VMT 3.85% 27.0¢ vmoto limited

Michael Smith - China Correspondent Nov 9, 2019 — 12.00amThe...

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    Michael Smith - China Correspondent
    Nov 9, 2019 — 12.00am

    The Australian start-up riding the global e-scooter craze

    China's electric scooter market is booming as new technology means customers in Europe look for alternatives to petrol-guzzling cars or public transport. Vmoto, an Australian-listed company, is chasing a slice of the action.

    Nanjing, China | Charles Chen was in his 20s when he decided two wheels were better than four.

    Despite a career working in China's booming automotive sector, the chief executive of Australian-listed Vmoto jokes he was happiest riding his motorcycle to the beach with his girlfriend on the back.

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    Charles Chen, chief executive of ASX-listed Vmoto at the company's factory in Nanjing, China. Michael Smith

    Chen, 47, left his home city of Nanjing years earlier to pursue a career in China's carmaking industry. It was an obvious choice for an engineering graduate at the time. Government subsidies, cheap manufacturing and a rising middle class helped China become the world's largest carmaker in 2009.

    But it was during weekends riding around China's tropical Hainan Island, where he was working at the time, that Chen decided the future lay in the electric scooter market which was being redefined by battery technology and the digital sharing economy.

    “We did it a bit earlier when the market was still new, so it was hard to generate big sales and margins,” Chen tells The Australian Financial Review during a tour of Vmoto's 30,000 square metre factory, which is filled with gleaming red scooters ready to be shipped to Europe.

    “The biggest challenge is knowing what people will want in five years,” he adds, referring to the two years it takes to move from the design phase to mass production.

    Billions pour into e-scooter start-ups

    China is at the centre of a global boom in demand for electric scooters, an industry analysts say is worth $US40 billion ($59 billion). While rare on the streets of Australia, these silent two-wheeled devices are everywhere in Europe and venture capitalists are pouring billions of dollars into e-scooter start-ups.

    Demand is being driven by environmental controls, the boom in shared bikes and delivery companies seeking cheaper and faster ways to transport goods. However, critics say there are now too many operators on the market and competition is stiff at a time when regulations are tightening.

    Vmoto is one of the many scooter makers based in China, where manufacturing is still relatively cheap and the Chinese government supports innovative companies, although scooters do not receive the kind of subsidies that cars do. While the US pushback against Chinese technology poses problems for Chinese manufacturers shipping goods to America, Chen says European sales are booming.

    "Because of the [trade] war some customers in Europe may be reluctant to accept Made in China," he says. "But we are an Australian company manufacturing in China.

    "While Europe is the motherland of petrol automobiles, China is the motherland of electric vehicles. If you ignore China as the foundation of the electrical industry you will fail."

    Perth-headquartered Vmoto was founded by an Australian, Patrick Davin, who oversaw its backdoor listing on the Australian Stock Exchange. Davin has since left the company and runs his own "scooter on subscription" start-up out of Shanghai called MUTE.

    Chen joined Vmoto after he met Davin while running his own company. He convinced the Australian company to set up a factory on the outskirts of his home town of Nanjing, a coastal city an hour north of Shanghai by fast train and one of China's former ancient capitals.

    The e-scooter craze did not really take off until 2017, when companies such as Bird and Lime started cracking the US market. But Chen – who took on the CEO role in 2012 – says it was obvious years earlier in China, where scooters had long been popular, that the industry had a bright future.

    He says the secret was merging European design with Chinese technology and thinking ahead to work out what customers would want two years in the future.

    Bulk of sales from Europe

    Vmoto signed a partnership with Italian motorbike group Ducati in May. Scooters are manufactured on site before being sold through distributors in Europe, the Americas, the Middle East and Australia. The bulk of Vmoto's sales come from Europe.

    Chen says the company's investment phase is over and the company does not need to hire any more staff than the 130 who currently work there. Half of the company's staff on site come from other parts of China and live in dorms on site.

    Shares in the Perth-listed company have tripled since the start of the year but are below where they were three years ago. On November 1, the company said it had doubled unit sales in the third quarter to 6027.

    The company made a $362,000 profit in the six months ending June 30, 2019. In 2018, the start-up made a $917,563 loss which was a recovery on the $8 million loss a year earlier. It expects to launch new models of two-wheel electric vehicles this month.

    The factory, built in 2008, has two assembly lines: one for international exports, and one for domestic consumption which can produce 300 to 450 units per day. The vehicles use lithium batteries.

    Chen, who is showing off the vehicle's self-balancing and self-driving features, says new technology is driving demand despite concerns the market has become saturated. "Electric technology makes everything possible,” he says.

    He says local governments and other customers, driven by requirements to lower emissions, are taking on fleets of e-scooters. One potential customer is DHL, which he says currently uses petrol vehicles at four times the cost of an electric vehicle.

    Market growing at 50pc a year

    While some manufacturers are exiting China due to the country's rising labour costs, tight regulation and the US trade war, Chen says this is not an issue for scooter manufacturers who have lower costs.

    "We got in very early. At that time, maybe that was a negative point, but now it is a positive because we have the experience and the products," finance director Ivan Teo says.

    Vmoto has a subsidiary in the Netherlands, a joint venture in Italy and operations across Europe. It is looking for a US partner, although Teo says that has been complicated by American politics and the trade war with China.

    It is harder to get new manufacturing licences for two-wheeled vehicles in China. Teo, who was born in Malaysia and studied in Australia, jokes that the industry is the "stepson" of the government when compared to the favourable treatment electric cars receive.

    Chen says the strategy is to chase profits rather than volumes.

    "I want to make Vmoto the most profitable business, especially having high end customers in the international market," he said.

    "The electric vehicle market has been increasing 50 per cent each year since 2017, but less than 5 per cent for the two-wheeler market. There are big possibilities and a big space to grow."

    Vmoto has about 500 dealers in Europe, which it wants to increase to 3000 in the next 10 years.

 
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