2020 promises to be a breakout year for homemade smart electric cars

A recent online post by He Xiaopeng, founder of Xpeng Motors, a Chinese electronic car startup, became a talking point among netizens in general and auto buffs in particular.

On "Moments", an interactive feature on communication app WeChat, He wrote that 2020 is to smart cars what 2010 was to smartphones－the takeoff year.

"Whether from the perspective of sales volume or the capital market's interest, 2020 marks the first year of smart cars."

His view pretty much reflects the auto industry's take on future trends: Personal vehicles will get increasingly smart and electric this year onward. Rising sales of new energy vehicles suggest the tipping point may be nigh.

In the second quarter of this year, Tesla Inc, the US electric car giant, delivered more than 90,000 cars to customers globally. Nio, a Chinese electric car startup, sold over 10,000 units from April to June. Li Auto, another Chinese player, also delivered more than 10,000 electric cars to consumers over a six-month period.

On Aug 25, Tesla's China unit started taking bookings for its made-in-China Model Y. Production of two versions of the Model Y will start next year at the earliest and will likely retail for 488,000 yuan ($70,600) and 535,000 yuan respectively.

Nio said it expects to sell 11,000 to 11,500 vehicles in the third quarter of this year. If the estimate pans out, it will mark an increase of 6.5 percent to 11.3 percent from the second quarter.

WM Motor, another Chinese electric car startup, sold 2,036 vehicles in July, almost double the figure in the same month last year. The company saw its sales grow for five months in a row to July-end.

The capital market also showed strong interest in new energy carmakers. Xpeng made its debut on the New York Stock Exchange in late August.

Xpeng's move came shortly after Li Auto made its debut on the Nasdaq Stock Market in July, raising $1.1 billion from its IPO.

Investors' enthusiasm for new energy vehicle makers correlates to the automobile sector's gradual and significant transformation in recent times.

Ultra-modern car production lines, deepening traction of electric cars, expanding EV-related infrastructure like charging piles, unconventional sales channels and firsthand smart interactive experiences of the latest automobile models that prospective consumers enjoy these days thanks to digital technologies… all these factors have made the auto sector a darling of investors, experts said.

Chinese electric car brands may be lagging their foreign counterparts such as Tesla at present, but they will likely sizzle and sparkle over the next decade in the global auto market, just as Chinese smartphone labels such as Huawei, Xiaomi, Oppo, Vivo, OnePlus and Realme have grown rapidly globally to give the Apples and the Samsungs a run for their money.

Chinese consumers' growing enthusiasm for new, tech-enabled automobile experiences, coupled with auto companies' constant push to integrate cutting-edge technologies into cars, and favorable government policies are all creating the perfect ecosystem for the electric vehicle industry in the country, they said.

Fu Bingfeng, secretary-general of the China Association of Automobile Manufacturers, said three factors can fuel the transformation of the automobile sector: technological advancements, government policies and consumption.

"When it comes to the trend of cars getting increasingly intelligent, consumption has played a big part. But consumers' enthusiasm is not directly related to the automobile sector. It is driven by the popularity of smartphones," Fu said.

According to him, smartphones have shaped modern consumer habits like using internet-enabled smart services. Such consumer preferences are informing car-buyers' decisions these days, particularly in China, given the booming mobile internet industry in a nation that boasts the world's largest number of netizens.

China's pioneering role in the rollout of 5G infrastructure could help even domestic car companies. The latter can use latest telecom technologies to test their smart cars, thus intensifying car-buyers' desire for new experiences, said Xiang Ligang, director-general of the Information Consumption Alliance, a telecom industry association.

According to a research report from McKinsey& Co, a global management consulting firm, Chinese consumers it surveyed showed a willingness to pay as much as an extra $4,600 as premium in order to be among the first buyers of driverless vehicles. For perspective: their counterparts in the United States and Germany were willing to pay an extra $3,900 and $2,900, respectively.

China will become the world's largest market for autonomous vehicles, with revenue from sales of such new cars and mobility services expected to exceed $500 billion by 2030, McKinsey & Co has forecast.

Thomas Fang, a partner in the China office of Roland Berger, a global consulting firm, also said that from now on, Chinese consumers are more likely to choose electric cars as their first cars than those in other markets.

China's favorable government policies have also contributed to electric vehicles being seen as the future of the domestic auto market, displacing traditional cars powered by carbon-based fuels.

For instance, the central government has recently extended subsidies to eligible new energy vehicles, both foreign and domestic ones, until 2022. As well, such vehicles will remain exempt from purchase taxes for another two years.

Xin Guobin, vice-minister of industry and information technology, said in July that China is speeding up the promulgation of the sector's development plan, which will span the period from 2021 to 2035.

Xin said the plan has been submitted to the State Council, China's Cabinet, for approval. According to a draft plan released in 2019, China aims to be a globally leading country in terms of new energy vehicle-related technologies. New energy vehicles are expected to account for 25 percent of vehicle sales by 2025.

The lack of long history in making combustion engines, once considered a big obstacle to the development of the domestic automobile industry, could well prove a blessing in disguise as China seeks to wrest lead in the global electric vehicle industry.

Kurt Sievers, CEO of NXP Semiconductors, the world's top chip manufacturer for the auto industry, said in an earlier interview with China Daily that "without a legacy of combustion engines, China will be at the forefront of electrification of the car.

"The number of electronics per car, for instance, the use of radar technologies, is growing rapidly. China is going to see strong growth (in this aspect) in the next few years.

"Chinese companies have a head start in electric cars. Automakers with high-value brands and Chinese flavors will conquer the world."

Chinese electric car brands are also constantly experimenting with new technological solutions to boost the development of electric vehicles. One example is the battery swap mode, which was promoted by Chinese carmakers including BJEV and Nio.

Data from the Ministry of Industry and Information Technology showed that China had 449 battery swap stations by the end of June. Battery swapping will help extend the life of batteries, enhance safety and lower costs for electric car buyers, the companies said.

At BJEV's battery swap stations, vehicles can get their empty batteries replaced by fully-charged ones within 90 seconds.

As this year marks a watershed for the country's electric car startups established in the past five years, some Chinese electric car players stand out from a crowd of competitors. Some have managed to mass-produce electric cars; others, despite much hype, have been squeezed out of the fiercely competitive market.

For instance, Nio, established in 2014, saw its first-ever positive cash flow from operations in the second quarter this year, said William Li, its founder and CEO.

According to Nio's financial statements, its gross margin was 8.4 percent in the quarter, and gross profit was $44.3 million. In the same period last year, Nio recorded a loss of $72.5 million.

"The opportunity for China to grow from a big car market into an automotive power lies in the new energy vehicle segment," said Freeman Shen, founder and CEO of WM Motor.