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Will Chinese EV start-ups reshape theautomotive industry?
The successes, challenges and roadblocks for EV start-ups

With Chinese regulators’ stimulation policy, a number of EV start-up companies have been set up since 2015. Many of themaim to launch EV products with high levels of artificial intelligence, connectivity and autonomous driving technology. In
this viewpoint, Arthur D. Little reviews major players’ product offerings, highlighting sales and aftersales services, market
performance, major challenges and implications for the future.

Stimulated by the government’s NEV policy, anumber of EV start-ups have emerged in the Chinese
marketSince 2015, the new energy vehicle (NEV) market in China has
been growing rapidly.
By 2019, approximately 500 EV start-ups had been registeredin China and more than 60 had unveiled their concept vehicles.
Many addressed the trends of artificial intelligence (AI),connectivity and autonomous driving (AD).
NIO, WM Motor and Xpeng are the top three EV start-ups
in terms of total financing and sales volume. Lixiang, Byton,Aiways and Enovate have attracted 6.5–11 billion RMB fromthe capital market, although they have not completed SOP yet.
Many of the founders of these start-ups have shining resumes.
Funding raised by leading EV start-ups as of September 2019
(Units: Bn RMB)
NIO

37.0

WM Motor

23.0

Xpeng

14.0

Lixiang

11.1

They either have successful internet entrepreneur backgrounds,
as do the founders of NIO (Li Bin), Lixiang (Li Xiang) and Xpeng(He Xiaopeng); or hold track-records as senior leaders of majorOEMs, as is the case for the founders of WM motor (Shen Hui,
ex-SVP of Geely Group), Aiways (Fu Qiang, ex-senior executiveof SVW and Audi) and Enovate (Zhang Hailiang, ex-SVP of SVWand SAIC Group), and the co-founders of Byton (Daniel Kirchertand Carsten Breitfield, ex-VPs of BMW).
The sales volumes of EV start-ups in 2019 show sharp contrast.
WM Motor, NIO and Xpeng ranked top three due to relatively
high intelligence and connectivity design, premium after-sales
service (NIO) and good product value (Xpeng and WM). Hozon’s
sales performance ranked at four; however, the majority of its
sales volume comes from B2B, such as car-sharing and e-hailingcompanies.
Sales volume of leading EV start-ups(January 2019 – August 2019)
WM Motor

11.320NIO

10.460

Xpeng

9.450

Hozon

4.270

Byton

8.5

Sitech900

Aiways8.0

Dearcc

680

Hozon

7.0

Yudo

510

Enovate

6.5

Leapmotor

270

Source: TIANYANCHA, ADL analysis

Source: Traffic compulsory insurance data, ADL analysis

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Dearcc and Sitech focus on the low-end market (60,000–100,000 RMB after subsidies). They have seen their sales
volumes plunging since 2019, mainly because most of theirconsumers are in T3/4 cities and demand for low-priced EVs
is decreasing due to reduced subsidies. The chairman/ownerof Dearcc has launched a higher-positioned product under thebrand “Enovate” (see below).

Product offerings from major EV start-ups
Benchmarking against Tesla, NIO focuses on the premium
EV market, pricing 320,000–400,000 RMB after its subsidy.
Features include: active air suspension and aluminum body,cruising distance reaching 510km, and 0–100km/h accelerationin 4.4 seconds (ES8). AI is a highlight of the NIO product. Incar AI robot NOMI offers a high level of voice interaction withpassengers. For instance, it can control the degree to whichwindows can open based on speakers’ demands and sprayfragrance according to drivers’ moods. Three hundred sixtydegree after-sales service is a major differentiator for NIO among
EV start-ups. NIO ES8 offers a free whole-life warranty for thevehicle and its battery pack, free pick-up service from home,whole-life free SOS aid, and free connectivity (8GB per month).
WM Motor and Xpeng target the mass market (140,000–240,000 RMB after their subsidies) and position themselves tooffer good “value for money”, with cruising distances of greaterthan 500 km. Their products also feature AI with face recognition(log-in with face ID) and voice interaction, although their voiceinteraction is not as sensitive as NIO’s.
Xpeng and NIO have the highest autonomous driving levelsof the launched EV products: L2 plus an automatic parking
function in 2019. NIO aims to offer L4 by 2022. NIO and Xpeng
also have the strongest R&D capabilities of all the EV start-ups(approximately 3,000 staff) and have been investing heavily in
AD technology development (approximately 1,000 R&D staff).
Compared with Tesla, the AD technology of the leading
Chinese EV start-ups is still lagging. However, their AI andconnectivity capabilities are stronger, including voice recognitionand verbal commands, as well as better understanding oflocal customer demand. They offer various elements such asrecommending the best local restaurants and entertainment
centers and using popular local super stars’ voices for AIcommunication.
The quality and reliability of NIO’s, Xpeng’s, and WM Motor’sproducts have met the standards of Chinese OEMs such as
Geely and Changan, according to the consensus of market
feedback. Their high scores in five-star C-NCAP assessments(a Chinese vehicle crash test) is one of the proofs. In orderto launch the vehicles into the market and seize market
share, these EV start-ups are trying to shorten their product2Will Chinese EV start-ups reshape the automotive industry?

