The Reshuffle Of The Pure Electric Vehicle Market Has Begun

- Jul 02, 2019-

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Tesla announced a loss of $702 million in the first three months of this year, exceeding market expectations, which prompted the electric vehicle manufacturer to raise nearly $2.7 billion to support its ever-decreasing cash reserves. At this time, the sales of electric vehicles in the United States are declining and it is difficult to achieve sustainable profits, so why are other automakers still transforming electrification at all costs?

Although electric vehicles face many unfavorable factors (the short-term unprofitability is well known, especially have no subsidies), automakers are still betting on an uncertain future for many reasons. It is worried that the new forces represented by Tesla will dominate the future market, consumers will be younger, environmental regulations will be regulated, etc., but the most direct reason is still policy-driven.

Regulators in Europe and China are still pushing the electric vehicle market forward to meet environmental needs. Tesla's bicycle premium is often more than $100,000, but Model3 became the best-selling luxury car in the United States at last year.

With the expansion of this new power representative to overseas (especially in China), electric vehicles with a price of more than US$40,000 have already ranked first in the European sales list, and after the local chemical plant in China is put into production, there is also a great chance to become one of the leaders in the market.

However, with the gradual introduction of subsidies, this boom seems to be showing signs of diminishing (private passenger car market), and this year's US electric car sales have fallen sharply.

What is even worse for automakers is that while more competitors enter the market, total sales of electric vehicles are also falling. For example, GM's Chevrolet Bolt sales fell, while Jaguar I-Pace sales were disappointing.

In April of this year, the sales volume of new energy vehicles in the US market was about 21,255 units, which was down from the sales of 26,637 units in March, but only a slight increase of 8% compared with the sales of 19,623 units in April last year.

In addition to Tesla, other manufacturers' electric vehicles sold more than a thousand vehicles and below, and there have been different degrees of decline.

Despite this, automakers have bet on electric vehicles. For example, GM's website claims: "We are committed to building an all-electric future."

An important reason for Tesla's troubles is that despite the company's commitment to produce $35,000 in Model 3, the high cost of the lithium battery undermines profit margins below $50,000.

Some agencies estimate that the price of electric vehicles must be between US$55,000 and US$60,000 to reach a reasonable profit level.

However, the Chinese market is still a special case.Data show that in the first three months of this year, the production and sales of new energy vehicles with 18650 battery pack in China reached 304,000 and 299,000 respectively, an increase of 102.7% and 109.7% over the same period of the previous year. Among them, the production and sales of pure electric vehicles were 226,000 and 227,000, respectively, an increase of 109.3% and 121.4% over the same period of the previous year. In April, China's new energy vehicle production and sales were 81,000 and 82,000, respectively, an increase of 117.7% and 138.4% over the same period of the previous year. The production and sales of pure electric vehicles were 64,000 and 65,000 respectively, an increase of 111.5% and 126.8% over the same period of the previous year. However, it is undeniable that a large part of the top-ranking models contribute to the mobile travel market, including carpooling services and time-share leasing.

Relevant data shows that as of July last year, the Drip Platform has 400,000 pure electric vehicles, in addition to a large number of new energy vehicles such as hybrids. According to data from the Ministry of Public Security, the number of new energy vehicles in China was 1.99 million, including 1.62 million pure electric vehicles. If the stock of non-drip platforms is added, it is conservatively estimated that the travel market accounts for nearly 40% of pure electric vehicles. It is also worth noting that the growth rate of the market share of pure electric vehicles has stagnated. Although China's electric vehicle sales reached 225,000 units in the first quarter of 2019, it still only accounts for about 3.45% of the overall automobile market. This figure has hardly changed compared with 2018 (3.57% last year). In March of this year, the government carried out major reforms to the electric vehicle subsidy system. By the middle of 2019, the subsidy for electric vehicles that last for more than 400 kilometers will be reduced by 50%. At the same time, electric vehicles with a battery life of less than 250 kilometers will not be subsidized. Electric vehicle start-ups will face a choice: either to bear the cost or pass the cost on to the customer. Passing out the costs will reduce the appeal of their products.Not passing on, may be fatal to the company itself. Cutting subsidies is not unreasonable, but they will have a major impact on smaller companies, especially new-powered carmakers.

In other words, the reshuffle of the pure electric vehicle market has begun.

About 500 electric vehicle manufacturers in China are competing for market share. But as electric vehicle start-ups struggled in the face of fierce competition, changing regulatory requirements and the need to work with existing automakers, investors began to retreat.

Car and home founder Li Xiang warned last month that investors have become more cautious and many start-ups will be forced to withdraw from the market. “More than 90% of investors will lose money.”Now, everyone in this industry is starting to feel tremendous pressure and there is less and less risk capital to choose from. Given China's economic downturn, VCs have a hard time believing in the sales forecasts of these new forces.

This fear arises, coupled with the pressure of subsidies to retreat, which may smash the fiercely competitive bubble. If an electric car start-up fails to get the investment as scheduled, it may lead to a negative production target, which may have a direct impact on sales and the company's otherwise tight financial situation.

Whether electric vehicle start-ups have entered the mass production phase, it will be difficult in the next few years.