Most of China's EV startups face wipeout under new rules
China's electric-vehicle industry, with 200-plus companies backed by a raft of billionaires, verges on a massive shakeout as the government imposes stricter technology standards on fledgling manufacturers and considers limiting their number to only 10.
The curbs would be intended to weed out the weak, said a senior executive with the state-backed auto manufacturers' association, and they may push as many as 90 percent of EV startups toward extinction, a government-linked newspaper said.
So far, only two ventures have obtained approval to build cars, based on a review of National Development and Reform Commission documents. Three others say they plan to apply for permits.
Jack Ma, Terry Gou, Li Ka-shing and Jia Yueting are among the investors who've spent at least $2 billion (13.3 billion yuan) to develop EVs as China tries to combat the smog choking its cities. Generous subsidies helped cultivate a gold-rush mentality.
That, in turn, prompted fears that the industry is plagued by too many companies that lack technical know-how to make electric or hybrid cars that can compete with foreign brands.
"There are too many entrants in the sector, and some of them are just speculators," said Yin Chengliang, a professor at Shanghai Jiao Tong University's Institute of Automotive Engineering. "The government has to raise the threshold. It's bad to see irrational investments in projects with low technology levels."
Overcapacity fears
The potential cap on EV startups comes as China grapples with overcapacity and high inventories. Carmakers are seeing pressure on their profit margins with the spread of cheap models, while stringent fuel economy and emissions targets are set to raise costs.
China surpassed the U.S. last year to become the world's biggest market for EVs, plug-in hybrids and fuel cell powered cars. Domestic automakers sold 331,092 of the vehicles in 2015, according to the China Association of Automobile Manufacturers.
The government's sales target is 3 million a year by 2025 -- a tenfold increase -- and it's offering subsidies that can total 60 percent of an electric car's sticker price. About 4,000 EVs and hybrids are in development.
"It's true we're emphasizing support to develop new-energy vehicles, but should we allow everyone to go ahead?" said Dong Yang, executive vice chairman of the manufacturers' association.
The Ministry of Industry and Information Technology is considering rules to restrict the number of startup EV makers to a maximum of 10, said Dong, who meets regularly with its officials. That count won't include traditional carmakers such as SAIC Motor Corp. and BYD Co. that are developing EVs.
The ministry didn't respond to a request for comment. Yet even those startups that get permits will have to meet tougher mandates before launching production, as the government introduces stricter quality-control measures.
In a draft policy document posted for public feedback this month, the ministry listed 17 technologies that companies intending to sell electric cars must possess in order to ensure "healthy" development of the industry.
Those include a control system that determines the vehicle's performance and stability, an information system that tracks the sources and conditions of key parts, and a process for recycling batteries.
Meeting standards
The Economic Daily, an official newspaper run by the State Council, said 90 percent of the companies developing EV platforms still won't meet the standards in two years. The report cited unnamed industry analysts.
One successful applicant is Beijing Electric Vehicle Co., which is controlled by BAIC Group, the state-owned manufacturer for Hyundai Motor Co. and Daimler AG's Mercedes-Benz. It will build a factory in the capital city that will produce up to 70,000 EVs a year.
The other is Hangzhou Changjiang Passenger Vehicle Co., which counts Hong Kong-traded FDG Electric Vehicles as a major shareholder.
Once on the verge of elimination, the former state-owned bus maker was revived by an infusion from FDG, which counts Li's foundation as a minority investor. Li has an estimated net worth of $31.2 billion, according to the Bloomberg Billionaires Index.
"The speed at which they're granting permission is worrying," said Zhang Zhiyong, a Beijing-based independent auto analyst. "Many companies are constructing their manufacturing facilities, but they're blocked at the door from getting the licenses. This is a huge problem."
The National Development and Reform Commission didn't respond to a faxed request for comment.
The startups intending to apply for manufacturing permits include Wanxiang Group Corp., owner of Karma Automotive, which announced a hybrid vehicle that costs more than $115,000. Its $375 million factory is planned for Hangzhou.
Another is Jia's LeEco, said Huang Hao, a Beijing-based spokesman. LeEco will invest 6 billion yuan in a factory with initial capacity for 200,000 cars a year, the company said on Aug. 10.
The third is WM Motor, which said on Aug. 17 that it has raised $1 billion in an initial fundraising round with plans to introduce its first model in 2018.
The company was founded last year by Freeman Shen, a former executive at Volvo Cars owner Zhejiang Geely Holding Group Co.
'Chaotic' situation
"It's right for MIIT to send out the signal that not everyone can get the permit," Shen said. "The current situation is a little bit chaotic with too many unqualified companies, such as low-speed EV makers and auto-parts companies, joining in the competition."
The government also plans to phase out subsidies after 2020, removing an incentive for startups depending on them to achieve profitability. Last year, the average EV maker produced about 3,000 cars, far below the scale required to ensure returns on investment, said Wang Cheng, an official at the China Automotive Technology and Research Center.
Some companies and local authorities invested in making new-energy vehicles and batteries even though they lack the necessary technology, and that worsened overcapacity, Wang said last month.