development processes. For instance, Xpeng takes 32
months for product development, versus 42–48 months for
traditional OEMs. Concept design, detailed structure design
and manufacturing preparation processes are compressed. As aconsequence, they have to pay extra to accelerate development
cycles. For instance, the first and second rounds of PV testing
are overlapped, which wastes tooling.
Product comparison of four mass-production EV start-ups
NIO

WM MotorXpeng

Hozon

Price1

340–520k RMB

Vehicle segment

SUV C (ES6)/SUV D (ES8)

SUV B

SUV B

SUV B

Cruising distance

420–510 km (ES6);
355–510km (ES8)

400–520 km

351–520 km

301–351 km

Power

320–400 kw (ES6);
480 kw (ES8)160 kw

145 kw55 kw

TorqueES6: 610–725 N·m;
ES8: 840 N·m

315 N·m

300 N·m

175 N·m

0-100km/h

ES6: 4.7–5.6s
ES8:4.4s

8.1–8.5s

8.4–8.6s

NAFacerecognition







Gesturecontrol

L2.5 (2018)

L2 (2018)

L2.5 (2018)

L2 (2019)

PT spec

140–240k RMB 140–200k RMB

70–140k RMB

Voiceinteraction
Intelligence

Autonomous driving
level1) Price with subsidies
Source: Official websites, AUTOHOME, ADL analysis

Lixiang, Byton and Enovate focus on the premium EV market(300,000–400,000 RMB with subsidies). Lixiang is the only EV
start-up to develop range-extended electric vehicles (REEVs)
instead of battery-electric vehicles (BEVs) in order to solve range
anxiety for consumers.
In terms of AI, all of these start-ups offer voice interaction. Byton
allows users to shop online via its 48-inch screen and voiceinteraction. It also features a hand-gesture control function.
Byton claims that it will reach autonomous driving level 3 by
2020. However, this target could be challenging, given that thecompany has only 500 R&D staff in the US dedicated to ADand human machine interface (HMI) development. This number
significantly decreased through Byton’s layoff plan, which wascaused by a shortage of funding and increasing cost pressure.

EV batteries and charging solutions
Safety, cruise range and convenience of charging are the major
concerns for EV end customers.
Major EV start-ups currently use NCM Lithium ion batteries andprocure battery cells from Chinese suppliers such as CATL andBAK Power. The leaders have achieved 600km of range under
New European Driving Cycle (NEDC) conditions. To address
range anxiety in customers, Lixiang’s REEV product can achieve

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Product comparison of four non-mass-production EV start-ups
Lixiang

Byton

AiwaysEnovatePrice1330k RMB

300-400k RMB

200-300k RMB

366.8k/381.8k
RMB without
subsidies

Vehicle segment

SUV D (REEV)

SUV C

Cruising distance

180 km (range
can be extendedto 800 km)

400
520 km503 km (623 km
with additionalbattery)

500km

Power240 kw

Up to 350 kw

140 kw

170 kw

Torque530 N·m

400–710 N·m

315 N·m

330 N·m

0-100km/h

6.5s

5.5s

10s

4.9s



L2 (2019)

L3 (2020)

L2 (2019)

L2 (2019)

PT spec

SUV C

SUV B

Voice
interaction
Intelligence

Facerecognition
Gesturecontrol

Autonomous driving
level1) Price with subsidies
Source: Official websites, AUTOHOME, ADL analysis

a range of 800 km. To solve safety issues and pursue higher
energy density and longer ranges, NIO, WM Motor, Enovate andAiways are developing solid-state batteries in collaboration withsuppliers such as ProLogium.
NIO provides innovative, value-added charging solutions. Insteadof charging batteries, consumers can swap their batteries within
three minutes at NIO’s power stations. The company also
provides battery charging services that can come to EVs. Thesemobile charging stations can give EVs an extra 100 km of driving
distance in 10 minutes. These services are included with others,
such as free repair and maintenance of vehicles and batteries
for their whole life cycles, as well as free SOS support, in NIO’safter-sales service package. This package is superior to those of
all other EV start-ups, and even traditional premium OEMs suchas BMW, Daimler and Audi. However, whether such a service
model can support profitability and be sustainable in the longterm is still questionable.
NIO and Aiways can provide battery-leasing solutions forconsumers. For example, NIO allows consumers to buy EVs
without paying for battery packs, and then finance these over
five years.

Direct sales models and sales channel strategies
In contrast to traditional OEMs, leading EV start-ups sell theirvehicles directly to consumers for better control of pricing
and direct communication with customers. This allows themto collect feedback and solve problems. On the other hand,distribution channel strategies differ among the three players.
NIO and Xpeng mainly open fully owned, directly managed
stores in order to get closer to consumers, provide better
service and optimize customers’ perceptions. WM Motor,

similar to traditional OEMs, depends heavily on franchise stores
to capture market share quickly while keeping costs low. Due tocost pressure, Xpeng is also planning to open franchise stores toexpand into more cities.

