Dahua has started a new "intelligent" car subsidiary, even as its current electric vehicle startup struggles with lower-than-expected sales, negative media coverage, and a crashing PRC car market.
Dahua's first move into the electric cars was in 2015 when it founded Leap Motor, which has raised hundreds of millions of dollars ($290 million as we reported in December 2018 and an additional $51 million last August).
By starting another car company Dahua is investing more in this sector, despite its significant difference from video surveillance. In this note, we examine this move and what it means for Dahua, including:
Official AnnouncementIntelligent Car FocusLeap Motor Struggling With SalesFinances Lead to Negative CoverageLeap Motor's Other ProblemsBroader Market IssuesLeap Motor No ResponseConclusion: Distraction For Dahua?
On February 25, Dahua issued an announcement that it was setting up a new company called Zhejiang Dahua Automotive Technology Limited (浙 江大华汽车技术有限公司).
The incorporation capital is $21 million (150 million RMB), 51% of which comes from Dahua itself and 20% from Leap Motor - Dahua's existing electric vehicle startup. The rest of the company is owned by a local car firm and an investment firm.
Leadership details remain unknown but Dahua Automotive Technology will have 3 members on the board of directors: two appointed by Dahua and one by Leap Motor.
Focused On Intelligent Vehicles
Dahua Automotive Technology is meant to help Dahua expand its smart car and transportation solutions, with the announcement listing a wide (and vague) array of specialties including:
Leap Motor Struggling With Sales
Dahua's current electric vehicle startup, Leap Motor, is struggling, having sold only one-tenth of the cars it initially promised: in November 2018, Leap Motor said it would sell 10,000 units of its flagship car model (the S01) in 2019, but ended up only selling 914 units from January-November 2019.
Finances Lead to Negative Media Coverage
Leap recorded $17 million in sales versus $80 million in losses in 2019, per the Dahua Automotive Technology announcement. As an early stage car startup, Leap is expected to lose money for years but it is also expected to deliver sales growth which it is struggling to do.
However, Leap's financial situation did result in negative media coverage last year, with one outlet reporting rumors that Leap was "suffering serious losses", a claim Leap responded to by saying "we don't spend money arbitrarily and cost controls are better."
Such reports aside, IPVM could not find any specific numbers regarding how much investor money Leap has left and whether it will need to raise more money soon, a perennial concern for the capital-intensive car sector. (Leap didn't respond to our requests for comment).
Shut Downs In Middle Of the Road
In November 2019, a Leap Motor car shut down in the middle of the road for 10-20 minutes after a driver tried to do a software upgrade as he was driving. Leap Motor claimed this was not a malfunction, as its cars cannot perform updates while driving. If that is the case, Leap Motor should not have allowed it to be even attempted. Moreover, the exact same problem happened to Chinese EV manufacturer NIO months before in January 2019, giving Leap time to prepare for such a situation.
Depending On 3rd Party Manufacturing
The main manufacturing process for Leap Motor is done by a separate manufacturer, Changjiang EV, which reportedly suffered production issues of its own last year such as unpaid wages, resulting in delays and cancelled orders for Leap cars. When questioned about this, Leap Motor said this bottleneck would be "resolved by the end of August ". Still, depending on a third party for manufacturing is a risk.
'Awkward' Market Position
Leap Motor has an "awkward" market position, one PRC car news outlet reports, stating that its S01 model (pictured below) is priced lower (about $15,000) and has less features than other coupé-style cars, which are typically upmarket: "the S01 can be said to be a cheap coupé, which has limited branding power".
Broader Market Issues
There are also broader issues that Leap Motor cannot control, notably:
China's car sales have dropped 80% due to the ongoing coronavirus pandemic, which has also drastically lowered oil prices, reducing the appeal of electric vehicles.The PRC now has a very crowded domestic EV sector with more than 400 firms, with one auto executive predicting in May that 80% of them will go under.Even before the coronavirus, China's EV companies were grappling with "tepid" demand and funding shortfalls after government subsidies were slashed, the FT reports. China's largest EV maker, BYD, saw sales fall 7.4% in 2019. Another large EV manufacturer, NIO, has seen its stock plummet over 70% since it peaked in late 2018; NIO was in bad enough shape that the PRC government had to bail it out when the virus hit.The fact that Tesla has just started building/selling cars in the PRC may also pose a threat to lesser-known startups.
This does not mean Leap Motor is doomed, as it has cash and the market will evolve. However, IPVM could not find much positive coverage of the company and the overall context for PRC electric/intelligent vehicles is far from stellar.
Leap Motor No Response
Leap Motor did not respond to our requests for comment.
Conclusion: Another Dahua Distraction?
IPVM finds this latest venture puzzling as Dahua faces critical issues in its own sector of video surveillance, such as human rights sanctions and its lowest sales growth ever. It is worth noting that Dahua's CEO - who was supposed to bring more discipline to the company - has just been replaced with Dahua's founder, Fu Liquan, who has been a driving force behind Leap Motor, which he partly owns personally.
This all raises concerns about Dahua's focus on its core business amid unprecedented difficulties both at home and abroad.