Henry Xia jumps into the burnt toast-colored electric car he helped build as co-founder of Xpeng Motors Technology Ltd. and commands it to play Green Day’s “21 Guns.” He asks the car about traffic conditions and starts driving. The 35-year-old is the most senior car executive at a Chinese automaker that hasn’t delivered a single vehicle, doesn’t own a factory and hasn’t obtained a production license from the government. At least, not yet.

What the four-year-old startup has is backing from tech giants Alibaba Group Holding Ltd., Foxconn Technology Group and Xiaomi Corp. founder Lei Jun. Xpeng expects to raise more than $600 million this month from investors that include Alibaba, valuing it close to $4 billion, according to a person familiar with the fundraising.

In a test drive of Xpeng’s first crossover around a drab cement office park in Guangzhou, the roomy SUV drives smoothly, with a Tesla-like panoramic windshield and sleek exterior. But it’s the voice controls, streaming music, live video, driver-tracking maps and other software that reveal the auto ambitions of the company’s Chinese tech backers. Xpeng is making the equivalent of a smartphone with a steering wheel.

Xia explains why the company nicknamed this car David: “We’re going up against Goliath,” he says, referring to the hundreds of automakers churning out electric vehicles in China, where half of the world’s EVs are sold. “It’s not about the physical car anymore, which anyone can now manufacture,” Xia says, “but about building a robot on wheels.”

Xpeng is primed to capitalize on a trade tussle that is already jacking up car prices. As China hits back against the U.S. with retaliatory tariffs, import duties on American-made cars have increased to 40 percent. But perhaps the bigger opportunity comes from Tesla Inc.’s still-diminutive presence in China, creating an opening for local startups to hawk cheaper, technology-centric electric vehicles.

Tesla reached a preliminary agreement last week with the Shanghai government to build China’s first car-production facility wholly owned by a foreign automaker. Tesla expects car production to start within two years of starting construction and to churn out 500,000 cars per year in China two to three years after that.

It won’t be easy: Tesla’s made lofty promises before, only to delay plans. It will also have to clear hard-to-navigate government approvals and obtain permits. With just $2.7 billion in cash, Tesla must absorb what Bloomberg Intelligence estimates to be a $10 billion cost to build the plant and hasn’t specified where it will get the money.

“Tesla is running out of time,” says John Zeng, managing director of LMC Automotive Shanghai. He estimates that the American automaker sold fewer than 15,000 cars in China last year, claiming just 3 percent of the battery-powered market. In total, 25 million cars were sold in China last year.

Finding capital is less of a concern for the local startups trying to outrun Elon Musk. China’s government is offering financial and political support for electric-vehicle companies as it attempts to lead the world in the field, fueling the rise of Xpeng and hundreds of other rivals. President Xi Jinping pledges to open markets and curtail protectionism, even as he lavishes assistance on domestic makers of electric cars, artificial intelligence and semiconductors. China’s electric-car buyers get price subsidies of as much as $10,000 per vehicle, for example, and can also dodge license plate restrictions that impede sales of gasoline-powered cars.

That support, combined with ample cash from China’s tech leaders and the comparative ease of building EVs instead of traditional cars, has seeded a crop of startups competing with such established automakers as BYD Co., Beijing Automotive Group Co. and Zhejiang Geely Holding Group Co.

Published Date:2018-07-17