Startups in China’s electric vehicle industry are bucking the winter of venture finance. According to data from research firm Preqin, the auto sector has received the most funding so far this year, with more than 147 agreements totaling US$5.95 billion, despite the fact that the country is leading a global decline in venture capital investment. Batteries and semiconductors, two further high-growth areas in the new-energy vehicle chain, were in fourth and fifth position, respectively. A large portion of that money has gone into EVs. While fundraising for once-hot industries like internet enterprises, education, and real estate has gone off a cliff, all three have closed more deals than they did last year.
The largest transactions this year, according to Preqin, included Changjiang Capital’s US$1.57 billion investment in a high-end electric car startup founded by Renault China CEO Soh Weiming and a US$1.17 billion Series A round for Sunwoda’s EV battery unit, which was supported by investors like Shenzhen Capital Group and National Green Development Fund Management.
The EV market is pretty much the only one that is doing incredibly well, according to Jochen Siebert, managing director at JSC Automotive. It’s the last game you can play in town for the time being. Ample state backing, including capital investment in addition to tax advantages and affordable financing, is what’s causing the surge.
Legacy manufacturers’ EV brands, like GAC’s Aion, SAIC’s IM Motors, and Dongfeng’s Voyah, have all received funding in the hundreds of millions. Hozon Auto, a local upstart that sells more reasonably priced electric automobiles to rural areas and smaller cities, received nearly CNY3 billion (US$420 million) in a Series D financing in July in preparation for a Hong Kong IPO.
The sector has remained strong because provincial and municipal governments have acquired minority ownership in EV companies, frequently through investment funds sponsored by local governments rather than through direct holdings, counteracting the decline in international venture capital and global investors. Consider the top five EV startups in the nation, which combined sold 465,300 vehicles from January to September 2022; all of them, according corporate records, had local governments as minor investors.
The Hubei and Shenzhen governments, respectively, have funded funds run by Changjiang Capital and Shenzhen Capital Group, the names behind some of the biggest acquisitions this year. Recently, Leapmotor and CALB, two significant EV-related IPOs, received support from local governments like Changzhou as well as state-owned companies like Shanghai Electric Group. their objective? to achieve the same level of success as Hefei, an eastern Chinese city whose 17% share in Nio generated returns of up to 5.5 times the capital invested.
Ren Zeping, a former economist at the Development Research Center, which is under the control of the Chinese cabinet, said at an investment conference in Changzhou at the end of last year that not investing in the electric vehicle value chain at the moment is equivalent to not buying a home twenty years ago. Ren addressed the delegates, which included the head of CALB and the city’s top Communist Party officials, saying, “It’s the chance of a century.”
Even though there have been more EV-related transactions signed this year than in previous years, their overall value has decreased despite a few record-breaking rounds, and JSC’s Siebert cautions that funding may become more difficult as economic realities set in.
There is currently ample money in China, but this will quickly run out when the country enters a balance-sheet recession, he predicted. It still might be profitable, but only for the time being.
