WM Motors, one of China’s emerging electric vehicle (EV) manufacturing start-ups, filed for bankruptcy on October 10. The startup struggled to survive amid a cut in subsidies and an increasingly price-sensitive market.
China remains the world leader in EV sales, making up for nearly 56 percent of global sales during the first quarter of 2023, according to a report by Counterpoint Research.
Global passenger EV sales in Q1 2023 rose 32 percent YoY. Battery EVs (BEVs) accounted for 73 percent of all EV sales during the quarter, while plug-in hybrid EVs (PHEVs) made up the rest, according to the report.
Also Read: Chinese EV startup WM Motor files for bankruptcy
How WM boomed
WM Motors was founded in 2015 by Freeman Shen and managed to get tech giant Baidu, Tencent, Hong Kong tycoon Richard Li’s PCCW, the late Macau gambling magnate Stanley Ho’s Shun Tak Holdings and investment firm Hongshan among its early investors.
Much like its other competitors, WM Motors benefited from China’s dominance over the long and complex battery supply chain ecosystem.
As of 2023 China is the world leader in clean cars, producing around six million EVs and plug-in hybrids last year, or almost one in every three new cars sold domestically.
China also has the most extensive EV charging infrastructure on Earth — also built with government support, according to a report by Bloomberg.
At the manufacturers' end, China introduced a credit system that rewarded automakers for producing EVs and penalised the manufacturing of high fuel-consumption cars.
Additionally, efforts by the Chinese government to increase the adoption of EVs through a subsidy scheme also boosted the company's growth.
The scheme provided rebates of $8,400 per vehicle purchased along with the imposition of a restriction on the ownership of gasoline cars in several major cities.
Also Read: Lessons for India from China’s EV strategy
What caused the bankruptcy
As WM Motors filed for bankruptcy, the company cited an operational dilemma in recent years due to the pandemic's impact, capital market sluggishness, large price swings in raw materials and setbacks in gaining capital needed for operations and development.
The company's annual losses doubled to $1.13 billion by 2021, according to its stock prospectus released in June 2022 for a planned Hong Kong IPO.
At its peak during 2019-2021, WM Motor's car sales were 12,799, 21,937, and 44,152 respectively, according to its prospectuses for Hong Kong listing.
The company had been publishing monthly sales figures till 2020. However, after 2021 the company stopped publishing the figures as its sales declined.
On December 24, 2022 some local media outlets reported that a number of WM Motor's stores in Shanghai had closed and were down from around 20 to 12.
Also Read: What is driving Chinese EV exports and their price competitiveness?
Price Sensitivity
Many of WM's rivals such as BYD, NIO, Xpeng, Volkswagen, BMW, Mercedes-Benz, Nissan, Honda and Toyota reduced their vehicle prices by a couple of hundred dollars to tens of thousands of dollars in February and March, earlier in 2023.
Commenting on the price war, research analyst Abhik Mukherjee told Bloomberg about Tesla's role in triggering the price cut.
"Tesla slashed prices for its models globally in January, following which other automotive brands announced similar cuts for their car models starting in February, which led to an improvement in EV sales," Mukherjee said.
Subsidy slash
The subsidies which boosted China's footing in the world as an EV destination were slashed in 2019. It is speculated that a possible reason for the cut was that many EV manufacturers started ride-hailing companies as an easy way to absorb their growing inventories of EVs that weren’t being bought by the public, a 2021 Fitch Ratings report stated.
A report by the official People’s Daily in 2016 cited estimates that dozens of companies had fraudulently claimed more than $1.3 billion in subsidies.
Failed international bid
Earlier this year in September US-listed second-hand car dealer Kaixin Auto Holdings had announced a non-binding acquisition term sheet with the troubled EV maker.
The deal came after WM Motor's backdoor listing through a reverse takeover with Hong Kong-listed Apollo Future Mobility fell through. The failed deal was seen as a survival move after two previous fruitless attempts by WM Motor to seek a listing in Shanghai's STAR Market and Hong Kong.
Even with subsidies off the table and an ensuing price war, EV sales are expected to reach over 14.5 million units by the end of 2023, with China making up a huge part of the market, according to Counterpoint Research's report.
Xpeng and Nio, two young Chinese EV makers, have already kicked off their international expansion in Europe. BYD, the battery and hybrid vehicle-making giant, is establishing a footprint for its consumer vehicles in virtually every fast-growing market and major economy.
Zeekr, the EV subsidiary under China’s biggest private automaker Geely, has announced plans for Western Europe and Central Asia, with signs to test the water in the US as well.
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