Swerving risk in China's congested electric car race

As regulators prepare to step in and bring more order to China's electric vehicle boom, one Hong Kong investor explains how it is trying to stay on the right road.

There's no shortage of hype in China's electric vehicle market; with a fleet of competitor firms thrashing around for sponsorship and talent and regulators eager to promote the green-friendly, cutting-edge technology underpinning it, the market is red-hot.

But like a car engine that gets very hot  — potentially too hot — that is far from ideal.

Based on publically available information, FinanceAsia estimates that there are currently 25 electric vehicle startups in China. However, the sum of their endeavours so far is just three non-concept car models that have yet to go into full production.

Sound vaguely familiar?

The world has seen how Elon Musk’s storytelling gift has been challenged in recent months, primarily by concerns over Tesla’s finances and its ability to hit production targets. 

Musk’s Chinese peer Jia Yueting is on China’s “national list of dishonest persons subject to enforcement”, according to the China's Supreme People's Court's website, while his company, Faraday Future, almost collapsed due to a severe credit crunch until Evergrande's HK$6.7 billion ($860.1 million) acquisition rescued it. 

China's regulators are taking note of the heat around the industry; the subject came up on June 15 at the monthly press conference of the National Development and Reform Commission, the country's central economic planner.

“The technology level of new energy vehicles is improving as the market scale expands quickly, but meanwhile, we see signs of disorderly development,” spokesman Wei Meng said. 

And the regulator is not alone in its concerns.

“We think the whole electric vehicle segment is overcrowded and over competitive,” said Eric Ho, chairman of Hong Kong-listed WE Solutions, a company that is trying to carve its own niche in China's electric vehicles space.

WE Solutions used to be just a jewellery company called O Luxe Holdings (formerly known as Ming Fung Jewellery Group). But it restructured, brought in, new shareholders and reinvented itself as an electric car investment company too in September when it bought a controlling stake in Green Lord Motors (GLM), a Japanese manufacturer of electric sports cars. GLM launched its first model in 2015.

That's in contrast to most of the electric vehicle startups currently clogging up the sector.

“If we start from scratch, it will take a long time to implement multiple rounds of financing,” Ho said, dubbing this approach “super risky” for a listed company like WE Solutions.

“It may cost Rmb7 billion to Rmb8 billion to do something meaningful [in the electric vehicle area], and you won’t see your first penny in revenue until five years down the track,” he said.

As a result, WE Solutions prefers to buy or work with foreign companies that already have electric vehicle know-how and to bring that to China. 

Eric Ho (left) and William Ho

“GLM has proven technologies and successful track records,” William Ho (not related to Eric Ho), the chief executive of WE Solutions told FinanceAsia. “Research and development of an automobile takes five years on average, we don’t wait that long.”

Following the GLM deal, the Hong Kong entity acquired a 27% stake in 3D printing expert Divergent, bought a 29.5% stake in charging solution provider EV Power, and formed a joint venture with automotive technology provider Advanced Auto Tech.

“Compared to some startup [original equipment manufacturers], the capital we have put in may equal just 10% to 15% of their fundraiser,” Eric Ho said. “And at least we know what we acquired is working.”


As well as the cutting-edge technology, WE Solutions is also seeking opportunities lower down the value chain.

“We think some parts along the value chain are really safe; battery recycling and residential charging business, for instance,” William Ho said. “These two sub-sectors [will] generate guaranteed growth as China’s electric vehicle market will continue to expand.”

Under government regulations, electric vehicle manufacturers are responsible for the safe disposal of the batteries in their cars once they reach the end of their useful life. And since manufacturers have to have a laser-like focus on their cars to stand out from the competition, WE Solutions says it sees a profitable opportunity.

“None of them is busy focusing on building plans to deal with battery recycling,” Eric Ho said, because for most of these would-be manufacturers handing over the recycling task to a separate third-party would likely be the optimal solution.

Given the potential volumes, recycling promises to be an important component of the electric vehicle market in China and WE hopes to secure an advantage by moving into it early.

Eric Ho also sees some potential to earn strong "recurring income" by providing residential charging stations — as opposed to the network of quick-charging stations the government is encouraging along highways.

“When we think of charging piles, we apply the car park model in the residential areas: once you are there, you will be there for a relatively long period of time,” he said.

WE Solutions is also excited by the possibilities of 3D printing as a “revolutionary way of making vehicles in the future,” Eric Ho said, but it plans to stay out of battery cell manufacturing and sees more potential in battery management systems and battery packs.


To help foster a healthier electric vehicle market in China, the National Development and Reform Commission is drafting new rules to manage new investments.

The industry is also now expected to consult with local governments regarding issues including subsidy rate, technical standards and implementation.

For now, though, perhaps that red-hot market gauge is stabilising. 

Some Rmb139.8 billion ($21.6 billion) was invested in 27 projects devoted to the manufacture of completed electric vehicles in the first five months of last year, data from Chinese high-tech industrial research platform OFweek shows. For the same Jan-May period of 2018, that had dropped by 17% to Rmb116.0 billion.

The number of new programmes has also slumped in that time to 11, OFweek data shows. 

But, in general, the improving trend is solid, with 228,000 "new energy vehicles" produced in China in the first four months of this year — 178% more than a year earlier.

Despite the risks, Eric Ho is broadly optimistic for the industry as a whole.

“The electric vehicle market is a booming market, especially in China,” he said. “We all know that in ... time, with all the policies being enacted, the only vehicle you can drive will be [an] electric vehicle.”

The Hos said WE Solutions would continue to seek out opportunities, both short-term and long-term, as the market matures, just as long as they are “reasonably priced”.

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