Beijing - The push to produce more electric cars (EVs) in China has resulted in literally hundreds of startups trying to cash in on the EV revolution but according to NIO Capital only 1 percent will survive.
NIO Capital is a venture capital fund that is backed in part by the Chinese EV company NIO. Managing Partner Ian Zhu is very cautious on buying into any EV startups. The firm headquartered in Shanghai is trying to raise 10 billion yuan ( about $1.5 billion US) for an onshore fund. He favors investing in joint projects that involve the startups with traditional auto manufacturers since this combines both innovation and actual manufacturing skills.
China's aim is to be the world leader in the development of EVs and as such it has lured investors into pouring billions of dollars into startups and also production. Many have noticed Tesla's investment in China even though it is still relatively small. However the company plans to build a $5 billion dollar plant in China. Companies such as Xpeng Motors Technology Ltd and NIO are struggling to get a foothold. NIO is backed by the Chinese tech giant Tencent Holdings Ltd.
Most Chinese EV startups are not yet in the manufacturing stage on a large scale or able to deliver cars in bulk to consumers. In spite of this some of the companies value themselves at higher levels than traditional Chinese car manufacturers such as the BAIC Motor Corp and Great Wall Motor Co. in recent fund raising drives.
More than half of the EVs sold in the world are in China. Competition is set to intensify as China now allows foreign car brands to fully own their own units a new rule that Tesla will take advantage of. Trade tensions between China and the US are also helping to encourage foreign auto makers to quicken plans to produce cars locally within the country. Zhu thinks the US China trade war could slow development towards self-driving vehicles.
NIO Capital is intending to buy minority stakes in auto-technology firms not only in China but overseas as well rather than attempt any wholesale takeovers. By doing this the fund hopes to tap into the rise of autonomous and EVs while minimizing the risk of a takeover including regulatory resistance on security grounds. The company is close to its goal of its first round of fund raising offshore of about $500 million. BP Ventures, a unit of the large UK-based oil firm said that it had invested $10 million in the fund.
The fund will focus on Chinese auto-related companies as well as foreign companies that plan to grow in China. He said the company would not invest in companies that had no relations with China.
The government pressure to buy EVs is paying off for domestic makers such as BYD, backed by Warren Buffet and BAIC Motor Corp. but also global companies such as BMW and Tesla.
Six Chinese cities that have implemented gasoline car restrictions now account for 40 percent of China's EV sales, that were in total 579,000 last year. This represents 21 percent of global EV sales. Sales in these six cities are increasing by two to four times the national average.
Trying to get a licence for a gas-powered cars through a lottery can take years. They can cost more than $14,000 in a monthly auction in Shanghai. In contrast an EV licence is free and can often be obtained a lot faster.
China is hoping to eventually end the production of internal combustion vehicles. It hopes that electric and plug-hybrids plus fuel cell vehicles will account for 20 percent of annual new vehicle sales by 2025.