Chinese automakers hit by cash crunch on steady downturn in China’s new vehicle market for last four quarters

Continuous downturn in China’s new vehicle market for last four quarters has created cash crunch for a number of automakers, a report from Automotive News China says.

BAIC Yinxiang Automobile Co., a subsidiary of state-owned automaker BAIC Motor Group, suspended major part of production for H2 2018 due to sales drop and lack of cash flow. The company is struggling with overdue wages and payments.  The local government in Chongqing has been in talks with BAIC to rescue BAIC Yinxiang but nothing has materialized.

Shanghai-based Qoros Automotive Co., a public private concern is also facing cash crunch. The company’s new-vehicle sales began falling in mid-2018 and the company lost nearly 1.4 billion yuan ($203 million) in the first three quarters of 2018 on plunging sales. The dealers of the company are pressurising the company for payments.

Cash shortages are now showing up more among electric vehicle startups in China.  

Dozens of EV startups have come up across China with a dream of becoming the next Tesla, supported by government subsidies. However, according to the 21st Century Business Herald, more than 10 of the EV startups are facing cash squeezes due to the huge capital cost required.

Some of such startups are Changjiang, Enovate, Bordrin, Qiantu, Reech, Singulato, Zhidou and Hanteng, the Shanghai business newspaper reported this week.

An EV startup in China needs to burn through least 20 billion yuan from the date of incorporation to the launch of mass production.  However, most of these companies started with a small investment and are now struggling to pay suppliers as well as employees, according to the newspaper

China’s economic growth slowed to 6.3 per cent in the first half from 6.6 per cent in 2018. The new-vehicle market, which has shrunk for 12 consecutive months, is expected to stay weak for the rest of the year. In absence of government subsidies for electrified vehicles cash-starving automakers and EV startups are not likely to see brighter days in 2019.