25 Feb China’s Web Titans Lead EV Investment

YiCai Global, December 19, 2017

(Yicai Global) Dec. 19 — Telematics is the new trend in the auto industry, and electrified and simpler powertrain systems give new entrants in the market the opportunity to overtake the world’s major automakers by changing to the fast lane.

The three Chinese internet behemoths — Baidu Inc. [NASDAQ:BIDU], Alibaba Group Holding Ltd. [NYSE:BABA] and Tencent Holdings Ltd. [HK:0700] — collectively known as ‘BAT’ — and venture capital firms were the first to spot and seize this once-in-a-lifetime opportunity.

“In future, smart cars will serve as a means of transportation as well as intelligent terminals, and will revolutionize the travel experience for users,” said Li Bin, founder and chairman of Chinese EV supercar maker Nio, at the release conference of ES8, Nio’s latest all electric sports utility vehicle model ES8, on Dec. 16.

EV Investment Boom Propelled by BAT

Some of the canniest capital firms have already invested in electric car manufacturing businesses, which is touted as the future of the automobile industry. As of early last month, investors had closed some 150 financing deals with EV technology companies, and the total investment topped USD4.8 billion, US-based venture capital data agency CB Insights said in a new research report. Nio, Guangzhou Xiaopeng Motors Technology Co., WM Motor Technology Co. and Singulato Motors are the favorites among Chinese venture capitalists.

Nio has received the lion’s share of the investment. It currently has 56 investors, including Tencent, Baidu, Beijing-based e-commerce company JD.Com Inc. [NASDAQ:JD], Xiaomi, Lenovo, multinational investment company TPG Capital, China Development Bank, China Merchants Bank [SHA:600036] and Industrial Bank Co. [SHA:601166].

Founded in 2014, Nio has secured over USD1.7 billion worth of funding from investors, including the USD1 billion investment it took in during the latest financing round led by Tencent earlier this year.

WM Motors has just announced a new funding series led by Tencent and Sequoia Capital less than one week after the CNY1 billion investment by Baidu and several secondary investors.

Xiaopeng Motors concluded a strategic financing deal with Alibaba and Xiaomi last week, several months after the CNY2.2 billion investment offered by Ucar Group, backed by China’s leading car rental company CAR Inc. [HK:0699]  in June. Similarly, Faraday Future, an EV startup established by Jia Yueting, founder of internet ecosystem firm LeEco, has also reportedly closed a USD1 billion deal with a consortium in Hong Kong, the deal still awaits confirmation.

Most of the funding will go to the development of driver assistance and driving automation systems, driver safety tools, vehicle network and driving data, fleet telematics, inter-vehicle communication and car information safety technologies, CB Insights concluded based on analyses of investments in unlisted electric vehicle manufacturers this year.

“The EV investment market is going through some radical changes,” opined Kerry Wu, an auto industry analyst at the research agency.

On the other hand, traditional carmakers are also ramping up operations in the Chinese EV industry. Alibaba entered into a strategic partnership with Ford Motor Co. [NYSE:F] to institute collaboration on applications of the Internet of Beings in car manufacturing, development of artificial intelligence (AI), intelligent mobility services and digital marketing. Mobile internet features will be available on all Ford and Lincoln models sold in China by the end of 2019.

The global auto giant has also invested USD756 million to set up a joint venture with Chinese carmaker Zotye Automobile Co Ltd [SHE:000980] to produce and sell electric cars in Beijing.

Home-grown traditional manufacturers have also entered the new-energy vehicle (NEV) market. For example, JMC introduced a new business unit dedicated to NEV development and formed an NEV research institute in 2015, splurging some CNY8 billion on the new product line.

“Venture capital firms and strategic investors are trying to increase their penetration in capital-intensive businesses such as EV production and driving automation,” noted Bill Russo, founder and chief executive of automotive strategic investment consultancy Automobility.

EV sales are expected to exceed 500,000 units in China this year, and the country will overtake the US as the largest EV market in the world.

A Race for Investment in EV Related Businesses

The fast-growing demand for electric cars has triggered a race among investors to buy into EV related businesses.

JMC established an investment fund in partnership with AT&M and QF Capital in Oct. The fund specializes in investing in traction batteries and vehicle frame new material manufacturers.

Leading Chinese power lithium battery developer CATL has received capital contributions from SAIC Motor Corp. [SHA:600104], Dongfeng Motor and Chongqing Changan Automobile [SHE:000625]. The firm is currently valued at CNY84 billion, and has kicked off preparations for an initial public offering.

Chinese capital has become a dominant force on the global upstream lithium battery investment market, Benchmark Mineral Intelligence indicated in a recent report.