Chinese EV Startup WM Files for Bankruptcy
The promising Chinese electric vehicle startup WM Motor (a.k.a. Weltmeister) has declared bankruptcy.
In a document filed in a Shanghai court this Monday, a copy of which was obtained by CleanTechnica, WM Motor indicated that it has grappled with operational issues in recent years. It said in a statement on its Weibo page that production and sales did not sufficiently cover expenses, reverse losses, and service its debts.
Chinese automotive industry experts say that the company’s financial problems were attributed to a number of factors, including intense competition in the Chinese EV market, rising costs, and supply chain disruptions, as well as the repercussions of the pandemic, and fluctuations in the market. EV startups often steeply hurdle securing the capital necessary for operations and growth.
There are an estimated 200 electric vehicle (EV) manufacturers in China in 2023. This is direct result of the Chinese government’s goal of having 25% of all new car sales be electric by 2025. The market is so large that several electric vehicle manufacturers are starting to falter due to escalating price wars led by the large makers like SAIC and BYD.
A report from Globe Newswire indicated that in September this year, U.S.-listed second-hand car dealer Kaixin Auto Holdings proposed a non-binding acquisition term sheet with WM Motor, aiming to aid the beleaguered electric vehicle manufacturer. As per the company’s stock prospectus released in June 2022 for a planned Hong Kong IPO, WM Motor’s annual losses surged to 8.2 billion yuan ($1.13 billion) over the three years leading up to 2021.
This move came after WM Motor’s earlier attempt at a backdoor listing through a reverse takeover with Hong Kong-listed Apollo Future Mobility fell through. The unsuccessful listing endeavors in Shanghai’s STAR Market and Hong Kong were perceived as last-ditch efforts for the company.
As early as 2020, auto experts in China predicted that due to the pandemic, niche market EV makers were going to slow down or fold up. Big players are able to command prices via volume, with some models subsidizing others. Smaller ones cannot.
In the 4th quarter of last year, Freeman Shen, CEO of the Shanghai-based WM Motors, announced drastic spending cuts via an internal company letter. Salaries of managers were cut by 50% and other employees by 30%. Bonuses have also been canceled and “the next payday has been postponed.”
Shen attributed the company’s troubles to COVID, the market downturn, supply chain challenges, and a sharp rise in raw material costs. He wrote to employees, “I hope you all understand, and together we can survive the winter.”
The company was losing money very early on, according to a November 2022 report by Barry van Wyk in The China Project, because of product defects that led to explosions and fires.
“But in 2020, Weltmeister’s cars started exploding. In October of that year, Weltmeister recalled some of its vehicles due to a problem with spontaneous combustion, which the company attributed to faults in the battery production process. Chinese business news website 36kr counted at least 10 incidents of spontaneous combustion involving Weltmeister cars from 2020 onward.” Van Wyk reported.
The company’s financial troubles are also a reflection of the broader challenges facing the Chinese EV industry. The market is slowing down and automakers are struggling to cope with rising costs.
Industry experts in China are confident, however, that WM Motor will be able to find a way to reorganize and emerge from bankruptcy. The company has a number of strengths, including a strong brand and a loyal customer base.
WM Motor was founded in 2015 by Shen, a former executive at Geely and Volvo. It was initially viewed as an emerging star among Chinese electric vehicle startups, boasting of prominent backers such as internet monopoly Baidu, tech giant Tencent, and a Shanghai’s state-owned asset regulator. It is also one of the few Chinese EV startups that has developed its own battery and electric powertrain technologies.
It launched its first production car, the EX5, in 2018. Since then, the company has released several other EV models, including the EX6, W5, W6, and W8, and has sold over 100,000 vehicles.
The company also opened its niche export markets including Israel, the United Arab Emirates, South America, and in the Philippines. Before the bankruptcy announcement it was poised to enter Thailand and Indonesia. It also is reported that it made indent sales to Germany and Spain.
The bankruptcy of WM Motor highlights the challenges that Chinese EV startups face. In a market that is highly focused and increasingly monopolized, competitive price wars make it difficult for startups to gain market share. Many startups are grappling with rising costs and supply chain disruptions.
Despite the challenges, the Chinese EV market is still expected to grow rapidly in the coming years.
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