Chinese Electric Car Maker HiPhi Faces Financial Crunch, Delays Salaries

HiPhi, Which Once Outperformed Tesla in a Range Test
Struggles Amid Overheated Competition in the Chinese Electric Car Market

The Chinese electric vehicle brand HiPhi, which made headlines in Korea for its distinctive design and performance reminiscent of a transforming robot, is reportedly facing a forced pay cut and a six-month production halt due to financial difficulties. As competition heats up in the Chinese electric vehicle market, market restructuring could accelerate.

According to local Chinese media on the 19th, Gaohe Automobile recently announced internally that it would halt production for the next six months. Employee salaries will also be cut starting February 18, and after March 15, only the minimum wage of 2,690 yuan ($424) per month in Shanghai will be paid. Gaohe had previously announced through an online platform that it would delay January salary payments and cancel year-end bonuses.

Gaohe denied the decision to halt operations and cut salaries. However, Chinese economic media Caixin, quoting local officials, stated, “It has been confirmed that Gaohe’s main shareholders, the local governments, have asked Gaohe not to disclose the fact of the operation suspension and salary cut for the time being,” and “it is uncertain whether shareholders will come forward to support.”

Gaohe HiPhi is a high-end electric vehicle brand famous for its unique appearance and outstanding performance. The most recently released HiPhi Z, which was imported into Korea, also made headlines online. The HiPhi Z attracted attention for its performance, running 324 miles in the El Prix winter range test held in Norway at the end of January, outperforming Tesla.

Gaohe launched its first model in September 2020. The price of the first developed model reached 500,000 yuan ($78,900), declaring it a premium brand. As the price was high, sales were not significant. They sold about 4,200 units in 2021 and about 4,500 units in 2022. Last year’s sales were not announced, but it is known that they did not achieve their initial target of at least 8,000 units.

The price of the HiPhi X, an SUV equipped with gullwing doors and premium sound facilities, reaches up to 800,000 yuan ($126,240). Competing without exceptional technological development has become difficult as luxury brands such as Porsche are launching electric cars one after another. As sales did not go well, they could not quickly expand their facilities.

As a result, Gaohe is contract manufacturing the HiPhi X and HiPhi Y at the Yancheng plant of WedKia’sia, a local joint of Kia. Securing production volume or parts supply networks by themselves was a complex condition. Although the production volume was small, the local joint venture of Kia, which had diversified its profits through contract manufacturing of advanced electric vehicles, also found itself in a difficult situation due to this production suspension.

As the financial crisis worsened, Gaohe announced last June that its parent company, China Horizons, had signed an investment memorandum of understanding worth a total of $5.6 billion with the Ministry of Investment of Saudi Arabia (MISA). They also revealed plans to set up a joint venture in Saudi Arabia to conduct electric vehicle research. However, the novel fundraising plan did not materialize. The Saudi side scrapped the investment plan, citing problems such as Gaohe’s low sales volume.

Gaohe’s insolvency became apparent last January when a parts supplier revealed a screenshot stating that it had stopped supplying products because Gaohe had not paid. That same month, a real estate company in Chengdu announced that a Gaohe store had closed because it could not pay the rent.

Gaohe’s downfall reflects the overheated competition in the Chinese electric vehicle market. The insolvency of Chinese electric vehicle companies is not a recent issue. Although BYD is causing a sensation by recording the world’s highest sales of pure electric vehicles in the fourth quarter of last year, it has been calculated that nine out of the top 12 Chinese electric vehicle companies did not achieve their annual sales targets last year.

The Chinese Ministry of Industry and Information Technology stated at the beginning of the year, “Despite a significant increase in the production and sales of new energy vehicles, including pure electric vehicles and hybrids, last year, with exports soaring by 78% to 1.203 million units, many manufacturers are still struggling to make a profit, leading to disorderly competition.”

Excessive competition leads to a decline in product prices and a deterioration in companies’ profitability. The KOTRA Beijing Trade Office recently released a document titled “The Bright and Dark Sides of the Chinese Automobile Market. It explained, “Not only BYD but also other representative Chinese electric vehicle startups have consecutively lowered vehicle prices and stopped battery-free exchange services to prevent deterioration of profitability,” and “price reduction competition is becoming more fierce after the reopening of COVID-19.”