China’s Tesla battles for survival after huge losses


The company’s reversal of fortune shows mounting concerns for China’s electric-vehicle bubble
Newsfeed23 Sep 2019
Photo credit: AFP Photo


Market news selected by the DBS Chief Investment Office

MAINLAND CHINA & HONG KONG

It took Tesla Inc about 15 years to rack up USD5b in losses. The company known as China’s Tesla did it in four.

The bleeding continues. Shanghai-based NIO Inc is poised to report Tuesday (24 September) that it lost another CNY2.6b (USD369m) — around USD4m a day — during the second quarter, according to analysts’ estimates. That would bring accumulated losses at the company, which is backed by technology giant Tencent Holdings Ltd, to about USD5.7b since William Li founded the carmaker in 2014.

Cost overruns, weak sales, and major recalls have led NIO to plunge 74% since its market value hit a record USD11.9b about a year ago. More broadly, the company’s reversal of fortune illustrates why concerns are mounting that China created an electric-vehicle (EV) bubble that may be about to burst.

Total EV sales in China, where half of the world’s electric cars are sold, fell for the first time in July after the government scaled back subsidies. Deliveries dropped again in August, raising doubts that one of the final pillars of strength in China’s broader auto market, which has fallen 14 out of the past 15 months, is wavering.

China has gradually scaled back subsidies for new energy vehicles — all-electric, fuel-celled autos, and plugin hybrids — since 2017 to help the industry stand on its own two feet and avoid a bubble.

At NIO, pressure is building for it to raise more funds. The carmaker is seeking to reduce its workforce by 14% to 7,500 by the end of the month, according to the company. Incidents involving batteries catching fire or spewing smoke forced NIO to recall about 4,800 vehicles – more than 20% of all the cars it has ever sold. Second-quarter deliveries dropped from the preceding three-month period. – Bloomberg News.

The Shanghai Composite Index jumped 0.24% to 3,006.45 on Friday and the Hang Seng Index fell 0.13% to 26,435.67.

REST OF ASIA

India will decide on reviewing its fiscal gap target nearer to the next budget in February after announcing a USD20b tax cut stimulus for companies last week (ended 20 September), Finance Minister Nirmala Sitharaman said.

“At this point of time we are not revising any target,” Sitharaman said in a press briefing on Sunday in New Delhi. “The decision will be taken later.”

India will also decide on extra market borrowing later in the year, she said. No decision has been taken on cutting personal income tax rates, Sitharaman said.

The surprise decision to lower corporate taxes has raised concerns about India’s fiscal discipline. Tax cuts by the Indian government for companies will invariably lead to higher central and general government fiscal deficits, absent equivalent revenue generating measures, according to S&P Global Ratings.

Sovereign bonds declined Friday (20 September) after the announcement. The benchmark 10-year bond yield climbed 15 bps, the most for the notes since January, to 6.79%. Stocks surged along with the rupee. – Bloomberg News.

Australia’s S&P/ASX 200 Index was little changed at 6,730.80 at the open on Monday. It upped 0.20% to 6,730.75 the previous session.

South Korea’s Kospi Index rose 0.08% to 2,082.09 early Friday. It added 0.54% to 2,091.52 the previous session.

The Taiwan Stock Exchange Weighted Index (Taiex) increased 0.32% to 10,929.69 on Friday.


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