Only 1% of China EV start-ups to survive, says investor

This article first appeared in The Edge Financial Daily, on August 9, 2018.
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BEIJING: China is home to hundreds of start-ups betting on the electric-vehicle (EV) revolution, but only 1% will be able to survive in an industry that requires significant investment in technology, according to NIO Capital.

The venture capital fund, which is partly backed by Chinese EV company NIO, is nonetheless very cautious about buying into EV start-ups, said managing partner Ian Zhu. The Shanghai-headquartered firm is seeking to raise 10 billion yuan (RM6 billion) for an onshore fund and favours investing in joint projects between auto start-ups and traditional carmakers because they combine innovation with real manufacturing capabilities, he said.

“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 last Friday. “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 dollars into start-ups and production. Emboldened by Tesla Inc’s still small presence in what is the biggest market for EVs, companies like Xpeng Motors Technology Ltd and NIO — which is backed by tech giant Tencent Holdings Ltd — 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 consumers, but that has not stopped the companies from valuing themselves at levels several times the value of traditional Chinese carmakers such as BAIC Motor Corp and Great Wall Motor Co in recent fundraising rounds. — Bloomberg