In 2013, Mike McQuary, CEO of Wheego Electric Cars, was in a bind. The maker of small electric vehicles needed expansion funds.

 

But with high-profile electrified vehicle makers such as Fisker and Coda struggling, the appetite in the U.S. for investing in such companies was slight.

 

Since he was visiting China regularly to work with suppliers, McQuary made an appointment with GSR Ventures, a venture capital company based in Beijing. It was a good move. GSR now helps fund Wheego.

 

"They have a long-term view of the new-energy sector and EVs in particular," McQuary says of his Chinese investor.

 

Despite early optimism in the United States, the market for EVs and the technology that goes into them never has really taken off. Last year, U.S. sales of plug-in hybrids and electric cars dropped 5.2 percent to 116,099 vehicles.

 

U.S. government support for the sector has remained tepid. That has left companies that bet on steady growth in demand for EVs struggling to survive.

 

In China, however, the government remains committed to growing plug-in hybrid and EV production and sales. That has given Chinese investors and Chinese companies the confidence to sink millions of dollars into U.S. companies with electrification technology.

 

Focus on China 

Often, Chinese investors want to focus on the China market. GSR was "happy to invest in us as long as we turned our eyes to China," McQuary says.

 

Though it has dealers and sales in the U.S., the Atlanta-based company now focuses on selling its small EVs -- used by municipal governments, at airports and as delivery vehicles -- in China.

 

He can't discuss sales volume or where the vehicles are manufactured, McQuary says. But the company is still in business, which it might not have been without the Chinese investment.

 

"China seemed like a much bigger chance for Wheego to be a big success," he says. "The subsidies they offer over there, and the government support and pressure for EVs to be successful, really trumps what they are doing in the United States."

 

Smith Electric Vehicles also found a savior in China. The Kansas City, Mo.-based company manufactures medium-duty commercial EVs. From 2010 through 2014, it sold 800 EVs in the U.S. to customers such as DHL and Coca-Cola.

 

But Smith Electric couldn't make money at such low volumes. It needed cash and a bigger market so it could scale up.

 

That came from Hong Kong-listed FDG Electric Vehicles, a Chinese company with two EV assembly plants in China as well as battery production and r&d operations. Smith, whose electric vans have logged millions of miles on U.S. roads, could provide added manufacturing expertise.

 

The Chinese company "had the resources, the money, the engineers [and] the government support, but they had no practical working knowledge" of how to produce an EV, says Bryan Hansel, former CEO of Smith.

 

FDG Electric Vehicles, a Chinese company, built a 2.6 million-square-foot plant in China to produce medium-duty electric vans through its joint venture with Smith Electric Vehicles. The JV, called Prevok, plans to launch the vans in the U.S. this year.

 

China-U.S. partnership

 

In 2014, FDG invested $20 million (130 million yuan) directly in Smith, says Hansel. Then it invested another $15 million last year to form Prevok. Hansel is Prevok's chief executive.

 

The joint venture is producing a jointly designed, medium-duty electric van at a 2.6 million-square-foot plant in the east China high-tech hub of Hangzhou. Prevok plans to launch the van in the United States this year.

 

Initially the van will be imported from China. Hansel says he will begin U.S. production as sales increase. Demand eventually will be global, he predicts.

 

Smith likely would not have had the luxury of such an undertaking if it worked with U.S. investors, Hansel says. With FDG, "they said, 'Get started guys, and have fun.'"

 

The Chinese government's consistent financial support of the EV industry underpins Chinese investors' long-term view.

 

China has declared that it will have 5 million "new-energy" vehicles -- including battery-powered EVs, plug-in hybrids and fuel cell vehicles -- on the road by 2020. In practice, the recent focus has been on battery-powered electric cars.

 

China's central and local governments have combined to offer sales subsidies worth as much as $16,000 per vehicle.

 

That is more than half the price of the best-selling plug-in hybrid EV in China, the BYD Qin PHEV, which starts at the equivalent of $31,200.

 

The best-selling pure EV in China, the Kandi Panda, costs $23,100, says Yale Zhang, managing director of consultancy Automotive Foresight in Shanghai.

 

In the United States, federal subsidies top off at $7,500. Some states offer additional subsidies.

 

The Chinese government's largesse is not bottomless, however. Subsides for EV purchases will be phased out by 2021.

