China Seeks to Reduce Number of EV Companies
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How many electric vehicle (EV) companies can you name? For most Americans, the answer is "just one," with Tesla dominating headlines and market share. However, this is not the case in China.
Motivated by a desire to reduce air pollution and sever their reliance on foreign oil, China has been encouraging its citizens to make the switch to electric cars. These efforts have been wildly successful; it’s now the fastest and largest growing market for electric cars in the world, with sales expected to double this year.
In an attempt to capitalize on this trend, dozens of Chinese EV manufacturers have sprung up over the last five years, all promising to build affordable and high-quality alternatives to Tesla and other foreign brands.
You might imagine this is a good thing for China, but last week, a prominent government official stated that China has "too many" EV makers, and the government is now encouraging consolidation.
Why does China have so many electric car companies?
CNBC explains the Chinese government has been aggressively promoting the production of greener vehicles, especially in large cities which have long suffered from horrific air quality.
Government incentives and subsidies pushed China’s big three electric car makers, BYD, Nio, and XPeng, to scale up their manufacturing capacity.
This has been largely beneficial to consumers, with many Chinese models offering similar performance to high-end Teslas, but at a fraction of the price.
However, the Chinese government's willingness to hand out cash to EV startups, along with increasing private investment, has led to an oversaturated market, with dozens of new companies competing for a piece of the pie.
Further complicating things, established Chinese companies with no historical connection to the auto industry have also started piling in.
Phone makers Huawei and Xiaomi, e-commerce titans Alibaba, property developers Evergrande Group, and appliance makers Gree, are just a few of the big names now looking to make electric cars.
It seems the Chinese government has finally had enough. Last week, Industry and Information Technology Minister Xiao Yaqing announced that the government will seek to reduce the number of EV companies.
Why is it a problem to have too many EV makers?
In China, many smaller automakers contract their manufacturing out to larger ones. This duplication of the engineering efforts is inefficient, and thought to be slowing production of EVs.
China is also concerned that many of the new companies will end up going bankrupt, leaving millions of small investors in the hole.
It could be argued that this is a global problem. Some commentators think the American EV industry is a bubble, with EV startups receiving inflated valuations.
These problems are compounded by traditional automakers moving into the EV sector. In a few years time, many of the startups we hear about today could collapse, with share prices dropping as they fail to hit exaggerated sales forecasts.
At least one American company is already on the brink, with Nikola Corporation CEO Trevor Milton facing federal charges for overstating the company’s worth.
China’s EV infrastructure plans
During the announcement, Minister Xiao also promised to improve China’s EV charging network, helping to boost EV sales in rural areas.
Interestingly, the announcement echoes Biden’s infrastructure spending plan, and many of the EV challenges facing China are the same ones we are experiencing here in the U.S.
With vast distances separating the most densely populated areas, both nations will have to invest billions to install charging stations in remote places, in an effort to overcome rural skepticism and range anxiety.
Another shared challenge concerns the semiconductor chip shortage. Both the U.S. and China are seeing EV manufacturing efforts hampered by supply chain issues.
China has sought to alleviate the strain by fining auto chip sales companies for charging too much money. They hope that cheaper materials and a more streamlined manufacturing process, achieved by consolidating the smaller companies together, will keep China at the forefront of the electric revolution.