Chinese Auto Industry Accelerates Restructuring... Series of Bankruptcies and Liquidations

Chidian Car Files for Bankruptcy and Liquidation
Chinese Version of Tesla Also Falls

China's previously fragmented automobile companies are undergoing rapid restructuring. Due to recent sluggish consumer demand and ongoing price competition in the industry, this situation is expected to continue for the time being.

According to Chinese economic media Caixin on the 23rd, Chidian Automobile (Singulato Motors), established in 2014, has been liquidated after bankruptcy. Although it announced in April 2018 that it would launch its first model, the is6, it failed to mass-produce the vehicle due to funding issues.

The debut was spectacular. Between 2016 and 2018, the market experienced a boom thanks to active government support and investor inflows, attracting industry talent. At that time, factory establishments were announced in Tongling City, Anhui Province; Xiangcheng District, Suzhou City, Jiangsu Province; and Zhuzhou City, Hunan Province, with a declared capital raise of 17 billion yuan (approximately 3.099 trillion KRW). Subsequently, it seemed to be thriving by signing technology sales contracts with major companies such as Toyota.

However, the actual funds raised amounted to only 5 billion yuan. Compared to the cumulative capital raised during the production of first models by new car manufacturers, this was grossly insufficient. For example, Weilai Automobile (NIO) raised 14 billion yuan, WM Motor raised 13.7 billion yuan, and Xiaopeng Motors exceeded 9 billion yuan.

Following this, wage arrears and debt problems accumulated, leading to employee departures starting in 2019, and the management failed to resolve the situation. The affiliated Anhui Chidian Automobile also entered bankruptcy proceedings on June 30 and is now facing liquidation.

Restructuring is underway across the industry. Previously dubbed the "Tesla of China," the electric vehicle startup Byton has also shut down. Creditors Nanjing Kun'ao Automobile Service and Shanghai Huaxun Network filed for bankruptcy against Byton's parent company, Nanjing Zhixing New Energy Vehicle Technology Development, in court.

At its founding in 2016, Byton attracted attention in the market with investments from CATL, China's largest battery manufacturer, and Tencent, the country's largest big tech company. However, like Chidian Automobile, delays in mass production of its first model, wage arrears, and postponed payments for materials have brought it to the brink of bankruptcy.

Recently, due to sluggish consumer demand in China, sales of high-priced durable goods such as automobiles and home appliances have slowed, prompting the industry to enter full-scale price competition. Starting with Tesla, companies are competitively lowering prices or launching discount promotions, resulting in a chicken game scenario. Small companies and startups find it increasingly difficult to survive.

In particular, the growth rate of electric vehicle sales, the industry's main focus, is slowing down. According to the China Association of Automobile Manufacturers (CAAM), electric vehicle sales in the first half of this year increased by 32% compared to the previous year, but the growth rate has significantly declined compared to last year's 109%.

Korean company Hyundai Motor is reorganizing its China business, following the sale of its Beijing Plant 1 in 2021 and recently proceeding with the sale of its Chongqing plant. On the 11th, Beijing Hyundai listed the land use rights, equipment, and other facilities of the Chongqing plant for sale at 3.68 billion yuan. Hyundai sold 273,000 vehicles in China last year. Its market share was in the 1% range, with an annual operating loss reaching 800 billion KRW. The company plans to improve profitability by reducing the number of models sold from 13 to 8 and selling additional plants.