Freeman H. Shen, Founder, President & CEO of WM Motor, speaking during CNBC East Tech West’s Fireside Talk Day 2 at LN Garden Hotel Nansha Guangzhou on November 28, 2018 in Nansha, Guangzhou, China.
Dave Zhong / Getty Images for CNBC International
BEIJING – Vivid-related restrictions have raised production costs for Chinese electric car startup WM Motor, even as current chip and battery shortages are driving up costs, CEO Freeman Shen told CNBC.
“Adding all of this together, the industry is a fast-growing industry, but the cost part of the equation will also be a challenge,” said Shen, who is also the founder and president of WM Motor. know on Wednesday.
Sales of new energy vehicles – including battery-powered and hybrid vehicles – more than doubled last year in China, the world’s largest auto market. The country has become a hotbed for electric car startups and a launch pad for many traditional auto giants to switch to electric.
China quickly controlled the local spread of the coronavirus in 2020 by imposing rapid lockdown measures on cities and surrounding areas. But after the emergence of the highly infectious omicron variant, some analysts began to question whether the costs of the existing zero-Covid policy outweigh the benefits.
The impact was felt by the plants. A Chinese manufacturing watchdog said this month the shutdowns will be a followed by industrial production in the first quarter.
Shen laid out the impact of Covid-related restrictions on his startup:
- A chip maker in Malaysia had a production problem and stopped shipping to Bosch China, which then stopped distribution to WM Motor.
- In China, after the Covid incident in Nanjing, one of WM Motor’s battery suppliers stopped delivering.
- In the past few months, similar disruptions affected two of the company’s suppliers in the Shaoxing city’s Shangyu district, near Hangzhou.
- Covid-related restrictions on the Ningbo port area have also stopped deliveries from three suppliers there.
“So all of this stuff killed us,” Shen told CNBC.
Automobile manufacturers around the world have production cuts due to lack of semiconductors. Geopolitical tensions and overwhelming demand for chips after the pandemic have contributed to a supply shortage that has persisted for more than a year.
Shen said he expects chip shortages to improve in the second half of this year, based on conversations with his startup’s 11 chip suppliers.
Lack of electric car battery
However, he points to another problem that could get worse: Increase the cost of raw materials for batteries.
According to S&P Global Platts, the price of lithium carbonate batteries has increased more than 500% year-on-year. The company’s survey of industry insiders released this week found that 80% of respondents expect lithium prices to remain high this year – about four times higher than in early 2021.
The battery shortage is likely to worsen as demand for electric cars in China picks up in the second quarter, Shen said. In 2022, he expects electric car sales in the country to nearly double from last year to around 5 million vehicles.
Electric vehicle sales spiked despite a decline in overall passenger car sales over the past few months due to China’s consumer spending declines.
WM Motor says it delivered a quarterly record of 15,114 vehicles in the last three months of 2021, bringing cumulative deliveries to 88,686 vehicles since the company began delivering its first vehicle to customers in 2018. .
Re-evaluate the Japanese production model
One of the reasons the pandemic has disrupted supply chains is that factories have long used Japan’s lean or “just in time” production model, in which factories only buy parts when needed to reduce costs and increase efficiency, Shen pointed out.
But now, the strategy is changing.
“To make sure you can deliver the car to yourself, you might start thinking: We have to waste some of our money keeping some of the goods,” he says. “For a car company, the biggest loss will be the loss of sales to your customers.”
Part of WM Motor’s sales strategy, Shen said, is to work with real estate developers to open test-drive locations in more residential areas, while building the autopilot capabilities of cars. like in the parking lot.
He said the company will need to raise prices to cope with rising costs, as others in the industry have.
First, Tesla raised the price of its Model Y in China by 21,088 yuan ($3,300) in December to 301,840 yuan ($47,450), after subsidies. WM Motor’s car is half the price.
Travel restrictions affect business
Economists say China’s Covid-related travel restrictions hit consumer spending more than factories.
Cities regularly change Covid testing requirements for travel, while flights and train tickets may be canceled based on newly reported Covid cases.
Shen said these restrictions have also affected WM Motor. The company has research and development, factories and other business operations in Shanghai, Chengdu, Zhejiang province and Hubei province, in addition to about 500 brick-and-mortar stores around the country.
He said the company had to use more technologies like virtual and augmented reality to help employees and customers communicate despite travel restrictions.
“We have to use this kind of technology, because otherwise the user experience will be terrible and the efficiency will be terrible. And sometimes we can’t even get the job done,” Shen said.
When asked if he has any IPO plans, Shen said there was no news to announce on the listing front and cited pressing delivery issues.
“Obviously people have high expectations, our developers expect a lot, but these days we are very busy delivering our products,” he said. “Hopefully we can get something to announce in the near future.”