Major challenges for EV start-ups
In September 2019, NIO’s stock price dropped to 1.53 USD,which has decreased by 77 percent from the initial publicoffering (IPO) price. This represents major difficulties among EV
start-ups in China.

Stricter government control of production licenses
In order to better control overcapacity in the automotive and
EV industry, the Chinese government has put stricter rules onapproving investments for new plants. For instance, among
the top three players, only WM motor has its own plant. NIO
originally planned to build a plant in Shanghai, however, thegovernment didn’t approve this after it had approved Tesla’splant. This left NIO no other choice but to keep outsourcing
its production to JAC. Xpeng didn’t get approval from thegovernment either and has been outsourcing production toHaima. Both JAC and Haima are local Chinese OEMs that mainly
focus on low-end vehicles, and hence, this has raised concerns
about quality control and upgrading capabilities to meet higher
production standards.
4Low sales volumes due to relatively limited brandrecognition and product competence
Compared with Tesla and traditional OEMs, EV start-ups lag
behind in terms of brand power and core competence. The sales
volumes of the top three start-ups, NIO, WM motor and Xpeng,reached 2,000 per month in H1 2019. However, this is still notcomparable with the performances of traditional OEMs such as
BYD and BAIC, whose sales volumes of NEV models reached9,000–20,000 per month, on average, in H1 2019. Tesla also sold
150,000 in H1 2019 worldwide.
With their subsidies heavily reduced, major traditional OEMs
such as BYD and BAIC plan to keep their EV prices the samelevels as before, as they are able to draw upon their existing
technology with cheaper batteries (e.g., LFP), mature sales
networks, and large scale. This has led to high pricing pressure
on EV start-ups. If their prices can’t be competitive aftersubsidies are removed, consumers will choose traditional
OEMs’ EV products or even ICE vehicles.

Profitability is in the red and unable to break even
Due to low sales volumes, EV start-ups still heavily rely on
external funding for a few years after launching products. For
instance, NIO had negative profitability of 23.5 Bil RMB in 2018
and 5.9 Bil RMB in H1 2019. To achieve breakeven, Xpeng,for example, requires annual cash flow of around 2–3 billion
Will Chinese EV start-ups reshape the automotive industry?

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RMB to cover R&D costs (payroll, testing, etc.) and selling,
general, and administrative expenses. Its gross margin per car
is approximately 20,000 RMB. This means the company needs
to sell 100,000 to 150,000 vehicles to cover the above costs.
However, its sales volume in H1 2019 was only 1,000–2,000 permonth.

Contacts
AustriaMiddle EastBelgium

The Netherlands

China

NorwayCzech Republic

Russian Federation

FranceSingapore

Germany

SpainIndia

SwedenItaly

Switzerland

Japan

TurkeyKorea

UK

Latin America

USAtaga.karim@adlittle.com
baes.kurt@adlittle.com
song.ninghua@adlittle.com

More pressure from fundraising and cost control
Due to the unsatisfactory performances of EV start-ups,
investors have become more cautious about continuedinvesting. Intensive consolidation will be seen among EV startups, investors will focus more on leading players, and otherplayers will experience major difficulties in raising money.
Cost control becomes crucial. At the beginning, the key focusof EV start-ups was product development and launching decent
vehicles into the market. What’s more, in order to achieve
premium brand perceptions, players such as NIO, Byton, andLixiang are sparing no money or effort in building the “premium”
sense and feel. For instance, in T1 cities such as Beijing andShanghai, NIO rents showrooms in the most expensive
city centers that are full of luxurious brands. The rental of ashowroom can be as high as 30 mil RMB per year. In addition,NIO, Xpeng and Byton have all set up global R&D centers in theUS. In order to attract top R&D and autonomous driving talent,
they will have to pay much higher salaries than their previous
packages and offer major promotions. Sometimes the purposeof this is more to attract attention from the media to raisefunding from investors than to improve R&D capabilities.
Due to cost pressure, NIO has sold its Formula E racing teamand begun to reduce its head count from the original 9,000 to7,500. Byton also laid off heavily among its R&D team in the USand gave up its autonomous driving L4 development.

Conclusion
NEVs represent the future of the auto industry. Although EV
start-ups are facing various challenges, their emergence hasbrought new vigor and vitality into the Chinese automotivemarket. Since 2018, the growth of the auto industry in China has
slowed down, and negative growth was seen for the first timein nearly 30 years. The whole China auto industry is facing major
challenges and needs to undergo transformation. It’s too soonto say whether Chinese EV start-ups have a promising future
because their market performance has not been satisfactory.
However, in order to win out eventually, EV start-ups mustensure they build product core competence, consider where todifferentiate from competition, and achieve economy of scale,significant cost reduction and operations excellence. Only ifthey manage this, can they realize sustainable profitability andprosperity in the end.

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Authors
Dr. Ninghua Song, Hiroto Suzuki, Masayuki Aou

Arthur D. Little
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