Freeman H. Shen, Founder, Chairman & CEO of WM Motor, speaks throughout Fireside Chat on Day 2 of CNBC East Tech West at LN Garden Hotel Nansha Guangzhou on November 28, 2018 in Nansha, Guangzhou, China.
Dave Zhong/Getty Images for CNBC International
BEIJING — Covid-related restrictions have elevated manufacturing prices for Chinese electrical automotive start-up WM Motor, at the same time as present chip and battery shortages are driving up prices, CEO Freeman Shen advised CNBC.
“Adding all these items collectively, this trade is a fast-growing trade, however the fee a part of the equation can also be going to be a problem,” Shen, additionally founder and chairman of WM Motor, stated Wednesday.
Sales of latest vitality autos — which embrace battery-only and hybrid-powered automobiles — greater than doubled final yr in China, the world’s largest vehicle market. The nation has change into a hotbed for electrical automotive start-ups and a launch pad for a lot of conventional auto giants making the shift to electrical.
China rapidly managed the native unfold of the coronavirus in 2020 by imposing swift lockdowns on cities and neighborhoods. But after the emergence of the extremely transmissible omicron variant, some analysts began to query whether the costs of the zero-Covid policy now outweigh the benefits.
The affect is already being felt by factories. A Chinese ministry overseeing manufacturing stated this month the lockdowns can be a drag on industrial production in the first quarter.
Shen laid out the affect of Covid-related restrictions on his start-up:
- A chip producer in Malaysia had manufacturing issues and stopped delivering to Bosch China, which then stopped delivering to WM Motor.
- Within China, after Covid circumstances emerged in Nanjing, considered one of WM Motor’s battery cell suppliers stopped deliveries.
- In the previous few months, comparable disruptions affected two of the corporate’s suppliers within the Shangyu district of Shaoxing metropolis, close to Hangzhou.
- Covid-related restrictions on the Ningbo port space additionally stopped supply from three suppliers there.
“So, all these items have been killing us,” Shen advised CNBC.
Automakers all over the world have cut production due to a shortage of semiconductors. Geopolitical tensions and overwhelming demand for chips within the wake of the pandemic contributed to a shortfall in provide that has lasted for greater than a yr.
Shen stated he expects the chip scarcity to enhance within the second half of this yr, based mostly on conversations along with his start-up’s 11 chip suppliers.
Electric automotive battery scarcity
However, he pointed to a different looming drawback that might worsen: Rising raw materials costs for batteries.
Battery-grade lithium carbonate prices have been up greater than 500% year-on-year as of earlier this month, in accordance with S&P Global Platts. The agency’s survey of trade insiders launched this week discovered that 80% of respondents count on these lithium prices to stay excessive this yr — about 4 occasions larger than the beginning of 2021.
The battery scarcity will probably worsen as demand for electrical automobiles in China picks up within the second quarter, Shen stated. For 2022, he expects electrical automotive gross sales within the nation to just about double from final yr to about 5 million autos.
The surge in electrical automotive gross sales comes regardless of an general decline in passenger automotive gross sales within the final a number of months as China’s consumer spending slumped.
WM Motor stated it delivered a quarterly document of 15,114 autos within the final three months of 2021, bringing cumulative deliveries to 88,686 because the start-up handed over its first automotive to a buyer in 2018.
Reassessing a Japanese manufacturing mannequin
One of the explanations the pandemic disrupted the provision chain is that factories have traditionally used a longstanding Japanese mannequin of “just-in-time” or lean manufacturing, during which factories solely buy components as wanted to cut back prices and enhance effectivity, Shen identified.
But now, the technique is altering.
“In order to be sure you can ship your automotive, you most likely will begin pondering: We must waste a few of our cash to maintain some inventory,” he stated. “For a automotive firm, the largest loss can be dropping the gross sales to your buyer.”
Part of WM Motor’s gross sales technique is to work with property builders to open check drive websites in additional residential neighborhoods, whereas increase the automobiles’ autonomous driving capabilities similar to in parking, Shen stated.
He stated the corporate might want to increase prices to deal with rising prices, as others within the trade have already got.
For one, Tesla raised the worth for its Model Y in China by 21,088 yuan ($3,300) in December to 301,840 yuan ($47,450), after subsidies. WM Motor’s automobiles are about half that value.
Travel restrictions have an effect on enterprise
Economists say China’s Covid-related journey restrictions have an effect on shopper spending greater than factories.
Cities continuously change Covid testing necessities for journey, whereas flights and prepare tickets can get cancelled based mostly on newly reported Covid circumstances.
These restrictions have additionally affected WM Motor, Shen stated. The firm has analysis and growth, manufacturing unit and different business-side operations in Shanghai, Chengdu, Zhejiang province and Hubei province, along with about 500 brick-and-mortar shops throughout the nation.
He stated the corporate has had to make use of extra applied sciences like digital actuality and augmented actuality to assist workers and clients talk regardless of journey restrictions.
“We have to make use of this sort of know-how, as a result of if not, the person expertise goes to be horrible, and the effectivity goes to be very unhealthy. And we generally can not even get issues completed,” Shen stated.
Asked if he had any IPO plans, Shen stated there was no information to announce on the itemizing entrance, and cited the urgent supply points.
“Obviously folks had a whole lot of expectation, our investor had a whole lot of expectation, however we are very busy lately to ship our product,” he stated. “Hopefully we will get one thing to announce within the close to future.”