Fang Yunzhou, chairman of one of Tesla Inc.’s local rivals, has a different customer in mind: a consumer who lives in a less well-off small town or even a farmer in the countryside. Our goal is to provide a truly affordable product for the entire market, rather than a rich children’s toy, he says.
Fang, 45, is the founder of Hozon New Energy Automobile Co., a 6-year-old electric vehicle maker supported by local governments in eastern China’s Zhejiang Province, and one of the few companies wishing to develop the electric vehicle market. Hozon is betting there is a path to profitability by selling cheap battery operated cars in China’s flyover territory. The price of the first Hozons SUV, the Nezha N01, starts at less than 67,000 yuan. In early July, the company began delivering another SUV, starting at around 140,000 yuan, which can travel over 250 miles on a single charge.
Targeting drivers outside of major cities could help Hozon survive the massive consolidation underway in China’s electric vehicle industry. As auto sales exploded in the mid-2010s, hundreds of EV makers hoped to become the country’s response to Elon Musks Tesla. But demand began to weaken even before the effects of Covid-19 hit the economy, as government incentives waned in mid-2019. Only 11 of the nation’s electric vehicle makers were successful in raising funds last year, including WM Motor Technology Group, Li Auto and Hozon, according to consultancy firm Automobility Ltd. Adding to the pressure in January, Tesla started delivering electric vehicles from its new Shanghai plant.
The coronavirus pandemic is making the situation even worse. New-energy vehicle sales fell more than 37% in the first six months of 2020 after falling sharply in the second half of 2019.
The government of Chinese President Xi Jinpings is trying to boost the industry by helping automakers sell in areas they have generally overlooked. In July, Beijing announced an initiative involving 10 companies, including Hozon, to promote EV sales in villages, towns and small towns with grants and other incentives such as preferential loans.
As China’s relations with the United States and other countries deteriorate, electric vehicle makers, including Hozon, are part of Xi’s larger push to create Chinese alternatives to Western companies . We must make sure that key and basic technologies are in our own hands and aspire to create strong domestic auto brands, Xi said on July 23 during a visit to the facilities of the public group FAW, another automaker. that targets potential rural buyers.
Over 500 million people live in rural areas of China. Although their incomes are generally lower than those of city dwellers, some have money to spend, according to China EV100, a think tank that focuses on the development of electric vehicles. In the countryside, people own less than 150 cars per 1,000 people, about half that of people in China’s largest cities, according to BloombergNEF. There is a huge market for these vehicles in the rural market, says Xu Haidong, deputy chief engineer of the China Association of Automobile Manufacturers, a trade organization that helps organize campaigns to encourage sales of electric vehicles.
There are advantages to owning an electric vehicle in the countryside. Because most rural Chinese live in a house rather than a skyscraper, an EV owner can simply plug the car into a regular outlet and does not need the charging infrastructure more common in apartment buildings. apartments in large cities. The company providing a subsidy of up to 7,000 yuan for buyers, a consumer can buy an electric vehicle with as little as 18,000 yuan in down, and farmers with good credit history can leave without any upfront payment.
Even with this marketing push, challenges remain. Hozon, like the rest of its direct EV competitors, needs more capital. This industry inherently requires huge investments in product development and manufacturing, says Charley Xu, managing director and partner of the Boston Consulting Group in Shanghai.
Fang is moving forward with a fundraising of $ 428 million announced on July 20, which will be followed by an initial public offering, possibly in 2021. Competitors such as NIO Inc. and Xpeng Motors have already had from IPOs or reputable institutional investors such as Alibaba Group Holding Ltd. allowing them to compete more effectively with foreign car manufacturers that are developing in the market. Li Auto Inc on July 24 filed for a Nasdaq listing to raise up to $ 950 million, and WM Motor is considering an IPO in Shanghai. Plus, there’s a limit to how far automakers can go with low-margin sales in less affluent parts of China, says Jing Yang, director of corporate research at Fitch Ratings in Shanghai. This is a short-term remedy for the weak market and for manufacturers of national brand EVs to clean up some inventory, she said. They still have to work on the high end. This is the ultimate trend for the development of electric vehicles.
Fang argues that there is room in the market for an electric vehicle maker selling cheaper cars. All the attention given to Tesla in China has helped educate consumers about the potential of electric vehicles, he says. There is such a huge population in China, and even if Tesla could sell 1 million cars a year here, Fang says, it would still only be 1 million.
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