Doing the Math Yields More Bad News for China’s Auto Industry

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[Image: Xujun/Shutterstock]

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Over the past several years, the Chinese government embarked on an aggressive electric vehicle push, hoping to mitigate the nation’s severe air pollution, reduce its reliance on oil imports, and foster a high-tech manufacturing sector that could put the rest of the world to shame. The result of these efforts? Hundreds of new EV companies, propped up by Chinese subsidies and investors, with no real future.

While it was known that most of these startups would never make it to the finish line, estimates of their survivability rate has grown increasingly bleak. For a time, it was assumed that most would die out — leaving anywhere between 5 and 10 percent to reach the assembly phase. However, NIO Capital’s Ian Zhu posited that the number was likely closer to 1 percent last August.

China is now pulling back its support, with many believing the industrial bubble is about to pop. And they have the math to back it up. 

Last month, the country’s Ministry of Finance announced that subsidies for pure battery electric cars with driving ranges at or above 400 kilometers (about 250 miles) will be cut by half, to just 25,000 yuan. Similarly, qualifying for any government assistance now requires a maximum range of at least 250 kilometers — 100 km more than previously deemed acceptable. The decision, while expected, resulted in dwindling shares for numerous EV companies, including big players like NIO.

Bloomberg recently conducted of an analysis  of the situation, focusing primarily on EV demand vs the number of burgeoning Chinese companies currently vying for a shot at selling them. Sadly, the math doesn’t work out in favor of most prospective manufacturers.

From Bloomberg:

There are now 486 EV manufacturers registered in China, more than triple the number from two years ago. While sales of passenger EVs are projected to reach a record 1.6 million units this year, that’s likely not enough to keep all those assembly lines humming, prompting warnings that the ballooning EV market could burst and leave behind only a few survivors.

“We are going to see great waves sweeping away sand in the EV industry,” said Thomas Fang, a partner and strategy consultant at Roland Berger in Shanghai. “It is a critical moment that will decide life or death for EV startups.”

Chinese startups, which have accumulated billions from the government, interested businesses, and private investors, are promising a collective capacity of at least 3.9 million vehicles a year — a figure that does not account for what established automakers are planning in other parts of the world.

Unfortunately, EV sales only make up about 4 percent of overall passenger vehicle sales of 23.7 million units, according to the China Association of Automobile Manufacturers. China had hoped that annual sales of alternative-energy vehicles would reach 7 million units by 2025. That now seems terribly ambitious, even if everything progresses smoothly.

Most investors stand to lose money and people will lose jobs as the vast majority of these companies start going under. That’s likely to inject further uncertainty into China’s suddenly stagnating auto market. The country’s economy is showing signs of slowing, with traditional auto sales falling for their 10th consecutive month in March — despite assumptions that the region would continue as a growth market for carmakers.

[Image: Xujun/Shutterstock]

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