AUTOMOTIVE BUSINESS Corona Crisis: These automotive players are broke
Chinese electric vehicle startup Byton is the latest auto industry firm to be on the verge of bankruptcy due to the coronavirus pandemic. It joins Lifan Motors and Zotye, among others, that have been hurt by the global condition.
As the coronavirus pandemic continues to ravage much of the world, the toll it’s taken on the auto industry has become clearer. Supply chain interruptions, labor shortages and absenteeism, dealer closures, adoption of remote working, and a depressed and/or uncertain economic outlook have all impacted auto production.
Although the industry has demonstrated remarkable resilience (a predicted shift toward shared mobility has been postponed and even reversed in many cases), many observers are predicting that auto sales in the United States and Europe will not return to pre-pandemic levels until 2023 at the earliest, while China’s recovery has been more rapid, and the world’s most populous nation is on track to sell 30 million new vehicles annually by 2025. Nonetheless, many of the firms hit particularly hard by the pandemic have been Chinese, as shown by the examples below.
Chinese electric vehicle (EV) startup Byton fell victim to the pandemic and now seems to be teetering on the edge of bankruptcy, even as the country of its headquarters—China—for the most part appears to be recovered from the virus and indeed, has gone back to “business-as-usual” in most cases, especially in terms of manufacturing and the economy.
Until 2020, Byton appeared to be on a fast track for success in the world of EVs, as it made a splashy debut at the 2018 Consumer Electronics Show (CES) in Las Vegas as well as at other high-profile events, such as the 2018 Asia CES in Shanghai and the 2019 Internationale Automobil-Ausstellung (IAA) exhibition in Frankfurt. Auto industry websites and journals fawned over the firm’s slick M-Byte prototype electric SUV, with its industry-leading, 48-inch ultrawide cockpit display and flashy exterior crafted by Byton design director Benoît Jacob, formerly chief designer at BMW.
In fact, a fair number of Byton’s executives hailed from Germany, including co-founder and CEO Daniel Kirchert, who was formerly the senior vice-president of sales and marketing for BMW in China; head of marketing Henrik Wenders, who’d been BMW’s Vice President of Product Management; and Chief Customer Officer Andreas Schaaf, who was a vice president of Cadillac in China and previously had been BMW’s director of market development for the Asia-Pacific region. Beyond its operations in China, which were located first in Hong Kong, and then in Nanjing, Byton had set up a design and development center in Munich and had hired a staff of 70 to run it. The company had also established an R&D office in the United States in Santa Clara, California, with almost 500 engineers.
Along the way, Byton had struck a deal with Chinese automaker FAW Group (which was also an investor in Byton, along with Chinese conglomerates Baidu, Foxconn, and Tencent) to manufacture the firm’s avant-garde EVs. Byton had announced the M-Byte and had indicated another vehicle, the K-Byte sedan, was already well-advanced in the development pipeline. As of early 2020, Byton had taken 60,000 pre-orders for the M-Byte in China and had stated that sales in Europe and the U.S. were imminent.
But for Byton, the pandemic proved to have catastrophic timing, as the company was forced to postpone manufacturing, furlough personnel (about half the staff in its U.S. offices were let go, while employees in the company’s Munich office were given dramatically shortened work hours), and put plans for new dealerships and self-branded store-showrooms on hold just as the venture was supposed to be taking off. As the pandemic raged through China in early 2020, some of Byton’s luckier, better-positioned, and more substantially financed rivals (including Xpeng Motors and NIO) were able to see hard-won sales gains at Byton’s expense.
In June 2020, Byton announced it was suspending most of its operations, but the company still seemed to be making moves to regroup. The stunning success and meteoric stock rise of Tesla in the last year may have given Byton and its investors hope that a rising tide of EV purchases could lift many boats in the industry, even though several other EV firms such as the U.S.’s Faraday Future—a competitor of both Byton and Tesla—indicated they were having troubles in financing, development, and/or manufacturing. (For the record, Byton’s co-founder and former CEO Carston Breitfeld became the chief executive of Faraday Future in 2019.)
