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Startups in Asia

China's 'four dragons' drive hopes for electric car industry

Startups keen to absorb foreign talent and technology to establish brand power

William Li, the founder and chairman of NIO, introduced its new electric sport utility vehicle at Auto China 2018 in Beijing. (Photo by Akihide Anzai)

BEIJING -- China for years has tried to establish itself as an auto manufacturing powerhouse, but its vision of creating a major global brand to compete with Japanese, U.S. and European automakers has failed to materialize. Now, the government wants to change that.

With the technology shift moving from conventional vehicles to electric cars -- China is the world's largest market for electric vehicles -- the government in Beijing believes the country can launch its own homegrown brand that can compete internationally with Tesla and other well-known makers of electric cars.

Chinese electric car startup NIO is hoping to lead the way. "We will advance to a foreign market by 2020, probably Europe," William Li, the founder and chairman of Shanghai-based NIO, told the Nikkei Asian Review during the Beijing International Automotive Exhibition, known as Auto China, which wrapped up earlier this month.

The startup has attracted attention from enthusiastic motor fans in Europe. Its EP9 sports car set a speed record last year at the Nurburgring race course in Germany, a mecca for motorsports. "Our EP9 is the fastest [electric vehicle] in the world," Li said.

NIO is one of several ambitious Chinese electric-vehicle startups, dubbed the "four dragons," and all are competing to establish their presence in China and abroad. The others include Xiaopeng Motors, also known as Xpeng; Weltmeister Motor, known as WM Motor; and Future Mobility Corporation, known by the brand Byton. The companies have all been founded within the past four years, and they have attracted investments from some of China's biggest names in tech, including Alibaba Group Holding, Tencent Holdings and Baidu. They also have received support from local governments.

The common thread of the four dragons is their aggressiveness in incorporating elements from foreign entities. For instance, NIO has research and design centers in San Jose, California, and Munich, Germany, in addition to its home base in Shanghai.

Li founded NIO, previously known as NextEV, in 2014, and the company has attracted some A-list investors, including internet conglomerate Tencent, online retailer JD.com and others. It also entered into a deal late last year with Taiwanese contract electronics manufacturer Wistron, a key iPhone assembler, to invest in auto-related technologies.

Still, Li is not satisfied.

"The speed at which we are developing is not very fast, and we want to expand our business to foreign markets," Li said. Growing and strengthening its brand in the European market can help NIO gain customers in China.

The founders of Nanjing-based Byton are themselves foreigners, from Germany. Carsten Breitfeld, the company's CEO and co-founder, is an engineer who spent 20 years at BMW, including more than 10 years as BMW Group vice president. Byton's president and co-founder, Daniel Kirchert, is very familiar with the Chinese auto market having previously served as managing director of Infiniti China and president of Dongfeng Infiniti Motor.

"We are premium brands with German technology to make cars smart," Breitfeld told Nikkei, noting that Byton focuses on user experience -- with various functions controlled by gestures or voice commands.

Byton's team has been gathered from other auto companies, including Ford, Volkswagen and Tesla, and it also includes a designer who led system engineering teams in designing the iMac at Apple. "We are a very international company founded in China," Breitfeld said.

Although Breitfeld had been to China several times while with BMW, he never expected that he would be living in the country. "I must learn about China, its culture and people, but this is very exciting place," he said. "China is the biggest market for electric smart cars and you can get strong political support. Things move faster in China than Europe. There is a lot of capital."

Many investors fund early technology and young companies, Breitfeld said. The government of Nanjing in Jiangsu Province supports Byton, and local companies have created a fund to invest in it. "Our headquarters is located in Nanjing, [where] we have a strong partnership."

Shanghai-based WM Motor, in which Baidu and others have stakes, has teamed with Isdera, the German sports car company founded by Eberhard Schulz, a former engineer at Porsche.

Freeman H. Shen, the CEO and founder of WM Motor, previously was senior vice president of Volvo Cars and familiar with the European automobile industry. He was a key member in Zhejiang Geely Holding Group's 2010 acquisition of Volvo, the most successful cross-border acquisition in China's auto sector.

"Experience and personal connections at Geely helped me a lot when I started the new business," Shen told Nikkei. His prominent position in the auto business gives him a unique role as a startup founder, and this kind of flexibility helps make China's industries stronger.

Stephen Peters, CEO of Isdera, told Nikkei: "We go where there are customers. There is a big opportunity in China's huge market for German know-how and technology."

Xpeng, meanwhile, has received financial backing from Alibaba and Taiwanese contract manufacturer Hon Hai Precision Industry. The focus of Guangzhou-based Xpeng is on self-driving cars using artificial intelligence, according to Chairman He Xiaopeng. "We combine software, hardware and big data," He said at the Global Mobile Internet Conference in Beijing late last month, while also noting the importance of recharging locations.

Xpeng will build 150 charging stations this year, according to He, and will have 1,000 stations over the next three years to cover all tier-1 cities, including Beijing, Shanghai, Guangzhou and Shenzhen, as well as in some tier-2 cities.

A recent change in Chinese policy is expected to give a boost to electric car startups. Last month, China said it would remove limits on foreign ownership of auto manufacturers by 2022. China will begin by scrapping foreign ownership limits on new energy vehicle manufacturers this year. That move is seen as beneficial for startups because they can sell their companies to foreign players as part of an exit strategy in addition to an initial public offering.

"Foreign carmakers may be interested in our company and buy it, but whether we prepare to sell is important -- our target is creating a stand-alone company here and build a strong international premium brand," said Breitfeld of Byton.

The Chinese government also is seeking to boost the country's battery industry. Its "new energy vehicle" policy, which will take effect next year, requires a minimum share of domestically built and imported cars in China to be electric vehicles, plug-in hybrids or other unconventionally powered cars.

Carsten Breitfeld, the CEO and co-founder of Future Mobility Corporation, introduced its brand Byton at Auto China 2018. (Photo by Akihide Anzai)

Contemporary Amperex Technology, or CATL, a maker of rechargeable lithium-ion batteries, stands to benefit. CATL, which describes itself as "the first Chinese battery company to supply to the global industry chain," is planning to build a new factory in China that will raise its capacity to 50 gigawatt-hours per year in 2020 from 23 GWh in 2017.

Sales of electric cars in China is expected to total 676,259 units in 2020, accounting for 2% of all vehicles sold in the country, according to a study by the Boston Consulting Group. By 2030, sales of electric cars are estimated to be more than 5.85 million, or 17% of all vehicles sold.

While the growth is dramatic, the first choice among customers will remain gasoline-powered cars or hybrid vehicles, given the more expensive price tag on electric cars and cruising distance.

"High birth and high death rates is typical among new Chinese industries," said Jin Tang, senior research officer at Mizuho Bank, noting that major automakers have the manufacturing know-how and a firm grasp on the supply chain. Although startups like NIO, Xpeng and WM Motor have a bigger potential for growth, "most startups must confront powerful rivals."

With large auto companies such as Volkswagen, Honda and BYD also putting resources toward the development of electric cars, the startups will face fierce competition. But they are not deterred.

"Speed, design and comfortability -- we have many strong points," said Li of NIO. "We can win out in competition in China and the world."

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