On January 7, according to foreign media reports, China’s electric vehicle manufacturers such as NIO are trying to subvert Tesla. However, with Tesla’s strong penetration into the Chinese market and its advantages in the Chinese market, it is still far away to become a “Tesla killer”.
Li Bin, founder of NIO, is in his 40s and a technology house. Although he is not as eye-catching as Elon Musk, founder of Tesla, he looks like a rock star in the eyes of his customers. The company’s market value is only $4 billion, a fraction of Tesla’s $75 billion value. But among more than 30 start-ups of electric vehicles in China, Yulai is the most famous. In addition, the company keeps pushing up and smashing investors’ expectations with Tesla like frequency. On December 30, when Li Bin said that production in the fourth quarter might rise from nearly 4800 in the third quarter to 8000, the stock price of NIO soared 54%. But throughout 2019, it lost almost 40% of its market value.
Musk has long been unique in the electric vehicle industry, but Wei Lai also has an advantage, that is, the Chinese market. Yulai represents China’s ambition to become a global electric vehicle production center. In the 21st century, China will dominate the electric vehicle market as the United States dominates the fuel vehicle market in the 20th century. Because of this, the Chinese market will be a place where “Tesla killer” will grow. In 2019, when Li Bin was interviewed by CBS, Yulai was called “Tesla killer”;.
However, if Wei Lai tries to subvert Tesla, it seems a little strange. For Tesla, it has invested heavily in cutting-edge technology, resulting in a large number of loopholes in its cash flow. This makes the outside world have been concerned about Tesla’s survival. And we are replicating Tesla’s business models. If there is anything that can kill Tesla, it is more likely that it has its own difficulties in long-term profitability than the competition from NIO. The latter also has long-term profitability problems. Ironically, it’s the Chinese market that will ultimately ensure Tesla’s bright future.
Not long ago, Yulai was considered to be a more promising electric vehicle manufacturer. In China, the world’s largest auto market, sales of luxury electric vehicles are booming. In 2014, electric vehicle manufacturers and buyers began to get subsidies, which promoted the development of the industry. Venture capital is also well supported. In 2018, Yulai launched the first luxury electric SUV es8, selling for more than 500000 yuan (USD $71429) . Not long after that, Yulai was listed on the New York Stock Exchange, not only to raise funds, but also to enhance its international image, so as to sell cars around the world. Its shareholders include Baillie Gifford, a famous British investment institution, and Tesla’s largest institutional investor.
However, Tu le of Sino auto insights, an auto industry consulting firm, said Wei Lai was too ambitious to kill Tesla. It recklessly believes it can quickly compete with an electric car company that is 11 years older than itself, with a huge global brand awareness and multiple models. Revenue in 2019 is estimated to be around $1.2 billion, dwarfing Tesla’s $24 billion revenue. However, since the beginning of 2017, its accumulated loss has exceeded that of Tesla. We spend a lot of money in our member clubs with libraries, cafes and nurseries, sometimes even setting our center directly across the street from the Tesla showroom. But unlike Tesla, it did not invest too much money in car manufacturing, but outsourced production to JAC, a state-owned carmaker.
In addition, since June, the reduction of subsidies for electric vehicles in the Chinese market has hit investor confidence and raised concerns about investment tension. Wei Lai raised $100 million in the third quarter from Tencent, a technology giant, and Li Bin is expected to invest the same amount himself. But data from Bernstein, an investment firm, showed that despite the 22.5% increase in sales in the third quarter, the company had a net debt of $1.3 billion. Although the company launched the third SUV on December 28, NIO also admitted that it needs more funds if it wants to live another year.
On the contrary, Tesla continues to make breakthroughs in the Chinese market. On December 30, the day when the stock price of NIO soared, Tesla Shanghai Super factory delivered the first model 3 produced. The price of this car before subsidy is less than 350000 yuan (USD $50000) at present. Although it is less than a year since the start of construction, the weekly production has reached about 1000 vehicles. A few days ago, Tesla also received $1.3 billion from Chinese lenders to complete the construction of its Shanghai plant. The production of electric vehicles in China makes Tesla not have to pay import duties for the whole vehicle, but also have the right to receive subsidies for electric vehicles. In recent days, Tesla’s share price has soared to a record high, despite questions about its ability to increase sales, profitability and cash flow.
Although Wei Lai is a Chinese enterprise, it has not gained the same advantage. And because there is no factory of its own, its influence is relatively small. It is competing with start-ups of electric vehicles such as byton, Weima and Xiaopeng for financing. No one can guarantee that these companies will survive.
In this volatile market, fate may soon turn around again. Mr Wei said new financing arrangements could be announced soon. State owned automakers may hold a large stake. Some analysts say the company is unlikely to go bankrupt because it is a symbol of China’s technological ambitions.
However, Tesla is still leading the way. In fact, China must be more like musk’s home, says Michael Dunne, President of Zozo go, a car consultancy and Tesla user. China’s ambition for the electric car market has given Tesla a the kind of ride it doesn’t have in the US market. China’s strong manufacturing capabilities will help Tesla overcome the “production hell” it has encountered in the United States, and possibly promote autonomous driving faster than the United States.