China is home to hundreds of start-ups betting on the electric-car revolution, but only 1 percent will be able to survive in an industry that requires significant investment in technology, NIO Capital (蔚來資本) said.
The venture capital fund, which is partly backed by Chinese electric-vehicle (EV) company NIO (上海蔚來汽車), is nonetheless cautious on buying into EV start-ups, managing partner Ian Zhu (朱岩) said.
The Shanghai-headquartered firm is seeking to raise 10 billion yuan (US$1.5 billion) for an onshore fund, and favors investing in joint projects between car start-ups and traditional automakers because they combine innovation with real manufacturing capabilities, he said.
Photo: AP
“It’s a very complicated system that needs abundant investments and a large group of people to be able to build a car from scratch,” Zhu said in an interview in his Beijing office on Friday last week. “Therefore, the survival rate of all these EV start-ups will be very low.”
China’s quest to lead the world in cars powered by electricity has enticed investors to pour billions of US dollars into start-ups and production.
Emboldened by Tesla Inc’s still-small presence in what is the biggest market for EVs, companies such as Xpeng Motors Technology Ltd (小鵬汽車科技) and NIO — which is backed by tech giant Tencent Holdings Ltd (騰訊) — have been racing to gain a foothold.
Most EV start-ups in China are yet to manufacture on a large scale or be able to deliver cars in bulk to customers, but that has not stopped the companies from valuing themselves at levels several times the value of traditional Chinese automakers, such as BAIC Motor Corp (北京汽車) and Great Wall Motor Co (長成汽車), in recent fundraising rounds.
Competition in China — where more than half of the world’s EVs are sold — is to intensify, with Beijing’s shift to allow foreign car brands to fully own their local units.
Trade tensions between the world’s two biggest economies are also pushing big international automakers, such as BMW AG and Tesla, to accelerate their plans to locally produce EV models in China.
The trade war would also create more hurdles to investment in technology, slowing the car industry’s pivot toward self-driving vehicles, Zhu said.
The fight between the US and China over trade, which has intensified in recent weeks, “is a real obstruction to the global economy and technology development,” he said. “If it continues or escalates, it will delay the commercialization of intelligent electric cars as well as slow down global efforts to improve traffic safety and efficiency.”
As a result, the fund is looking to buy minority stakes in auto-technology companies both in China and overseas, rather than attempt wholesale takeovers.
That way, the fund can tap into the rise of electric and autonomous cars, while minimizing the risks that could come from a full takeover, including regulatory resistance on security grounds, he said.
NIO Capital is close to completing the first round of its offshore fundraising of about US$500 million, people with direct knowledge of the matter have said.
BP Ventures, a unit of the British oil firm BP PLC, last month said that it invested US$10 million.
The offshore fund would focus on Chinese auto-related companies as well as overseas firms that plan to grow in China, Zhu said.
“We won’t invest in a company that has zero relations with China,” he said.
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