The Fast and the Financed: China’s Well-Funded Auto Startups Race to Overtake Tesla

NIO Founder and Chairman William Li launches the ES8 in Beijing on Saturday.

Backed by billions from influential investors and armed with global talent, over a dozen Chinese startups want to make dinosaurs of incumbent auto makers. As they start production, their determination is raising the pressure to innovate at traditional auto makers.
“Tesla paved the way, now we’re taking this a step further,” said Padmasree Warrior, who runs the U.S. arm of Shanghai-based NIO, one of the Chinese startups that want to drive the convergence of the automotive and technology industries. “We have a mission to transform mobility.”
Tesla Inc. disrupted the automobile industry a decade ago with its shift to electric vehicles. The next phase, automakers are targeting is poised to turn cars into “iPads on wheels,” said Michael Dunne, managing director of Hong Kong-based consultancy Dunne Automotive.
Chinese auto startups—many of them founded just two or three years ago—are betting they can leapfrog existing auto makers in creating a new world of electric, networked cars that drive themselves. But they must make enough of a splash at a time when some of the game-changing technologies they advocate, notably self-driving software, are still in the testing lab.
NIO launched its first production car—the ES8 sport-utility vehicle—in Beijing on Saturday, having raised $1 billion last month in a funding round led by social-media giant Tencent Holdings Ltd. Baidu Inc., which dominates Chinese internet search, is another investor.
NIO Chairman William Li presents the ES8 as a rival for Tesla’s Model X.
During the launch event, the ES8, which responds to voice commands and has limited self-driving capability, reverse-parked itself into a battery-swapping facility which can switch the car’s battery pack in under three minutes, enabling it to match gasoline cars for convenience, claimed Mr. Li. The battery can also be fully charged in one hour, and gives the car a 220-mile range.
The ES8 starts at around $68,000 before subsidies, while Tesla’s Model X, which is subject to import tariffs and is ineligible for subsidies in China, costs roughly twice that here. Mr. Li said the ES8, which is now on presale, is expected to be with buyers in the first half of 2018.
Most Chinese auto startups aim to launch in China in 2018 and expect to tackle the U.S. and Europe by around 2020. But their window of opportunity may be narrow; Tesla has confirmed plans to build a factory in Shanghai, which is likely to start producing cars in around 2021, and most traditional auto makers, both Chinese and foreign, have committed to producing electric vehicles and are experimenting with autonomous technology and in-car internet services.
In a sign of the changing times in the auto business, Ford Motor ’sExecutive Chairman Bill Ford said at a news conference in Shanghai in December that the century-old auto maker was transforming itself into a “mobility company, designing smart vehicles for a smart world.” Ford is in talks with Alibaba Group Holding , China’s dominant e-commerce company, to develop advanced mobility services, while Volkswagen is holding discussions with Didi Chuxing Technology Co., the local equivalent of Uber, to design new service models.
Despite such developments, the startups believe they can tap growth in China’s premium and electric-car segments—Tesla’s turf—and outshine incumbents with radically innovative products.
That means following the Tesla playbook by coming to market with a killer brand, said Mr. Dunne. But Tesla has “the aura of Elon Musk standing behind the product,” he said, “and that’s really hard to match.”
Like many Chinese technology companies and auto startups, NIO has an operation in California, with over 300 employees developing autonomous driving and other critical software. The company’s trawl for global talent netted experienced tech professionals like Ms. Warrior, a former chief technology officer at both Cisco Systems Inc. and Motorola Inc. who also serves on the board of Microsoft Corp.
Rivals to NIO are making similar strides. Byton, which is run by ex- BMW and Nissan executives, opened a new California base in December, having recruited former Tesla and Apple staffers to run its team there. Like NIO, Byton plans to develop software in the U.S. but manufacture in China in time for a 2019 launch.
NEVS, a Sino-Swedish venture which acquired the assets of bankrupt Swedish auto maker Saab in 2012, started production on an electric version of the Saab 9-3 in Tianjin in December. A spokesman said NEVS isn’t aiming to sell its cars to ordinary consumers, but to platform operators such as Didi Chuxing, which like Uber and other ride-share companies may develop fleets in a future less focused on private cars.
Another contender, WM Motor, also backed by Baidu and Tencent and run by former Geely Auto executives, finished building a plant in eastern China in September and plans to start production in early 2018. WM—or “Weltmeister”— aims to offer a drastically cheaper alternative to both Tesla or NIO, with mass-market EVs for under $30,000.
In the expensive business of auto development, many of these newcomers will fall by the wayside, cautioned Mr. Dunne.
Some have already hit trouble. Overextended Chinese multimedia conglomerate LeEco’s ongoing cash crunch was caused in part by a costly foray into electric-vehicle production, and its financial woes have also hit Faraday Future, a U.S. EV start-up backed by LeEco founder Jia Yueting, which has abandoned plans for a $1 billion plant in Nevada.

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