China’s Covid lockdown rules are sending prices higher, says Chinese EV start-up – CNBC

January 31, 2022 by No Comments

Freeman H. Shen, Founder, Chairman & CEO of WM Motor, speaks during 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 increased production costs for Chinese electric car start-up WM Motor, even as existing chip and battery shortages are driving up costs, CEO Freeman Shen told CNBC.

“Adding all these things together, this industry is a fast-growing industry, but the cost part of the equation is also going to be a challenge,” Shen, also founder and chairman of WM Motor, said Wednesday.

Sales of new energy vehicles — which include battery-only and hybrid-powered cars — more than doubled last year in China, the world’s largest automobile market. The country has become a hotbed for electric car start-ups and a launch pad for many traditional auto giants making the shift to electric.

China quickly controlled the local spread of the coronavirus in 2020 by imposing swift lockdowns on cities and neighborhoods. But after the emergence of the highly transmissible omicron variant, some analysts started to question whether the costs of the zero-Covid policy now outweigh the benefits.

The impact is already being felt by factories. A Chinese ministry overseeing manufacturing said this month the lockdowns would be a drag on industrial production in the first quarter.

Shen laid out the impact of Covid-related restrictions on his start-up:

  • A chip manufacturer in Malaysia had production problems and stopped delivering to Bosch China, which then stopped delivering to WM Motor.
  • Within China, after Covid cases emerged in Nanjing, one of WM Motor’s battery cell suppliers stopped deliveries.
  • In the last few months, similar disruptions affected two of the company’s suppliers in the Shangyu district of Shaoxing city, near Hangzhou.
  • Covid-related restrictions on the Ningbo port area also stopped delivery from three suppliers there.

“So, all these things were killing us,” Shen told CNBC.

Automakers around the world have cut production due to a shortage of semiconductors. Geopolitical tensions and overwhelming demand for chips in the wake of the pandemic contributed to a shortfall in supply that has lasted for more than a year.

Shen said he expects the chip shortage to improve in the second half of this year, based on conversations with his start-up’s 11 chip suppliers.

Electric car battery shortage

However, he pointed to another looming problem that could get worse: Rising raw materials costs for batteries.

Battery-grade lithium carbonate prices were up more than 500% year-on-year as of earlier this month, according to S&P Global Platts. The firm’s survey of industry insiders released this week found that 80% of respondents expect those lithium prices to remain high this year — about four times higher than the start of 2021.

The battery shortage will likely worsen as demand for electric cars in China picks up in the second quarter, Shen said. For 2022, he expects electric car sales in the country to nearly double from last year to about 5 million vehicles.

An electric WM Motor car is seen inside a shopping mall in downtown Shanghai, China, April 26, 2021.

Costfoto/Barcroft Media | Future Publishing | Getty Images

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Source: https://www.cnbc.com/2022/01/31/ev-start-up-wm-motor-chinas-covid-lockdown-rules-send-prices-higher.html

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