China EV Manufacturing Bubble Faces Become Bludgeoned
There are now 486 EV manufacturers in China, tripled two years ago. Most will disappear.
New vehicle sales in China doubled 14% in the first quarter of the previous year, according to the China Association of Automobile Manufacturers today. For the whole of 2018, the new car sales had fallen by 4.1%, the first drop in modern data dating back to 1990.
Despite this historic decline, sales of "electrified" vehicles (battery electric EV, plug In hybrids, and fuel cell cars), 85% increased in March compared to one year ago, and 110% in the first quarter, to nearly 300,000 units: 227,000 EV, 72,000 plug-in hybrids and 273 fuel cell cars.
Last year, sales of electrical and electronic components and plug-in hybrids had increased 62% to 1[ads1],255 million vehicles, achieving a record 5.3% of total vehicle sales. Of these, Tesla, according to the Ministry of Industry and Information, was a lot of 14,467. This gives an EV market share of minus 1.1%.
Sales of electrified vehicles in China are on track to reach 1.6 million units this year, for a share of around 7% of the new vehicle sales – based on the sale of vehicles powered by internal combustion engines (ICE). continue to decline, while sales of electrified vehicles are rising.
The EV industry in China has been driven by government grants. China has been strongly promoting EVs for two reasons: helping to reduce often enormous air pollution in major Chinese cities; and to create the world's dominant EV industry.
Chinese government's policy also seeks to create the world's dominant EV battery cell industry. And so far, so good. Here are the biggest decision makers of battery cells for EVs:
- China's CATL.
- Japan's Panasonic
- China's BYD, which also does EV.
- Koreas LG Chem
- Korea's Samsung.
- through 10: Chinese manufacturers.
But the subsidies that caused a tsunami of private sector investment to pile into the battery cell boom in China are being shut down and the weaker battery power producers are expected to be erased.
And then the government is now reducing the subsidies for electrified vehicles, with some $ 7,500 subsidies per vehicle being cut in half.
This comes a bad time for the EV industry: Although sales have boomed, EV startup has mushroomed even faster.
It is now – take a deep breath – 486 registered EV manufacturers in China, who have more than tripled in two years. They have attracted billions of dollars in investment.
EV startup spans the spectrum, with everyone and his dog unrelated to the automotive industry who joins the fire. Last year, the online retailer Alibaba and the iPhone manufacturer Foxconn led the 2.2 billion yuan ($ 347 million) financial round for EV startup Xiaopeng Motors. China Evergrande Group, the country's second largest real estate developer, announced in March that it will "strive to become the world's largest and strongest electric vehicle group within three to five years."
EV startup in China that has increased most funds, according to Bloomberg, includes:
- NIO: $ 4.1 billion
- WM Motor: $ 2.3 billion
- Xiaopeng Motors: $ 1.3 billion
- Youxia Motors: $$ 1.3 billion
Start-up manufacturers combined promise to build a production capacity of 3.9 million EVA a year.
Good luck filling that capacity – because the established Chinese giants have already turned part of the production into EV. Some, such as BAIC and Geely (who also own Volvo), have announced that they will switch almost entirely to electrified cars over the next few years.
In addition, the global giants, such as GM and Volkswagen AG, and their Chinese joint ventures are all forced by the government to build electric motors in China, and they roll out dozens of models.
Overall falling or stagnant vehicle sales, even as much production capacity is put into operation, allows for a toxic mixture of malinvestment and overcapacity. EV production overcapacity is just part of it. This has dogged other industries in China.
If the world ever needs another illustration of a bubble that will inflate and bring down many investors with it, there is the EV production bubble in China. EV devices will continue to develop and EV sales will thrive, but not nearly enough for 486 EV makers currently building production capacity in China. They will experience a classic shakeout with only a few dozen left in the end.
Auto-manufacturing is a capital-intensive activity, and start-up requires huge amounts of investor funds to gain traction. As the subsidies are trimmed and adjusted, and as overcapacity rules, weaker players will run out of money first and knock down. This will go through teams and teams and can take down some established companies as well. Industry shakeouts, after an investment and capacity bubble like this, are brutal.
"We'll see big waves sweeping away sand in the EV industry," Thomas Fang, a partner and strategic consultant at Roland Berger in Shanghai, told Bloomberg. "It's a critical moment that determines the life or death of EV startup."
Many of these startups are founded or funded by people with internet or technology background. Whore is not necessarily fully aware of the huge investment required in car production, says Fang.
"The investment needed for actual production is several times what they have spent on marketing and production development," he said. "That's why we see some of them delaying mass production plans."
Sales of electric motors – small as they are still compared to sales of ICE vehicles – will continue to grow. But investors who fund EV start-up in China are faced with bludgeoned by the effects of massive overcapacity in the industry that had been encouraged by government grants and policies.
Panasonic froze its expansion and investment plan for Gigafactory after Deliveries of Teslas thrown in the 1st quarter. Read … Carmageddon at Tesla-Panasonic Gigafactory in Nevada and Shanghai
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