Chinese EV startup WM Motor files for bankruptcy as price competition heats up
Just last week, we wrote about Lucid Motors following a report that the electric vehicle startup lost $338,000 for every electric vehicle sold. This news was a big blow to the company, which has been struggling to stay afloat after it laid off about 1,300 employees, or roughly 18% of its total workforce. However, Lucid’s woes are not unique in the world of electric vehicle startups.
Over in China, the electric vehicle startup WM Motor officially filed for bankruptcy in a Shanghai court. Reuters reported, citing a filing dated Monday on the National Enterprise bankruptcy information disclosure platform. The bankruptcy news marks the downfall of a once-promising standout among China’s electric vehicle manufacturers. It’s a stark reminder of the fierce price competition unfolding in the world’s largest automobile market.
“WM Motor’s planned reorganization will introduce strategic investors from across the globe to achieve its rebirth,” the company said in a statement posted on its official Weibo account on Tuesday.
In recent years, the EV startup has found itself ensnared in a web of operational challenges. The pandemic’s far-reaching effects, the sluggishness of the capital market, volatile swings in raw material prices, and difficulties in securing the necessary funding for both operations and development have collectively compounded their woes.
Back in September, Kaixin Auto Holdings, a U.S.-listed second-hand car dealer announced a non-binding acquisition term sheet with the beleaguered EV manufacturer.
The deal came on the heels of WM Motor’s thwarted attempt to achieve a backdoor listing through a reverse takeover with Apollo Future Mobility, a Hong Kong-listed entity. The failed deal was viewed as a critical survival maneuver, particularly in the wake of two previous unsuccessful endeavors by WM Motor to secure a listing on Shanghai’s STAR Market and in Hong Kong.
Founded in 2015 by automotive veteran Freeman Shen, WM Motor was once positioned as a rising star in the realm of Chinese electric vehicle startups, sharing the stage with prominent names like Nio, Li Auto, and XPeng. Notable backers included the Chinese tech giant Baidu and Shanghai’s state-owned asset regulator.
However, despite the promise, this Shanghai-based startup grappled with the challenge of turning a profit in the capital-intensive automotive sector. According to its stock prospectus released in June 2022 for a planned Hong Kong IPO, WM Motor saw its annual losses double to a substantial 8.2 billion yuan ($1.13 billion) over the three-year period leading up to 2021.
China’s passenger vehicle sales exhibited a glimmer of hope in August, marking a return to growth on a year-on-year basis. This positive trend came after a string of losses since May, driven by deeper discounts and tax incentives for environmentally friendly vehicles that boosted consumer sentiment.
Nevertheless, lingering concerns persist regarding consumer spending on high-value items such as automobiles, particularly against the backdrop of an uncertain post-COVID economic recovery.
The electric vehicle industry is undeniably facing challenging times. In the United States, for example, the EV market is grappling with a confluence of issues, including price reductions and a surge in inventories, as highlighted in another Reuters report.
In an attempt to stimulate demand, Tesla, one of the industry leaders, rolled out an array of discounts and incentive programs in July, including a novel customer referral initiative that was introduced just last week. The repercussions of these price cuts, along with the reactions of rival companies, have collectively driven down the average selling prices of electric vehicles for the second quarter. These prices have tumbled by 19.5%, dropping from a peak of $66,390 in June 2022 to the current average of $53,438.
This price war isn’t merely impacting startups like Lucid; it’s sending shockwaves throughout the industry and affecting even the behemoths of the automotive world. In May, auto blog site Electrek quoted remarks made by Tesla owner Elon Musk, who predicted that some EV companies would go bankrupt within 12 months:
“It’s going to be a challenging 12 months. I want to be realistic about this. Tesla is not immune to the global economic environment. The macroeconomics levels are going to be difficult for the next 12 months,” Electrek wrote, citing Musk’s statement at Tesla’s annual shareholder’s meeting.