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There are now 486 EV manufacturers in China, three times more than two years ago. Most will disappear.
New car sales in China fell 14% in the first quarter compared with the previous year, according to the China Association of Automobile Manufacturers. For the full year 2018, sales of new vehicles fell by 4.1%, the first such decline in modern data dating back to 1990.
Despite this historic slump, sales of "electrified" vehicles (battery-powered electric vehicles, plug-in hybrids and fuel cell vehicles) climbed 85% in March from a year ago and 110% in the first quarter, to reach nearly 300,000 units. 227,000 electric vehicles, 72,000 plug-in hybrids and 273 fuel cell vehicles.
Last year, sales of electric vehicles and plug-in hybrids jumped 62% to 1.255 million vehicles, reaching a record 5.3% of total vehicle sales. According to the Ministry of Industry and Information Technology, Tesla has a total of 14,467 units, giving it a minimal market share of 1.1% in the electric vehicle market.
Electrified vehicle sales in China are expected to reach 1.6 million units this year, a share of about 7% of new vehicle sales – as sales of internal combustion engine vehicles ( ICE) will continue to fall, while sales of electrified vehicles are increasing.
The electric vehicle industry in China has been fueled by government subsidies. China has strongly encouraged electric vehicles for two reasons: helping to reduce the often huge air pollution in China's major cities; and to create the dominant global electric vehicle industry.
The Chinese government's policies are also trying to create the global battery industry for electric vehicles. And until here everything is fine. Here are the largest manufacturers of battery cells for electric vehicles:
- CATL in China.
- Japanese Panasonic
- BYD from China, which also manufactures electric vehicles.
- Korean LG Chem
- Korea Samsung.
- through 10: Chinese manufacturers.
However, subsidies that triggered a tsunami of private sector investment in China's battery boom are dwindling, and weak battery manufacturers should be eliminated.
And so too, the government is now reducing subsidies for electrified vehicles. Some subsidies, which amounted to $ 7,500 per vehicle, were cut in half.
This comes at a bad time for the electric vehicle sector: despite the dynamism of sales, electric vehicle startups have multiplied even faster.
There is now – take a deep breath – 486 registered EV manufacturers in China, having more than tripled in two years. They attracted billions of dollars in investments.
EV startups cover the spectrum, with everyone and his dog without any connection to the auto industry. Last year, online retailer Alibaba and iPhone maker Foxconn led a 2.2 billion yuan ($ 347 million) turnaround for the EV startup, Xiaopeng Motors. China Evergrande Group, the second largest developer of real estate in the country, announced last March that it "will strive to become the largest group of electric vehicles in the world and the most powerful in three to five years."
According to Bloomberg, EV start-ups that have raised the most funds include:
- NIO: $ 4.1 billion
- WM Motor: $ 2.3 billion
- Xiaopeng Motors: $ 1.3 billion
- Youxia Motors: $ 1.3 billion
The two manufacturers together commit to build a manufacturing capacity of 3.9 million EV per year.
Good luck filling that capacity – because the established Chinese giants have already transferred part of their production to electric vehicles. Some, such as BAIC and Geely (who also owns Volvo), have announced that they will switch almost completely to electrified vehicles in the next few years.
In addition, global giants such as GM and Volkswagen AG and their Chinese joint ventures are all forced by the government to build electric vehicles in China, and they launch dozens of models.
The overall decline or stagnation of vehicle sales, even as many production capacities are commissioned, creates a toxic mix of bad investment and overcapacity. The overcapacity of manufacturing electric vehicles is only part of it. This has also touched other industries in China.
If the world needs another illustration of a bubble that will explode and that will bring down many investors, it is the manufacturing bubble of electric vehicles in China. Electric vehicles will continue to grow and their sales will flourish, but not enough for the 486 electric vehicle manufacturers that are currently building production capacity in China. They will live a classic shakeout with only a few tens left in the end.
Auto manufacturing is a capital intensive business, and startups need huge amounts of money to gain ground. As subsidies are reduced and adjusted, and overcapacity prevails, the weaker players will run out of money and then close. This will go through layers and layers and can also destroy some established businesses. The upheavals of the industry, after a bubble of investment and capacity like this, are brutal.
"We are going to see big waves taking sand in the electric vehicle industry," Thomas Fang, partner and strategy consultant at Roland Berger in Shanghai, told Bloomberg. "It's a critical moment that will decide life or death for EV startups."
A lot of these startups are founded or funded by people with Internet experience or a fucking technology are not necessarily fully aware of the huge investment required in the car manufacturing, said Fang.
"The investment required for real production is several times greater than investment in marketing and production development," he said. "That's why we see some delaying mass production projects."
Electric vehicle sales – even though they are still compared to ICE vehicle sales – will continue to grow. But investors who finance electric vehicle startups in China are likely to be bludgeoned by the effects of massive overcapacity in the industry, encouraged by policies and government subsidies.
Panasonic has frozen its plans for expansion and investment for the Gigafactory after the drop in Teslas deliveries in the first quarter. Lily… Carmageddon at Tesla-Panasonic Gigafactory in Nevada and Shanghai
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