For those who lived through the heyday of Chinese smartphones, the EV battleground in China is now familiar. You may occasionally notice new domestic EV brands opening pop-up shops inside your neighborhood shopping mall. 

The Hozon New Energy Automobile, based in Zhejiang and the owner of the Nezha electric car brand, is one of these new brands and imitated Xiaomi's success in leading the Chinese market for electric vehicles by providing high-quality goods at aggressive prices. Nezha's EV deliveries outperformed larger rivals Xpeng for the first eight months of 2022.

According to data from the China Passenger Car Association, the eight-year-old EV startup, which initially targeted customers outside of major cities with inexpensive cars, delivered 93,185 vehicles in the first eight months of 2022, placing it second only to the Aion electric vehicle brand of the Guangzhou Automobile Group.

Hozon Auto reported a record-breaking delivery of 16,017 units in August, an increase of 142.2 percent from the same month last year. According to the startup's year-to-date performance, 93,185 new vehicles have been delivered, up 176 percent from the same period in 2021.

Leapmotor Technologies Ltd., a company that competes with Hozon in the same price range, experienced a comparable growth rate this year. In terms of August and year-to-date (YTD) deliveries compared to the same time last year, Hozon and Leapmotor were the two Chinese EV startups that grew the fastest.

Nezha used pricing models in a manner akin to what Redmi did with smartphones. In the low- to mid-end market, this Xiaomi subsidiary brand targets well younger Chinese consumers.

When Xiaomi unveiled its first smartphone in 2012 for less than 1,000 yuan (US$144), it positioned itself as a company that offers high-quality smartphones at competitive prices. Xiaomi attracted young, tech-savvy smartphone users by offering them free software and developing a devoted fan base to interact with them and carefully listen to which features they like and dislike rather than going head-to-head with Huawei for the high-end market.

Hozon Auto adopted Redmi's strategy after observing its success, which entails offering inexpensive cars without sacrificing features or quality in order to gradually establish a presence in the low-to-medium market. Hozon has a small presence in major cities like Beijing, Guangzhou, Shanghai, and Shenzhen, but it has an advantage in less developed regions and smaller cities that are frequently disregarded by major EV brands.

Compared to the mid-range and higher-end tiers, the market for entry-level electric SUVs is much less competitive. For the underserved and small-town market, two of Hozon's electric car models, the Neta V and Neta U, are priced around 100,000 yuan (US$14,400) and made it to the top 10 list of bestselling SUVs in August, which was led by Tesla and BYD.

Because its vehicles are inexpensive, Nezha avoided competition from Nio, XPeng, and Li Auto in the low-end market and did well. The Neta U is ideal for rural families looking for a large EV at an affordable price because it has touchscreen controls, no physical buttons, and plenty of room to seat up to six people. In contrast, comparable SUVs from Tesla, Nio, and Li Auto cost more than 200,000 yuan.

“Hozon Auto is becoming Xiaomi of the automobile industry, our market positioning is aimed at bridging the gap between the mass market and the high-end segment of the EV industry, said Zhang Yong, Co-founder and CEO of Hozon Auto.

In order to maintain a rapid pace of research and development and gain a competitive advantage over their rivals, EV companies must consistently raise sufficient amounts of capital from investors. The largest manufacturer of EV batteries in the world, Contemporary Amperex Technology, and the tech giant Qihu 360 are already investors in Hozon Auto.

According to auto news media, China EV Guild, SoftBank, Abu Dhabi Investment Authority, and Singapore’s Government Investment Corp were also interested in buying stakes in Hozon.

In a partnership agreement signed in May by Hozon Auto and Qihoo 360, the two companies agreed to explore opportunities for collaboration in a number of areas, including smart vehicles, smart cockpits, digitalization, and network security for smart EVs.

Hozon Auto now plans to raise its product image and prices to increase its gross margins and scales, much like Xiaomi, agian, which entered the market with low-priced models before aggressively expanding its product line to gain a competitive edge in the high-end market. However, Hozon's product strategy is not what hinders its growth; rather, an inadequate product structure and a low-cost brand image somewhat limit its development.

The Chinese EV market is only getting more competitive as more carmakers and tech companies look to get a piece of the pie. For smaller companies like Hozon Auto, to remain ahead of the game, they need to not only focus on their niche but also enrich their product line that makes their brand stand out and compete with the more prominent brands.

Nezha entered the mid-to-high market with its new flagship model, the NETA S sedan, which is scheduled for delivery in the fourth quarter of this year, while larger EV upstarts like Nio launched the more affordable model ET5 primarily to boost sales. Huawei served as NETA S's technical partner for the in-car smart system. When Hozon Auto announced that its flagship model would be built on Huawei's internet of things (IoT), cloud computing, and big data technologies, and use Huawei's MDC intelligent driving platform and Lidar technology, the two companies entered into a partnership agreement in August 2021.

The Neta S has two models, a pure battery electric vehicle model and a hybrid model that enables drivers to charge their vehicles with either electricity or gasoline, with prices ranging from 199,800 yuan to 338,800 yuan. Neta S will go on sale in July of this year.

“Neta S aims to become the best sedan within 1-million-yuan price level. It would easily price above 300,000 yuan if it dost not come from a “poor family”, Hozon’s CEO Zhang Yong said.

While smaller startups like Hozon are making strides as the demand for clean cars soars due to China's green transition and initiative, Tesla and BYD continue to dominate the EV market. In general, domestic automakers are dominating the market for new energy vehicles (NEVs). According to data from the China Passenger Car Association, the major Chinese brands accounted for 73% of NEV passenger car sales last month, an increase of 9 percentage points from a year earlier.

Like other local start-ups like Nio, Li Auto, and Xpeng, Hozon Auto is spending money to maintain its growth momentum and hasn't yet turned a profit.

According to its IPO prospectus submitted to the Hong Kong Stock Exchange, Hozon reported a net loss of 2.9 billion yuan for 2021, up from 1.32 billion yuan in 2020. Despite the consecutive years of losses, CEO Zhang Yong is optimistic about the company's future and claims that its EVs are marketed to consumers who are price-sensitive, it will make money much more quickly than Nio, Li Auto because it sold more than twice as many vehicles.

“But it’s too early to talk about our ecosystem as well as product fosse, we still have long way to go,” Zhang Yong said.