Deal focus: U Power wins backing for EV turnkey proposition

Hefei doesn’t make the cut in rankings of China’s 20 largest cities, but the capital of Anhui province rose to prominence in the electric vehicle (EV) industry for its USD 7bn bailout of Nio in 2020. The investment not only generated a strong return and helped build a local industry ecosystem but it is also credited with contributing to a broader revival at a time when EV manufacturers were struggling.

Hefei has reaffirmed its position in the EV supply chain with an investment – amounting to hundreds of million renminbi – in U Power. The Series B, led by Hefei Industry Investment, a government investment arm, also featured re-ups by Matrix Partners China, China Creation Ventures, and ZhenFund. This follows a Series A and Series A extension in 2021 led by Matrix and Bosch Group’s Boyuan Capital, respectively.

As part of the deal, which is not a bailout, U Power has agreed to relocate its headquarters to Hefei, making the city the centre point of a newly established R&D, production and sales system covering commercial and passenger vehicles as well as chassis. Nio did much the same in 2020.

“The environment has changed. Almost all our portfolio companies have on-the-ground operations for manufacturing or R&D – something internet businesses never did,” said one investor in the round.

“It is therefore critical that they have local government support, not only in terms of capital, but also in terms of upstream and downstream production capacity, manufacturing plants, land, supporting facilities, favourable policies for talent. Many of our early-stage companies end up receiving government funding in the mid to late stages.”

Paul Li, founder and CEO of U Power, declined to give more specifics as to the deal size but he noted that the company is structured offshore and received US dollars. The round took six months to close, with Hefei Industry Investment participating through its outbound direct investment channel. The government investor plans to lead U Power’s Series B extension as well.

“I think it’s better to focus our time and energy on business development rather than capital structure. We launched U Power with a VIE [variable interest entity] structure in 2021, it was a correct decision at the time from a business development and from an exit perspective,” Li noted.

“If we encounter any real issues, we will adjust the structure accordingly. However, to date, we see no reason to dismantle the VIE.”

China Creation Ventures has now backed U Power across three consecutive rounds. Wei Zhou, a founder and managing partner at the VC firm, recalled that he decided to invest in the company just 30 minutes after meeting Li for the first time. Li previously worked for Great Wall Motor, where he was responsible for launching the company’s high-end EV saloon in 2020.

Wireframe approach

A relative latecomer in the EV space, U Power has no ambition to build another consumer-facing brand. Rather, it is an infrastructure player that directly supplies EV makers. Central to these efforts is what U Power claims to be China's first skateboard chassis-by-wire – a solution that can shorten the EV model development cycle by 6-12 months.

Unveiled earlier this year, the chassis-by-wire enables digital control over power, braking, steering, and suspension. It even integrates batteries, creating more cabin space. All EV makers need to do is design a cabin and user interface that sits on top. U Power plays no role in the final assembly process.

Zhou compares the approach to the turnkey solution promoted by Taiwan-based semiconductor manufacturer MediaTek. The company’s chips come with a software architecture that covers 60% of the functionality of the phones in which they sit, shortening the development lifecycle.

“I hadn’t seen something this large in a long time. There is no guarantee of success, but if it works, it could be a game changer. It’s like they have built the foundation and it’s up to OEMs [original equipment manufacturers] to decide how to embellish it,” said Zhou. “EV is an entirely new industry chain, which may generate completely different possibilities for the upstream and downstream sides.”

U Power has already signed a contract with an OEM that wants to transition from combustion engine vehicles to EVs. Logistics operators that want to introduce customised EV fleets for specific scenarios such as food delivery or removals are another potential customer segment. Lalatech Holdings, the parent of Lalamove and Huolala, revealed EV development ambitions ahead of its recent Hong Kong IPO.

U Power is already working on EV solutions for different scenarios: its first in-house developed vehicle is a wide-body EV for intra-city logistics. The company has already received orders from domestic and overseas customers, with shipments expected to begin before year-end. It is now collaborating with FBLife.com – China’s biggest off-road car information and community platform – on an off-road model.

A third customer segment could be China’s independent EV makers. While these companies generally rely on their own technology, U Power’s chassis could be used in quick rollouts of models that address different target markets. For example, if Nio wanted to extend its high-end product portfolio into the affordable end of the market, it could feasibly get there in under a year.

“We believe that once the entire industry returns to commercial rationality, there will be no reason for any EV maker to reject a solution like ours. It is all about structural innovation and cross-industry integration. As everyone seeks to achieve greater output at lower cost, the skateboard chassis as integrated software and hardware automotive operating system is a solution for the entire industry,” said Li.

• Tweet  
• Facebook  
• LinkedIn  
• Google plus  
• Save this article  
• Send to  

• Topics
• Greater China
• Early-stage
• Industrials
• Technology
• China
• Electric Vehicles
• manufacturing
• China Creation Ventures
• ZhenFund
• Matrix Partners