"There's definitely a bubble," said Yale Zhang, a managing director at researcher Autoforesight Shanghai Co. "If you don't own the core technology and can't build up the brand, it's 'game over' very quickly once you burn through the cash.
So far, only two ventures have obtained approval to build cars, based on a review of National Development and Reform Commission documents. Three others say they plan to apply for permits.
Jack Ma, Terry Gou, Li Ka-shing and Jia Yueting are among the investors who've spent at least $2 billion (13.3 billion yuan) to develop EVs as China tries to combat the smog choking its cities. Generous subsidies helped cultivate a gold-rush mentality.
That, in turn, prompted fears that the industry is plagued by too many companies that lack technical know-how to make electric or hybrid cars that can compete with foreign brands.
"There are too many entrants in the sector, and some of them are just speculators," said Yin Chengliang, a professor at Shanghai Jiao Tong University's Institute of Automotive Engineering. "The government has to raise the threshold. It's bad to see irrational investments in projects with low technology levels."
Overcapacity fears
The potential cap on EV startups comes as China grapples with overcapacity and high inventories. Carmakers are seeing pressure on their profit margins with the spread of cheap models, while stringent fuel economy and emissions targets are set to raise costs.
China surpassed the U.S. last year to become the world's biggest market for EVs, plug-in hybrids and fuel cell powered cars. Domestic automakers sold 331,092 of the vehicles in 2015, according to the China Association of Automobile Manufacturers.
The government's sales target is 3 million a year by 2025 -- a tenfold increase -- and it's offering subsidies that can total 60 percent of an electric car's sticker price. About 4,000 EVs and hybrids are in development.
"It's true we're emphasizing support to develop new-energy vehicles, but should we allow everyone to go ahead?" said Dong Yang, executive vice chairman of the manufacturers' association.
The Ministry of Industry and Information Technology is considering rules to restrict the number of startup EV makers to a maximum of 10, said Dong, who meets regularly with its officials. That count won't include traditional carmakers such as SAIC Motor Corp. and BYD Co. that are developing EVs.
The ministry didn't respond to a request for comment. Yet even those startups that get permits will have to meet tougher mandates before launching production, as the government introduces stricter quality-control measures.
In a draft policy document posted for public feedback this month, the ministry listed 17 technologies that companies intending to sell electric cars must possess in order to ensure "healthy" development of the industry.
Those include a control system that determines the vehicle's performance and stability, an information system that tracks the sources and conditions of key parts, and a process for recycling batteries.
Meeting standards
The Economic Daily, an official newspaper run by the State Council, said 90 percent of the companies developing EV platforms still won't meet the standards in two years. The report cited unnamed industry analysts.
One successful applicant is Beijing Electric Vehicle Co., which is controlled by BAIC Group, the state-owned manufacturer for Hyundai Motor Co. and Daimler AG's Mercedes-Benz. It will build a factory in the capital city that will produce up to 70,000 EVs a year.
The other is Hangzhou Changjiang Passenger Vehicle Co., which counts Hong Kong-traded FDG Electric Vehicles as a major shareholder.
Once on the verge of elimination, the former state-owned bus maker was revived by an infusion from FDG, which counts Li's foundation as a minority investor. Li has an estimated net worth of $31.2 billion, according to the Bloomberg Billionaires Index.
"The speed at which they're granting permission is worrying," said Zhang Zhiyong, a Beijing-based independent auto analyst. "Many companies are constructing their manufacturing facilities, but they're blocked at the door from getting the licenses. This is a huge problem."
The National Development and Reform Commission didn't respond to a faxed request for comment.
The startups intending to apply for manufacturing permits include Wanxiang Group Corp., owner of Karma Automotive, which announced a hybrid vehicle that costs more than $115,000. Its $375 million factory is planned for Hangzhou.
Another is Jia's LeEco, said Huang Hao, a Beijing-based spokesman. LeEco will invest 6 billion yuan in a factory with initial capacity for 200,000 cars a year, the company said on Aug. 10.
The third is WM Motor, which said on Aug. 17 that it has raised $1 billion in an initial fundraising round with plans to introduce its first model in 2018.
The company was founded last year by Freeman Shen, a former executive at Volvo Cars owner Zhejiang Geely Holding Group Co.
'Chaotic' situation
"It's right for MIIT to send out the signal that not everyone can get the permit," Shen said. "The current situation is a little bit chaotic with too many unqualified companies, such as low-speed EV makers and auto-parts companies, joining in the competition."
The government also plans to phase out subsidies after 2020, removing an incentive for startups depending on them to achieve profitability. Last year, the average EV maker produced about 3,000 cars, far below the scale required to ensure returns on investment, said Wang Cheng, an official at the China Automotive Technology and Research Center.
Some companies and local authorities invested in making new-energy vehicles and batteries even though they lack the necessary technology, and that worsened overcapacity, Wang said last month.
"There's definitely a bubble," said Yale Zhang, a managing director at researcher Autoforesight Shanghai Co. "If you don't own the core technology and can't build up the brand, it's 'game over' very quickly once you burn through the cash.
