Is China’s electric car bubble starting to burst?Startups find it hard


According to the Herfindahl-Hirschman Index (a metric used by academics and regulators to assess competition and measure market concentration), the highly competitive market officially transitioned from overcrowded to moderately concentrated in the first quarter. The biggest winners have been companies already at the top, such as BYD Co and Tesla Inc, which have been consolidating their power.

Wang Hanyang, an auto analyst at the Shanghai 86 Research Institute, said, “If you count all the new energy vehicle start-ups after subsidies, 80% of the new energy vehicle start-ups have already exited or are exiting the market.”

That’s not good news for a struggling business like NIO, whose sales have been falling, said last week that the Abu Dhabi government would take a 7% stake in it following a capital injection. . Just two years ago, Nio founder and CEO Li Bin was mobbed by fans at a client dinner, and the company was on a roll after recovering from a near-death experience with a huge capital injection from the Hefei city government.

The Herfindahl-Hirschman index has shown a clear trend of consolidation over the past few years, sifting out new players that emerged when China first rolled out plans to support clean energy vehicles through state subsidies and other incentives.

The squeeze will only intensify over time, with the dominant players consolidating their positions while smaller players struggle to survive. In the first quarter of 2023, the unit sales market share of the Big Four rose to 60%, compared to 44% in the same period three years ago.

While China has extended until 2027 tax breaks for consumers to buy new energy vehicles, all signs point to continued government support for struggling automakers. Xin Guobin, an official with the Ministry of Industry and Information Technology, said the push for integration of market forces and regulatory mechanisms will help improve the international competitiveness of surviving brands.

BYD, backed by Warren Buffett’s Berkshire Hathaway, has seen its dominance soar over the past two years. The Shenzhen-based company now accounts for more than a third of all NEVs sold in China, up from less than 15% at the end of 2020, when the clean car market was just starting to stabilize at more than 100,000 monthly sales .

Its success has even squeezed the market’s second-largest player, Tesla, which gradually lost share over the past two years until breaking through in the first quarter. Now, it’s poised to grab about 11% of the market, giving the two leaders nearly half of the market.

Meanwhile, some of the industry’s early crown jewels have quietly disappeared. Many early EVs were built primarily to capture subsidies and meet regulatory requirements, often without offering high-quality design and performance.

“We call them regulated cars,” said Jochen Siebert of JSC Automotive, a Singapore-based car consultancy, referring to the cars, which are sold mostly to fleets to meet fuel consumption rules and earn new energy credits and other subsidies. The only thing that matters is that they have to be EVs. “

Once demand increased, competitors emerged and the fleet market became saturated, demand for these vehicles began to wane.

Zhidou Electric Vehicle Co Ltd, a Ninghai-based manufacturer once backed by Li Shufu’s Zhejiang Geely Holding Group, sold a total of about 100,000 vehicles between 2015 and 2017, with a range of only is 62 miles (100 kilometers). The tiny carmaker quickly lost momentum after China removed subsidies in 2018 for electric vehicles with a range of less than 93 miles on a charge.

Similarly, Beijing Electric Vehicle Co Ltd, the electric vehicle subsidiary of state-owned Beijing Automobile Co., which primarily caters to fleet operators and has led sales of pure electric vehicles for more than five years, began reporting losses after subsidies slipped. Then it changed tack.

Byton Ltd., founded by a former BMW executive, had to suspend production until it delivered its first car, while Zhiche Youxing Technology Shanghai Co. Ltd., originally planned to list on China’s STAR Market in 2019, is on the verge of bankruptcy in 2022. .

But the market is anything but easy for automakers trying to attract customers rather than satisfy regulations.

One of the latest losers in the slow reshuffle is WM Motor Technology Group Co., a Shanghai-based electric car maker that has acquired technology giant Baidu Inc. support.

About a month and a half after the company announced in January that it would list in Hong Kong through a reverse merger, reports emerged that it was cutting pay and laying off workers. Sales fell sharply.

Ms. Cui, a resident of Shijiazhuang City in northern China, was one of the earliest owners of WM Motor’s EX5 sports utility vehicle. In April, she had to abandon her four-year-old car due to a defective battery pack.

The dealer told her that a replacement could not be offered due to the company’s financial difficulties, and that her situation was not unique. The cost of buying a new battery pack from a third party is even higher than the initial price of the vehicle after subsidies, she said.

After repeated unsuccessful attempts to contact WM Motor or its chief executive Shen Feimin on social media, Cui bought a cheap gasoline car for commuting while holding out hope for the company’s recovery.

“I placed an order before seeing the actual car, and the lifetime warranty on the battery pack is a huge advantage for me,” Cui said. “Who would have thought that the company would be on the verge of bankruptcy one day?”

WM’s reversal of fortune is clear. Since 2018, the once-lauded company has secured two of the top five venture capital investments in China’s clean car market by deal size, according to capital market data provider Preqin. The deals happen in 2020 and 2021, with investors including leading state-owned banks and technology companies.

It’s hard to say whether the pace of market consolidation will continue at a time when consumer interest in EVs is still nascent. Retail sales of new energy vehicles in China jumped to 580,000 last month, but accounted for only one-third of total passenger car sales, according to data from the Passenger Federation.

Siebert predicts that cool features such as self-driving features, large built-in screens and even karaoke systems in the first wave of electric cars will give way to a focus on safety, performance and durability, a shift that could give Volkswagen a boost. And other traditional automakers bring new opportunities. Advantage.

“The next five years will be decisive,” he said.

First published date: Jun 27, 2023 08:27 AM EST

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