a 58 per cent stake in lithium-ion battery maker Shanghai Cenat New Energy, and US$300 million for new venture with supercar maker Koenigsegg.
In March, Evergrande paid 500 million yuan for a 70 per cent stake in Netherlands-based in-wheel motor maker e-Traction, and an undisclosed sum for British in-wheel motor company Protean in May.
In June, it again spent about US$40 billion purchasing two sites in a row in Guangzhou for building factories to produce electric cars.
But analysts have questioned these acquisitions. Automotive Foresight’s Zhang said: “How can you make an extraordinary product from a number of medium [quality] ones.
“Most of the companies Evergrande has bought [stakes in], for example, Cenat and Nevs, are not leading their sectors.”
Luo Lei, deputy secretary general of Caam, said: “Newcomers may be able to quickly launch new products [through acquisitions], but to gain strong manufacturing capabilities for sustainable growth, electric vehicle manufacturers still need time to develop core manufacturing skills on their own.”
The electric vehicles sector is a key area, in which Beijing wants local manufacturers to catch up with global leaders.
“Evergrande has never wanted to be just a developer,” said Toni Ho, property analyst at RHB Securities. “In the short term, it is difficult [for electric vehicles] to contribute to the company’s profit, but the benefit they bring, for example the [attention and exposure] – that cannot be easily achieved by just building homes.”
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This article Evergrande, Chinese property firm aiming to catch Tesla, starts electric vehicle production first appeared on South China Morning Post