Freeman H. Shen, Founder, Chairman & CEO of WM Motor, speaks throughout Fireplace Chat on Day 2 of CNBC East Tech West at LN Backyard Lodge Nansha Guangzhou on November 28, 2018 in Nansha, Guangzhou, China.
Dave Zhong/Getty Pictures for CNBC Worldwide
BEIJING — Covid-related restrictions have elevated manufacturing prices for Chinese language 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.
“Including all this stuff collectively, this business is a fast-growing business, however the associated fee a part of the equation can also be going to be a problem,” Shen, additionally founder and chairman of WM Motor, mentioned Wednesday.
Gross sales of latest vitality automobiles — which embrace battery-only and hybrid-powered automobiles — greater than doubled final yr in China, the world’s largest car market. The nation has turn out to be a hotbed for electrical automotive start-ups and a launch pad for a lot of conventional auto giants making the shift to electrical.
China shortly managed the native unfold of the coronavirus in 2020 by imposing swift lockdowns on cities and neighborhoods. However 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 influence is already being felt by factories. A Chinese language ministry overseeing manufacturing mentioned this month the lockdowns can be a drag on industrial production in the first quarter.
Shen laid out the influence 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.
- Inside China, after Covid instances emerged in Nanjing, one among WM Motor’s battery cell suppliers stopped deliveries.
- In the previous couple of months, related 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 this stuff had been killing us,” Shen advised CNBC.
Automakers world wide 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 mentioned he expects the chip scarcity to enhance within the second half of this yr, primarily based on conversations together with his start-up’s 11 chip suppliers.
Nonetheless, he pointed to a different looming drawback that might worsen: Rising raw materials costs for batteries.
Battery-grade lithium carbonate costs had been up greater than 500% year-on-year as of earlier this month, in line with S&P International Platts. The agency’s survey of business insiders launched this week discovered that 80% of respondents count on these lithium costs to stay excessive this yr — about 4 instances larger than the beginning of 2021.
The battery scarcity will doubtless worsen as demand for electrical automobiles in China picks up within the second quarter, Shen mentioned. For 2022, he expects electrical automotive gross sales within the nation to almost double from final yr to about 5 million automobiles.
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 mentioned it delivered a quarterly file of 15,114 automobiles within the final three months of 2021, bringing cumulative deliveries to 88,686 for the reason that start-up handed over its first automotive to a buyer in 2018.
One of many causes the pandemic disrupted the availability chain is that factories have traditionally used a longstanding Japanese mannequin of “just-in-time” or lean manufacturing, through which factories solely buy elements as wanted to cut back prices and improve effectivity, Shen identified.
However now, the technique is altering.
“In an effort to ensure you can ship your automotive, you in all probability will begin considering: We’ve to waste a few of our cash to maintain some inventory,” he mentioned. “For a automotive firm, the most important loss can be shedding the gross sales to your buyer.”
A 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 equivalent to in parking, Shen mentioned.
He mentioned the corporate might want to increase costs to deal with rising prices, as others within the business have already got.
For one, Tesla raised the worth for its Mannequin 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 worth.
Economists say China’s Covid-related journey restrictions have an effect on shopper spending greater than factories.
Cities ceaselessly change Covid testing necessities for journey, whereas flights and prepare tickets can get cancelled primarily based on newly reported Covid instances.
These restrictions have additionally affected WM Motor, Shen mentioned. The corporate 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 mentioned the corporate has had to make use of extra applied sciences like digital actuality and augmented actuality to assist staff and prospects talk regardless of journey restrictions.
“We’ve to make use of this type 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 typically can not even get issues completed,” Shen mentioned.
Requested if he had any IPO plans, Shen mentioned there was no information to announce on the itemizing entrance, and cited the urgent supply points.
“Clearly folks had quite a lot of expectation, our investor had quite a lot of expectation, however we’re very busy today to ship our product,” he mentioned. “Hopefully we are able to get one thing to announce within the close to future.”