Few sectors illustrate the split between East and West more starkly than the electric car world.
In the United States, screaming headlines highlight Elon Musk's latest tweets, as he risks the wrath of regulators by revealing plans for a $70 billion privatisation — neatly switching attention away from production woes on the new Model S.
In China the hype is all about the billions of dollars the country's carmakers hope to raise to fund their ambitions. One manufacturer, NIO, this week filed for a $1.8 billion US IPO.
As one side finds its engine overheating, the other is putting its foot to the funding accelerator. And while the Chinese startups share one thing with Tesla — the ability to burn through vast piles of cash — there is at least plenty of dry powder at home for them to tap.
While NIO's founder, William Li, has frequently told media that building his company to mass-production scale will cost Rmb20 billion ($2.9 billion), Chinese rival XPeng expects its investors to be even more forthcoming.
On Wednesday, Brian Gu, vice chairman and president of the Guangzhou-based electric car maker said he aimed to take XPeng’s aggregated fundraising to Rmb30 billion at the end of 2019.
The carmaker is seeking funding from three sources – private equity, debt and alternative financing such as hedge funds and mutual funds – of which “each could support over Rmb10 billion potentially”, Gu told FinanceAsia.
Gu, who arrived at XPeng from JP Morgan , says the fundraising target covers the period from his joining the company on March 1 to the end of 2019. The company had raised about Rmb6 billion before his arrival.
FUNDING FASTER THAN RUNNING
Gu has already made a positive start. This month, XPeng disclosed its Rmb4 billion series B+ round, bringing aggregated fundraising to Rmb10 billion since its establishment in 2014.
It took the start-up four years to get its first Rmb10 billion, and now has less than 18 months to raise its second and third Rmb10 billion.
However, it may not be mission impossible: Chinese electric car start-ups have had few problems in early-stage fundraising.
Another Chinese electric vehicle brand Dearcc, easily outpaced Tesla, raising Rmb2 billion ($294 million) in its pre-A round within three years of establishment. It took Tesla five years to raise $275 million in its series A-E equity rounds and debt financing. NIO raised more than $2.1 billion in its series B-D rounds between September 2015 and November 2017.
XPeng also makes no secret of its ambition. Founder He Xiaopeng said in the firm’s 2017 annual internal note that he had strong faith XPeng’s all-star “pengyouquan”. The Mandarin phrase means cricle of friends and in this case refers to its investors – which include Alibaba, Foxconn, GGV Capital and IDG Capital.
No one doubts Chinese electric car start-ups’ impressive fundraising capability. But no one can tell when investors will lose patience with these carmakers’ high cash-burning pace and low production efficiency.
Chinese carmakers not only share the goal of raising more capital and ultimately listing offshore, they also share the dilemma of being far away from mass production.
XPeng won’t be able to deliver its first product, the G3, until the end of this year, while NIO has delivered approximately 500 units of its ES8 since late June, still 9,500 short of its target of 10,000 deliveries by the end of this year.
For NIO, production is likely to be subject to increased scrutiny as it lists in the US. When Tesla finally hit its target of producing 7,000 Model S per week, its critics — including short-sellers — took delight in pointing out that its weekly output only matched what Ford can produce in four hours.
In an emerging sector like electric vehicles, it is easy to weave a good story, but so difficult to identify a true innovator. Just like He Xiaopeng himself said in the internal note – quoting Apple's Tim Cook, it's “easy to say, hard to do".
The industry’s growth momentum is unstoppable, but at least investors should be able to set the funding pace.
