BEIJING (Reuters) – By most measures, the last thing China needs is more electric cars crowding a market with more losers than winners, driving down prices at the expense of profits and taking the battle for market share outside China.
And that’s exactly what it gets.
Automakers are expected to launch 110 electric vehicles and plug-in hybrids by 2024, many of them at the Beijing auto show starting Thursday. These new offerings, dominated by Chinese brands, will join the nearly 400 “new energy” models already in Chinese showrooms, according to industry data.
In contrast, there were just over 50 EV models on sale in the United States last year.
But while there is a danger in China’s overcapacity, there is also a power in the hyper-competition it has unleashed, analysts, suppliers and executives say. China’s leading EV manufacturers have found ways to shorten vehicle development time, combining speed to market with new features and a price advantage that outside competitors can’t match.
“This is a technological revolution,” said Wang Xun, founder and chairman of Shanghai-based automotive design and engineering firm Launch Design. “And Chinese brands are at the forefront of this revolution.”
Analysts broadly agree that China’s EV market, the largest in the world, is in for an eventual shakeout. Not yet.
The 10 best-selling electric vehicles – a list dominated by BYD (SZ:) and Tesla (NASDAQ:) – account for more than half of sales in China so far this year. Because there is capacity to build more battery-powered vehicles than the market can support, prices are falling domestically and exports are rising.
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BYD, China’s largest EV manufacturer, has cut domestic prices of three leading models by more than 9% this year.
But new competitors are also emerging, including smartphone makers Huawei and Xiaomi (OTC:), which have entered into partnerships with established automakers with spare capacity. State-backed companies are also introducing new electric vehicles in support of a government mandate to expand China’s lead in networked cars.
“In China, things are getting cheaper faster,” said David Li, CEO of Hesai
Hesai is introducing a LIDAR unit that costs about half of its most popular model, now used by Li Auto (NASDAQ:) and Xiaomi. By cutting car development from three years or more to 18 months, Chinese EV makers benefit from falling prices for such technology, Li said.
“It is a cheaper product because of its speed and innovation,” Li told Reuters. “I think that’s a part that a lot of people might not fully understand.”
‘UNHEALTHY’ OR ‘REVOLUTION’?
In recent weeks, Huawei and Xiaomi have launched highly publicized EVs, just months after Apple (NASDAQ:) abandoned its decade-long attempt to launch the equivalent under its brand.
Xiaomi caused an online sensation with the launch of the SU7, an electric car that looks so much like a Porsche that it has earned it the nickname ‘Baoshimi’, a combination of the two brand names in Chinese. Xiaomi is aiming for 100,000 sales this year, a big debut for a newcomer.
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Dongfeng, one of China’s big three state-owned carmakers, and a company that has so far failed to find its own successful EV, is promoting its new eπ-007 (e-Pi-007) in advertisements at Beijing’s central station. The EV sedan, which looks like a Tesla Model 3, costs almost $10,000 less.
In a marketing style of the kind employed by Elon Musk, Dongfeng says the 007 battery has survived nine bullets fired from an AK-47 and operated underwater for a full day during laboratory tests. The company sold fewer than 4,000 new cars in China through March. There will be exports, he says.
Xiaomi expects to lose money on the SU7. Most of the established rivals are also betting that they can now incur losses and claw their way to profitability.
“Money is currently being spent on the market without it being possible to get the money back,” said Volkswagen (ETR:) China chief Ralf Brandstaetter, who called it “an unhealthy situation.”
But Launch’s Wang is betting on even more disruption: using the Chinese market standard for cost and speed to open the door to car brands that don’t yet exist.
Launch, which has done design and engineering work for most EV brands in China, has developed its own platform: “Launch EV One”. The company is pitching the crossover prototype to potential partners, including in emerging markets, who want a quick-to-market electric car without upfront costs that could run into billions.
“We are working to lower the barrier to entry as much as possible,” Wang said. “Once this happens, it will create a different kind of revolution in this industry.”
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Launch, which has filed for an IPO in Shenzhen, is ready to customize an EV for an overseas brand, carry out the engineering, procurement and safety testing and even build the new vehicle at its factory in Jiangxi, South -China. Potential clients are being discussed.
The company’s design and engineering headquarters in Shanghai has the feel of an industrial WeWork space. Hundreds of engineers and designers share an open office with long tables for twelve hours a day, six days a week. Prototypes are parked in the busy street outside.
“The brands that have survived are launching new cars faster than others,” Wang told Reuters. “We want to ride this wave, rather than be submerged by it.”
