Handshake | Xpeng’s new ‘war chest’ and EV innovation

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China’s electric vehicle (EV) market has seen a four-month slump in deliveries since purchase subsidies were slashed over the summer. The move has left the industry reeling, while startups battle for funds and investors become increasingly wary.

“The whole industry obviously has seen a significant slowdown after the subsidy cuts,” Brian Gu, Xpeng president and vice-chairman told TechNode at TechCrunch Shenzhen this month.

EV subsidies are expected to decrease by a further 50% next year, and completely disappear in two years. The Chinese government has sought to counter automakers’ reliance on the subsidies to sell their vehicles, hoping the reduction will force these companies to innovate.

Despite mounting troubles in the industry, Xpeng recently closed its $400 million Series C. “We need a war chest to tackle the Chinese consumer market in order to build up our brand,” Gu said. “We have a lot of things planned, and we see this capital as being instrumental in achieving these goals.”

Founded in 2014, Xpeng is one of the few EV makers in China that has begun delivering vehicles. The company launched its first car, the G3 SUV, in 2018, subsequently releasing an enhanced version with a longer driving range. Xpeng also plans to begin deliveries of its P7 sedan in the second quarter of 2020.

Meanwhile, rival Chines companies Nio and Byton have struggled to secure new funds amid a macro-economic slowdown and flagging auto market. Nio has yet to finalize a RMB 10 billion ($1.42 billion) deal with Beijing E-T0wn, a state-backed capital fund, that the company announced in May.

Gu believes that the government’s investment in charging infrastructure and a focus on innovation will help the industry reach an “inflection point,” where EVs become more competitive than gas-driven cars.

“We would like to see the industry become more product-focused, competing on product merit rather than just subsidy levels,” he said.

With contributions from Chris Udemans