Monday, August 9, 2021

China’s booming EV industry faces overcapacity issues

  • As the Chinese government prods indigenous innovation, home-grown brands such as Nio, Xpeng and Li Auto, have sprouted to get a larger slice of the market under the Made in China 2025 industrial master plan.
  • Consolidation looms as the strongest start-ups and conventional carmakers up their EV game with new models, knocking out weaker competitors.

The accelerated pace of electrification on the mainland’s roads has attracted about 500 companies, investing tens of billions of dollars into developing, designing and assembling electric vehicles. The country’s car assemblers planned to build an annual capacity of 20 million electric vehicles on aggregate in 2017, according to state-owned China Securities Journal.

The newspaper warned that the country’s EV industry faces severe overcapacity in the coming years, as the industry shows signs of overheating. Total EV deliveries in China, the world’s largest automotive market, hit 1.17 million units in 2020, up 12 per cent year on year.

A bullish estimate by Swiss bank UBS recently said that 25 per cent of new passenger car sales on the mainland in 2025 would be powered by batteries, amounting to 6.6 million units. Conventional carmakers, investment funds, technology behemoths and car component suppliers have been splurging on EV projects to tap China’s efforts to meet carbon neutrality by 2060.

Local governments, including Shanghai, Hefei, capital of Anhui province, Guangdong and Wuhan, capital of central China’s Hubei province, have all extended generous incentives to leading players to set up production bases, creating an industry chain worth billions of dollars.

William Li, founder and chief executive of NIO, a leading EV start-up in China, said last year that at least 20 billion yuan (US$3.1 billion) was needed to invest in an EV start-up before it can develop a production model.

Byton, a Chinese EV start-up once touted as a potential challenger to Tesla, has burned through 8.4 billion yuan of cash without churning out a single car, according to the China Securities Journal.

Tesla electric vehicles are parked next to charging stations outside one of the company's showrooms in Beijing.

According to the CPCA, 48.5 per cent of China’s carmaking capacity was used at the end of 2020, down from 66.6 per cent in 2017, in the latest sign that overcapacity issues are looming for the industry.

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