China’s EV startups face challenges after WM Motor’s bankruptcy

WM Motor, another promising Chinese EV startup, has filed for bankruptcy as bigger players gain market share and Chinese spending on big ticket items declines.

WM Motor, Nio, Li Auto, and XPeng were China’s best-funded EV startups, backed by Baidu and Tencent. Investors gave the company over $5.3 billion, including $1.47 billion in 2020. Unfortunately, that money wasn’t enough to compete in China’s EV market, where automakers are under pressure to introduce new smart features and luxury products at lower prices.

WM Motor blamed macroeconomic conditions for its defeat. Since the pandemic, the carmaker has struggled with operational issues, capital market stagnation, capital acquisition, and raw material price volatility.

COVID-19 will affect the auto industry. As chip shortages caused factory closures, logistics disruptions, and semiconductor price increases, automakers worldwide were tested. After the pandemic, Chinese EV makers emerged from the cloud, but Tesla’s new price war strained their cash flow.

According to Lei Xing, co-host of China EVs and More podcast and former chief editor at China Auto Review, every automaker is struggling under those conditions, but those with deep pockets and operational excellence will survive. Slow players like WM won’t make enough money to cover their large losses.

Great losses for WM. According to WM’s June 2022 stock prospectus for a Hong Kong IPO, the company lost $1.13 billion in the three years ending in 2021. That IPO and a planned reverse takeover with Apollo Future Mobility this year failed.

In September, U.S.-listed Chinese used-car dealer Kaixin Auto Holdings signed a non-binding letter of intent to acquire WM Motor, but the bankruptcy filing leaves the deal unclear.

WM Motor posted on Weibo Tuesday that it will reorganize and bring in global strategic investors to “achieve its rebirth.”

Xing doubts WM’s future, despite the company’s claims.

“Even the leaders—Nio, XPeng, Li Auto—are not out of the woods,” Xing told . “The U.S. and Rivian’s convertible note offering shows they needed money. Capital remains a problem for everyone.”

In the second quarter, Nio lost $35,000 per car sold. The company sold 8,000 cars per month from April to June despite employing 11,000 R&D workers. It has invested heavily in factory robots, $350 augmented reality glasses for each car seat, and a cellphone that interacts with the car’s self-driving system.

Li Auto, which has been delivering well this year, may be surprised by a new competitor. Huawei-backed Seres-produced EV brand Aito is moving quickly in Li Auto’s specialty, smart SUV EVs. According to August sales data, the startup was one of China’s five top-selling new energy vehicle manufacturers after receiving over 50,000 orders for its revamped M7 model in 25 days. The M7 has all the features of Li Auto’s S7 SUV but costs less than $40,000.

These examples show how much Chinese automakers are willing to spend and how fast they can move to meet and exceed consumer expectations. It’s like how consumers worldwide are used to taking private cars for a fraction of the cost of taxis. As Uber and Lyft have shown, slashing prices will scale but cost companies profits.

“None of these smart EV startups are safe, let alone state-owned,” Xing said. “See Rising Auto, IM, Voyah. These ship a few thousand units monthly. Not sustainable. I think some of those will die out too.”

EV startups like Evergrande New Energy Auto, Aiways, and Niutron have closed factories or stopped taking orders in the past year. Byton, backed by Nanjing City government and FAW Group, filed for bankruptcy in June after failing to produce its first model, the M-Byte SUV.

Xing believes BYD will survive. The China Passenger Car Association reports that BYD sold over 1.6 million EVs from January to August this year. Tesla China, China’s second-largest automaker, sold 390,222 units during that time.

“BYD still has additional cards to play,” Xing said. Like Tesla, they have vertical integration and a lower cost base than competitors, so they can sacrifice profitability for volume and cut prices when needed.

Tesla and Geely, which have a large overseas presence, may also survive domestic consumption headwinds.

Zeekr, Geely’s young EV brand backed by hundreds of millions of dollars, is aggressively entering international markets with a two-pronged strategy. It has a deal with Waymo to supply its robotaxis, which are expected to start testing in the U.S. by the end of the year. It also plans to sell its luxury EVs in a few Asian and European countries.