USD 35,000. That is 29 lakh rupees, give or take.
Imagine you were a public policy analyst working for the Indian government, and an Indian carmaker came to you and said, “I’d like to sell cars, but I haven’t figured out a way to do so profitably just yet. I’d like you to cover my losses per car that I sell, until I turn profitable.”
“OK…”, you respond cautiously. “And how big are your losses per car sold?”
“Well, not much. About USD 35,000. Yes, per car.”
You gulp, the way cartoon characters do when they’re nervous.
“So what kind of support are we talking about in total?”, you ask.
Nio and other companies in China’s sprawling electric car sector have formidable government backing that allows them to withstand such losses and keep growing. When Nio nearly ran out of cash in 2020, a local government immediately injected $1 billion for a 24 percent stake, and a state-controlled bank led a group of other lenders to pump in another $1.6 billion.https://www.nytimes.com/2023/10/05/business/nio-china-electric-vehicles.html
Today Nio embodies China’s dominance of electric vehicle innovation and manufacturing, underlining its threat to traditional auto powers in Europe and the United States.
“And oh, by the way, I’m also going to launch smartphones, but it’s all good, this is all part of the plan.”
- This particular carmaker, Nio, employs 11,000 people in R&D alone.
- This particular carmaker, Nio, sold 8,000 cars in the quarter ending June 2023.
- It employs 30 (not a typo) technicians to make 300,000 electric car motors a year.
- Losses of $835 million in the quarter ending June 2023.
- The typical worker in Shanghai, China, earns about $30,000 per year. A worker in rural china will earn lesser.
- A typical worker in America earns $110,000 per year. The striking workers want a 40 percent pay raise over four years, plus a paid day off each week.
- “Paul Gong, head of Asia automotive research for the bank UBS, predicted that Chinese carmakers would capture a third of the global car market by the end of the decade. Much of the growth in his forecast is a jump in Chinese carmakers’ share of the European market to 20 percent, from just 3 percent now. In China, he said, “the competition is so fierce that it pushes every automaker to develop new technologies.”
- Speaking of new technologies – Nio’s product launches saw it sell 18,477 cars in the quarter ending in September.
- So what would you do, if you were a European or an American (well ok, maybe not American) automobile manufacturer?
“In July, Volkswagen paid $700 million for a 4.99 percent stake in XPeng, a money-losing Chinese electric car start-up, putting a valuation of $14 billion on XPeng. Nio received assistance from the Hefei local government, but XPeng has acknowledged assistance from the local government in Wuhan, also in central China. Volkswagen announced in April that it would build a $1.1 billion car development center in the central China city of Hefei. VW will hire 2,000 engineers to do work previously performed at its headquarters in Wolfsburg, Germany, for cars manufactured in China.”
- And sure, Nio may be making losses, but BYD posted profits of $1.5 billion. With demand for ICE (internal combustion engine) cars next to non-existent since 2017, Chinese car makers are looking to sell to the world at throwaway prices.
” “Why have they driven into exports? Because they have to — what are you going to do, close a factory?” said Bill Russo, a former chief executive of Chrysler China who is now chief executive of Automobility, a Shanghai consultancy.
All over the world, Chinese automakers are taking market share. Steel and electronics used in cars are cheap in China, giving automakers here an advantage. Local governments in China also give the companies nearly free land, loans at near-zero interest and other subsidies.
After years of quality gains and technology improvements, Chinese cars, even ones with out-of-fashion combustion engines, are turning heads at industry events like the Munich auto show this week.
In Australia, Chinese automakers have passed South Korean rivals in sales, and are catching up with Japanese competitors. China has also expanded exports quickly to Mexico and Britain, and is beginning to increase shipments to Belgium and Spain, which have important car-unloading ports that serve as a gateway to other European Union countries.”
- And this shows up in a variety of mind-boggling ways:
“Chinese automakers like BYD and Chery, and the European and Singaporean shipping lines that transport cars for them, have placed almost all of the orders now pending worldwide for 170 car-carrying vessels. Before China’s auto export boom, only four a year were being ordered, said Daniel Nash, head of vehicle carriers at VesselsValue, a London shipping data firm.
The incentive to build more ships is clear. The cost per day for an automaker to hire a car-carrying ship has soared to $105,000, from $16,000 two years ago, Mr. Nash said. BYD is spending close to $100 million apiece for the construction of what will be the six largest car carriers ever built. Most of the vessels are scheduled for completion in the next three years.”