Evergrande’s EV troubles reflect BYD’s squeeze of Chinese rivals

Chinese electric-vehicle makers appear to be taking over the world. The reality is more that BYD is powering ahead of a large number of sputtering domestic competitors.

Take China Evergrande New Energy Vehicle Group. Its billionaire founder in 2019 pledged to overtake Tesla as the world’s biggest electric-car maker in just five years. The big talk was backed up by plans to invest $7bn.

The company on Monday said that its vice-chair Liu Yongzhuo had been detained and was under criminal investigation, adding to concerns about whether it would be able to find an investor to help inject funding. Earlier this month, plans lapsed for Dubai-headquartered mobility product company NWTN to acquire new shares of Evergrande NEV for about $500mn.

The unit’s troubles are more bad news for its struggling parent, China Evergrande, with more than $300bn of debt: it had been regarded as one of the last-resort options to secure cash amid the property group’s liquidity crunch. 

On its own, the EV unit’s prospects look grim. It had ambitions of making 1mn cars by 2025 but, instead, last year sold about 900 units of the Hengchi 5, its only EV model on the market. Its shares are down 99 per cent from the 2021 peak, in line with declines in shares of parent China Evergrande and subsidiary Evergrande Property Services Group. 

But the market backdrop is that the success of BYD, which sold a record 526,000 battery-only cars in the last quarter of 2023, helping it to overtake Tesla globally, is squeezing local rivals just as much as the US and European auto names alarmed by these new upstarts.

True, combined sales by Chinese EV makers hit a fresh record last year. But there are about 100 EV makers in China. The vast majority, including some of the largest such as Nio and Xpeng, remain lossmaking as price wars squeeze margins. Tesla’s enduring popularity among locals has made it difficult for Chinese makers not to compete on price. Tesla has offered several rounds of price cuts in China last year.

Evergrande, clearly, has its own particular issues. But it is notable how little $7bn gets you in China’s EV wars: the EV unit’s combined net loss of almost $10bn for 2021 and 2022 highlights how costly it has become for EV makers to build the scale needed to get to break-even point.

The outlook is not so different for other EV rivals, given BYD’s dominance in the local market.

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