SHANGHAI -- In China's auto industry, a cash crunch used to be limited to smaller players such as Hawtai Motor and Youngman Automobile. But with the new-vehicle market stuck in a downturn since July 2018, the problem has spread like a plague to include a wide swath of automakers.
BAIC Yinxiang Automobile Co., a light-vehicle subsidiary of state-owned automaker BAIC Motor Group, suspended production for much of the second half of 2018 after sales plunged and cash flow dried up.
Since September, BAIC Yinxiang employees, suppliers and dealers have repeatedly convened at the company’s headquarters in the southwest China municipality of Chongqing, and in front of BAIC’s office in Beijing, demanding overdue wages and payments.
The local government in Chongqing has weighed in and is in talks with BAIC about how to rescue BAIC Yinxiang but nothing has materialized.
Shanghai-based Qoros Automotive Co. is also facing cash woes.
In December 2017, private Chinese conglomerate Baoneng Investment Group acquired 51 percent of Qoros from its two shareholders -- state-owned domestic auto manufacturer Chery Automobile Co. and Singaporean investment company Kenon Holdings.
But the deal failed to stem Qoros’ losses: The company’s new-vehicle sales began falling in mid-2018. In the first three quarters of 2018, Qoros lost nearly 1.4 billion yuan ($203 million) on limited sales, according to Kenon.
Qoros has also had difficulty paying dealers and suppliers.
At the Shanghai auto show in April, a group of Qoros’ dealers demonstrated with banners in front of its booth, condemning the carmaker for failing to honor payment obligations.
While cash shortages have materialized at only a small number of traditional vehicle makers, they are more prevalent among electric vehicle startups in China.
Jia Yueting, founder of online video stream service provider Leshi, fled to the United States in 2017 after his newly established EV making subsidiary ran out of cash and accumulated a huge amount of debt in China.
Since then, dozens of EV startups have sprouted up across China with their founders dreaming of becoming the next Tesla.
But reality is brutal. Because of the huge capital outlays required for manufacturing, more than 10 of the EV startups face cash squeezes of varying degrees, according to the 21st Century Business Herald.
They include Changjiang, Enovate, Bordrin, Qiantu, Reech, Singulato, Zhidou and Hanteng, the Shanghai business newspaper reported this week.
The general consensus in China’s EV sector is that a startup needs to burn through least 20 billion yuan from the date of incorporation to the launch of mass production.
But these companies have raised only a small portion of that amount. With cash low, the EV startups are also struggling to pay suppliers as well as employees, according to the newspaper.
China’s economic growth slowed to 6.3 percent in the first half from 6.6 percent in 2018. Because of the slowing economy, the new-vehicle market, which has contracted for 12 straight months, is widely expected to keep shrinking the rest of the year.
And as Beijing phases out subsidies for electrified vehicles, cash-strapped automakers and EV startups face a bumpy near future.
