China’s EV Bubble Bursts: Xiaomi and Evergrande Grapple with Bankruptcy Threats

This is a view of an EV company located in Hangzhou, Zhejiang Province. Recently, it closed due to bankruptcy. The factory building has been auctioned but is far from being sold. /Meijingji News Agency.

We can look at the recent crisis that companies have faced to see if this is the case. Recent reports from various media outlets, including the National Business Daily and Xiaomi, which ambitiously launched last month, are leading the pack. Its SU7, released at the end of last month, seemed to be the show’s star, but it is now mired in crisis mere days after its release.

According to industry insiders, Xiaomi’s situation still seems fine. However, the media reports say otherwise. Above all, the safety of the SU7, which could negatively impact the company’s survival, is a significant issue. Several minor accidents have occurred, prompting scrutiny over the vehicle’s design and manufacturing standards. While Xiaomi attributes these incidents to driver error, doubts linger.

The stark reality of mass reservation cancellations following the initial hype surrounding the SU7’s launch underscores the severity of the situation. As of the afternoon of the 8th, an estimated 50,000 orders had been canceled, and this number is expected to increase as time goes by. Substantial quality issues are plaguing the product.

Despite all this, it has been revealed that Xiaomi’s factory production capacity is inadequate. Rumors suggest it can only produce 10,000 units annually at best, falling far short of the demand generated by hundreds of thousands of orders. To put it a bit harshly, Xiaomi might have cheated consumers and the market, where trust is vital, potentially precipitating Xiaomi’s downfall. No law says it won’t be pushed into bankruptcy in the worst-case scenario.

The situation of HengChi, the EV subsidiary of the real estate development company Evergrande, known as the world’s biggest debtor, is also shocking. The operating loss recorded over the past five years, without proper business operations, is estimated to exceed 110 billion yuan ($17.2 billion). There’s a reason why NWTN, a Chinese venture investment company headquartered in the United Arab Emirates, officially announced its investment withdrawal earlier this month. When we look at the situation of the parent company, it would be strange if it continues to roll.

The reality faced by promising company WEIMA once considered one of the four great EV companies, is also miserable. While it hasn’t formally declared bankruptcy, the situation is dire, with founder Hui Sun reportedly fleeing overseas last year, further complicating matters.

Countless EV companies in China have gone bankrupt or are at risk of bankruptcy. Some companies go bankrupt as soon as they are founded. It seems that the market is full of bubbles. Shouldn’t the authorities pay attention and prepare appropriate measures for the bankruptcy domino effect?