Beijing has unveiled plans to consolidate China’s electric vehicle industry, which the government believes cannot develop because there are too many players in the market. China’s Minister of Industry and Information Technology Xiao Yaqing said at a press conference in Beijing:
“Looking ahead, electric vehicle manufacturers should get bigger and stronger. There are too many companies in the market right now. Most of the companies are small and fragmented.”
He added that authorities see mergers and reorganizations as ways to make the industry a success. Xiao highlighted:
“The role of the market should be fully exploited and we encourage mergers and restructuring in the electric vehicle sector to further increase market concentration.”
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Following the announcement, a number of shares in Chinese e-automakers fell in value, with Xpeng dropping 2.3 percent and Li Auto 1.4 percent in Hong Kong trading. In mainland China, BYD securities fell 1.8 percent and BAIC BluePark New Energy Technology fell 4.6 percent.
The Chinese electric car industry is one of the largest in the world with around 300 manufacturers, which the government regards as excess capacity. According to CNBC the number of new companies in China that deal with “New Energy Vehicles” rose by a quarter in 2021 to a total of 321,000. This is the result of subsidies from Beijing aimed at reducing pollution by switching to cleaner energy sources in the automotive sector.
According to data from the Ministry of Industry and Information Technology, government subsidies for the purchase of so-called new energy vehicles totaled 33 billion yuan (US $ 5.1 billion) between 2015 and 2020.
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But now Beijing is working on measures to contain the bloated industry and is considering options such as setting a minimum level of utilization of production capacities, reports Bloomberg relying on informed sources. According to the National Development and Reform Commission, the average utilization of production capacities among Chinese automobile manufacturers was just under 53 percent last year. Bill Russo, founder and CEO of Shanghai-based consulting firm Automobility, told the news agency:
“This has been a strain on local players from the start: too many companies splitting the market, which fragments the supply chains for the core components. It is imperative to focus on a few key manufacturers and suppliers for the components of an electric car . “
Tu Le, another analyst and founder of Beijing-based consulting firm Sino Auto Insights, says the government’s current move is another way to reduce the number of entrants in the market. According to CNBC explained the expert:
“They probably realized the build-up of overcapacity and too many brands unable to compete with their products in the market. This is common in all sectors of the Chinese market and leads to a race to the bottom companies compete solely on price. That puts a strain on the entire sector. “
Tu also pointed out that China’s top EV companies Nio, Xpeng Li Auto and BYD could benefit from consolidation practices “as they eliminate potential competitors and allow companies to acquire a team or technology to improve their products.”
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