From a financial perspective, Byton acquired a new majority owner, Nanjing Shengteng Automobile Technology, in September 2020. Perhaps in reaction to this, Byton’s other co-founder and newer CEO Daniel Kirchert stepped down from the company in October 2020. As of January 2021, there were tentative plans for investor Foxconn to inject USD200 million into the ailing company amid reports that Kirchert had fled to Hong Kong and was avoiding a warrant for his arrest in Germany related to his former company not declaring bankruptcy. The lease for Byton’s Munich office has reportedly not been paid for months, and scores of employees have also complained about not receiving paychecks and benefits. In the meantime, Benoît Jacob, Henrik Wenders, and Andreas Schaaf have all exited the company.
Separately from Byton, another victim of the coronavirus pandemic has been China’s Lifan Motors. Lifan had been struggling with lawsuits, debts, and obsolete product lines even before the pandemic, but in 2020, it was reportedly able to sell less than 1,000 vehicles, compared with 13,200 in 2019 and 158,000 in 2012.
The Russian market had been a significant source of sales for the company (some Lifan models were assembled there), and the fallout of Lifan’s troubles could produce difficulties in terms of repair and warranty service for Russian Lifan owners, who drive some 50,000 of the firm’s vehicles on the nation’s roads daily.
Company founder Yin Mingshan was highly regarded as a pioneering Chinese entrepreneur—as one of the country’s first billionaires, he’d once been the richest man in Chongqing—but more recently, his businesses had slumped. In August 2020, it was rumored that Lifan Motors’ parent company had filed for bankruptcy and was in talks to sell itself to China’s Geely Group. By October, the parent organization was strenuously denying such rumors, but there was no doubt the firm was facing extreme difficulties and was negotiating with Chinese government authorities for debt relief.
iZotye/Tech New Group
Besides Byton and Lifan Motors, Tech New Group, the parent firm of relatively new Chinese automaker Zotye, declared bankruptcy in December 2020. Established in 2005, Zotye first began by selling auto parts, but soon advanced to assembling complete cars for sale in at least 10 countries. Over the years, the firm acquired an unsavory reputation for imitating the models of luxury car brands such as Porsche (Zotye’s SR9 crossover SUV, which bears much resemblance to the Porsche Macan, is priced at roughly one-fifth the cost of the upscale vehicle it purports to be “influenced by”).
The coronavirus pandemic caused a huge (roughly USD112 million) drop in sales for Zotye, which represented 80 % of its parent company’s revenue. Tech New Group reported a deficit of USD1.7 billion and told the bankruptcy court that it is insolvent. Zotye’s auto production had been mothballed for months, and its future is currently unclear.
Ford shutters manufacturing plants in Brazil
American automaker Ford has announced it will cease auto production at its Camaçari, Troller, and Taubaté plants in Brazil for 2021, as the “COVID-19 pandemic amplifies persistent industry idle capacity and slow sales that have resulted in years of significant losses.” Ford will continue to maintain a product development center in Bahia and its regional headquarters and a proving ground in São Paulo, as well as operations in Argentina, which will serve the South American market.
“With more than a century in South America and Brazil, we know these are very difficult but necessary actions to create a healthy and sustainable business,” stated Jim Farley, Ford president and CEO. “We're moving to a lean, asset-light business model by ceasing production in Brazil and serving customers with some of the best and most exciting vehicles in our global portfolio. We will also accelerate bringing our customers the benefits of connectivity, electrification, and autonomous technologies to efficiently address the need for cleaner and safer vehicles well into the future.”
“Our dedicated South America team made significant progress in turning around our operations, including phasing-out unprofitable products and exiting the heavy truck business,” said Lyle Watters, President of Ford South America and the International Markets Group. “In addition to reducing costs across the business, we launched the Ranger Storm, Territory, and Escape [models] and introduced innovative services for our customers. While these efforts improved results over the past four quarters, the sustained unfavorable economic environment and the additional burden of the pandemic made it clear that much more was necessary to create a sustainable and profitable future.”
Indonesia and Philippines auto sales decline
Both Indonesia and the Philippines have seen large drops in year-over-year sales from 2019 to 2020, with Indonesia reporting a stunning 41 % decline in November sales from the previous year, while sales in the Philippines were down by nearly 33 %. Both countries are among the economically worst-hit in Asia from the pandemic.