BEIJING—An ambitious group of Chinese car developers with a foothold in Silicon Valley are vying to become the next Tesla Inc.
Backed by billions from influential investors and armed with global talent, more than a dozen Chinese startups want to make dinosaurs of incumbent auto makers. As they start production, their determination is raising the pressure to innovate at traditional players such as Ford Motor Co. and Volkswagen AG.
“Tesla paved the way, now we’re taking this a step further,” said Padmasree Warrior, who runs the U.S. arm of Shanghai-based NIO, one of the Chinese startups that want to drive the convergence of the automotive and technology industries. “We have a mission to transform mobility.”
Tesla disrupted the automobile industry a decade ago with its focus on electrics. The next phase, set to sweep the sector globally, will turn cars into “iPads on wheels,” said Michael Dunne, managing director of Hong Kong-based consultancy Dunne Automotive.
Chinese auto startups, many of them founded just two or three years ago, are betting they can leapfrog existing auto makers in creating a new world of electric, networked cars that drive themselves.
NIO launched its first production car, the ES8 sport-utility vehicle, in Beijing on Saturday, having raised $1 billion last month in a funding round led by social-media giant Tencent Holdings Ltd. Another investor is Baidu Inc., which dominates Chinese internet search.
NIO Chairman William Li, who previously founded Bitauto, a U.S.-listed firm that runs auto-related websites in China, presents the ES8 as a rival for Tesla’s Model X.
During the launch event, the ES8, which responds to voice commands and has limited self-driving capability, reverse-parked itself into a battery-swapping facility which can switch the car’s battery pack in under three minutes, enabling it to match gasoline cars for convenience, Mr. Li said. The battery can be fully charged in one hour, and gives the car a 220-mile range.
The ES8 starts at around $68,000 before subsidies, whereas Tesla’s Model X, which is subject to import tariffs and is ineligible for subsidies in China, costs roughly twice that here. Mr. Li said the ES8, which is now on pre-sale, will be with buyers in the first half of 2018.
Most Chinese auto startups aim to launch in China in 2018 before tackling the U.S. and Europe by around 2020. But their window of opportunity may be narrow. Tesla has confirmed plans to build a factory in Shanghai that is likely to start producing cars in around 2021. And most traditional auto makers, both Chinese and foreign, have committed to producing electric vehicles and are experimenting with autonomous technology and in-car internet services.
In a sign of the changing times in the auto business, Ford’s Executive Chairman Bill Ford said at a news conference in Shanghai in December that the century-old auto maker was transforming itself into a “mobility company, designing smart vehicles for a smart world.” Ford is in talks with Alibaba, China’s dominant e-commerce company, to develop advanced mobility services, while Volkswagen is holding discussions with Didi Chuxing, the local equivalent of Uber, to design new service models.
Despite such developments, the startups believe they can tap rapid growth in China’s premium and electric-car segments—Tesla’s turf—and outshine incumbents with radically innovative products. But they must make enough of a splash at a time when some of the game-changing technologies they advocate, notably self-driving software, are still in the testing lab.
That means following the Tesla playbook by coming to market with a killer brand, Mr. Dunne said. But Tesla has “the aura of Elon Musk standing behind the product,” he said, “and that’s really hard to match.”
Like many Chinese technology companies and auto startups, NIO has an operation in California with more than 300 employees developing autonomous driving and other critical software. The company’s trawl for global talent netted experienced tech professionals like Ms. Warrior, a former chief technology officer at both Cisco Systems Inc. and Motorola Inc. who also serves on the board of Microsoft Corp.
Rivals to NIO are making similar strides. Byton, which is run by former BMW and Nissan executives, opened a new California base in December, having recruited former Tesla and Apple staffers to run its team there. Like NIO, Byton will develop software in the U.S., but manufacture in China in time for a 2019 launch.
NEVS, a Sino-Swedish venture that acquired the assets of bankrupt Swedish auto maker Saab in 2012, started production on an electric version of the Saab 9-3 in Tianjin in December. A spokesman said NEVS isn’t aiming to sell its cars to ordinary consumers, but to platform operators like Didi Chuxing Technology Co., which like Uber and other ride-share companies may develop fleets in a future less focused on private cars.
Another contender, WM Motor, also backed by Baidu and Tencent and run by former Geely Auto executives, finished building a plant in eastern China in September and will start production in early 2018. WM, or “Weltmeister,” aims to offer a drastically cheaper alternative to both Tesla and NIO, with mass-market electric vehicles for less than $30,000.
In the expensive business of auto development, many of these newcomers will fall by the wayside, Mr. Dunne cautioned. Some have already hit trouble. Overextended Chinese multimedia conglomerate LeEco’s ongoing cash crunch was caused in part by a costly foray into electric-vehicle production, and its financial woes have also hit Faraday Future, a U.S. EV startup backed by LeEco founder Jia Yueting, which has abandoned plans for a $1 billion plant in Nevada.
Write to Trefor Moss at Trefor.Moss@wsj.com
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