Hozon New Energy Automobile, maker of Neta EVs, is undergoing a court-led bankruptcy review due to unpaid debts to Shanghai Yuxing Advertising.

The company has started a restructuring process, but an internal source said a successful turnaround is not guaranteed.

Hozon’s case highlights deep structural problems in China’s overcrowded EV sector, where only a few players like BYD, Li Auto, and Aito are profitable.

The firm’s situation worsened after viral videos showed employees chasing CEO Fang Yunzhou over unpaid wages, with layoffs ongoing since October 2024.

Despite raising 26.4 billion yuan (US$3.6 billion) since 2014, Hozon lost 18.3 billion yuan (US$2.5 billion) in three years and still faces financial trouble amid IPO and overseas plans.

🔗 Source: South China Morning Post

🧠 Food for thought

1️⃣ EV startups follow a cyclical pattern of boom and bankruptcy

Hozon’s bankruptcy proceedings highlight a recurring pattern in the electric vehicle industry, where heavily-funded startups fail despite substantial investment.

The company raised 26.4 billion yuan ($3.7 billion) in venture capital across 11 rounds, but still accumulated 18.3 billion yuan in losses between 2021-2023 alone.

This trajectory mirrors other notable EV failures such as Faraday Future, whose founder filed for bankruptcy with personal debts of $3.6 billion after the company lost approximately $2.15 billion since its 2014 founding.

More than a dozen Chinese EV startups have collapsed over the past five years despite significant funding, demonstrating that even well-capitalized companies struggle to achieve sustainable production economics in this sector.

The pattern shows how many EV startups consistently underestimate manufacturing complexity and overestimate market demand, resulting in similar financial trajectories despite operating in different time periods and markets.

2️⃣ China’s EV market faces fundamental overcapacity crisis

China’s electric vehicle sector is experiencing a severe mismatch between production capacity and market demand, forcing companies into unsustainable pricing strategies.

Only half of China’s EV production capacity—approximately 20 million units—was utilized in 2024 according to Goldman Sachs, creating intense pressure to slash prices.