 

Despite the subsidies, Chinese EV owners still must deal with a scarcity of public charging stations. Nevertheless, China's sales of EVs and plug-in hybrids quadrupled last year to 331,092 vehicles. The growth in sales was largely due to local government purchases, says Zhang.

 

Beijing ordered Chinese cities to meet EV purchase targets, he says. That caused a surge in production and sales.

 

Last year, commercial fleets accounted for nearly 46 percent of EV and plug-in sales in China, up from 38 percent in 2014, according to Automotive Foresight.

 

In February, the central government asked municipalities to boost purchases again. EVs and plug-in hybrids are supposed to account for 50 percent of all new fleet purchases, up from 30 percent.

 

Other potential fleet customers include ride-hailing taxi companies such as Didi Kuaidi, which completed 1.43 billion rides last year.

 

At some point, Beijing will require those companies to use EVs, predicts Bill Russo, a managing partner at Gao Feng Advisory Co. in Shanghai.

 

"If you want a higher penetration and market share of electrification, you can require these on-demand companies to electrify their fleets," he says. "I can see a quick acceleration of electrification."

 

47-mpg target 

Regardless of demand, automakers in China will need to produce EVs to meet fleet fuel economy mandates, which call for 5 liters of fuel consumed per 100 kilometers (47 mpg) by 2020.

 

KY Chan, chief executive of Protean Electric Inc., says that's one reason he found great interest in China for his company's in-wheel electric-drive systems.

 

Protean, which has offices in Troy, Mich., the U.K. and Shanghai, has attracted investors such as GSR and Jiangsu New Times Holding Group, located in eastern China.

 

"No matter what, even if they are losing money [producing EVs], the automakers will have to produce a number of new-energy vehicles in order to lower the overall [fuel economy] below 5 liters," Chan says.

 

The central government's EV push has made China a fertile market for fundraising. "The amount of resources flowing into [the EV sector] is just unimaginable," he says. "In China, I went from a period of no interest to one of a lot of interest."

 

Chan figures Chinese investors have a stronger stomach for the cash-burn rate of a startup such as Protean. It has talked to U.S. companies about being acquired, but "we would become a burden to their balance sheet," he says.

 

Perhaps the highest-profile Chinese investment in U.S. electrification companies is Wanxiang's acquisitions of battery-maker A123 Systems and luxury plug-in hybrid manufacturer Fisker Automotive, renamed Karma Automotive.

 

Privately owned Wanxiang Group Corp., one of China's largest automotive suppliers, got its start producing driveshafts and roller bearings.

 

Why did it acquire the two U.S. companies?

 

"China is committed to producing more and more electric vehicles," says Pin Ni, president of Wanxiang America Corp. "Wanxiang wants to participate in that growth, and we saw an opportunity to do so by acquiring A123 and Fisker."

 

If Wanxiang hadn't acquired Waltham, Mass.-based A123 in 2013, says CEO Jason Forcier, "the technology would have been sold off to the highest bidder."

 

Instead, Chinese ownership enabled A123 to double its capacity, and the company is generating positive cash flow, Forcier says.

 

A123 is focusing on low-voltage batteries and working with all the major European automakers on 48-volt systems. But China still accounts for a big chunk of the battery-maker's growth.

 

"That speaks to the focus of the Chinese government to incentivize these vehicles," says Forcier. "We haven't seen that in the U.S."

 

"A lot of trust" 

Wanxiang acquired A123 customer Fisker in 2014 for $149 million.

 

Wanxiang beat out Hong Kong investor Richard Li, who also bid for Fisker. Now, the former Fisker Automotive - now called Karma Automotive -- is trying to revive itself from a headquarters in Southern California.

 

Karma sees the most opportunity in China, the world's largest luxury car market. But it will sell cars in the United States as well, says Chief Marketing Officer Jim Taylor.

 

That kind of U.S. presence is important. Chinese consumers know their country's long history of shoddy and copied products. Plus, China's early EV efforts often focused on low price rather than high quality.

 

"You need to bring in technology that has been certified as non-Chinese," Gao Feng's Russo says.

 

Even in luxury-hungry China, Karma could be a tough sell. "Luxury [EVs] do not have strong potential, because rich people need the premium car's brand first," Automotive Foresight's Zhang says.

 

But Chinese investors don't mind taking "long bets" on their investments, Taylor says.

 

Wanxiang Chairman Lu Guanqiu "has put a lot of trust in our executive team," he says. "If we were American-owned, that rope would be a lot shorter."