In Australia politicians, particularly those of the more conservative persuasion, seemingly squabble over the very idea of electric cars running on our roads.
Yet in China, one of the biggest markets in the world for electric vehicles (EV), an iPhone assembler, e-commerce emporium and a real-estate developer compete in the same business, that of producing those very same electric vehicles.
Bloomberg newsagency reports that’s because of a seismic shift toward EVs, which has spurred billions of dollars in investments by traditional carmakers, startups and titans of the internet, electronics and real-estate industries.
The rush is on even as the government pulls back on the subsidies that juiced the industry to begin with.
There are now 486 EV manufacturers registered in China, more than triple the number from two years ago.
Bloomberg reports while sales of passenger EVs are projected to reach a record 1.6 million units this year, that’s likely not enough to keep all those assembly lines humming, prompting warnings that the ballooning EV market could burst and leave behind only a few survivors.
“We are going to see great waves sweeping away sand in the EV industry,’’ said Thomas Fang, a partner and strategy consultant at Roland Berger in Shanghai.
“It is a critical moment that will decide life or death for EV startups.’’
At least 25 of those electric-car brands showcased models at the Shanghai Auto Show.
They ranged in expertise from nascent supercar maker Qiantu Motor to United States-traded startup NIO Incorporated and elder statesman BYD.
BloombergNEF reports dozens of startups have entered the global EV business in recent years, raising US$18 billion since 2011.
Most of the biggest fundraisers are Chinese, including NIO, WM Motor, Xpeng Motors and Youxia Motors.
The startups promise to deliver a collective manufacturing capacity of 3.9 million vehicles a year.
That’s excluding what some of the world’s biggest carmakers are planning.
China’s big, but it’s not that big, and annual sales of passenger EVs only surpassed one million units for the first time last year, according to BloombergNEF, spurred by the subsidies that could slice thousands of dollars from the price.
Yet EV sales make up just four per cent of overall passenger vehicle sales of 23.7 million units, according to the China Association of Automobile Manufacturers.
At the same time, sales of traditional cars are currently in a free fall, plunging for the 10th straight month in March as a slowing economy and trade tensions with the US weigh on consumer sentiment.
“There is still huge room out there in the new-energy vehicle market with China’s relatively low vehicle-penetration rate,’’ said Cui Dongshu, secretary-general of the China Passenger Car Association, an industry group.
“Yet that market is for the competitive players, not the weakest ones, and the latter will be squeezed out.’’
The government started pushing development of electric cars to help eliminate air pollution, reduce oil imports and develop high-technology manufacturing.
By 2025, China’s leaders want annual sales of new-energy vehicles, including pure-battery electrics, plug-in hybrids and fuel-cell cars , to reach seven million units.
That’s the equivalent of about 20 per cent of China’s total vehicle market.
Even that amount would barely be enough to sustain a few dozen companies, not hundreds.
A factory typically needs to produce at least tens of thousands of vehicles a year to be profitable.
Another headwind is the subsidy cut announced last month by the finance ministry, a move meant to encourage manufacturers to rely on innovation rather than assistance.
Some subsidies that could total US$7500 per vehicle were halved.
“With the subsidy adjustments, some less technologically advanced EV startups will disappear,’’ said Zhou Lei, a Tokyo-based partner for Deloitte Tohmatsu Consulting.
Then there’s the swarm of global giants from Tesla to Volkswagen to Ford Motor Company, all planning to flood the market with locally produced EVs.
Elon Musk’s company started selling its first mass-market model in China this year and plans to begin building vehicles in Shanghai by year’s end.
Tesla sold 14,467 vehicles in China last year, according to the Ministry of Industry and Information Technology.
Toyota, Fiat Chrysler, Honda, and Mitsubishi chose a quicker way in: they all plan to sell what’s essentially the same car, developed by Guangzhou Automobile Group.
More established local manufacturers, such as BYD, likely can withstand the competition and the subsidy cuts, given a track record spanning years, a line-up including cars and buses, and an existing customer base.
The company has boosted revenue for six straight years and turned a profit since at least 2000, according to data compiled by Bloomberg.
“Only companies that have solid technology reserves can stand out amid competition,’’ said Wang Chuanfu, founder and chairman of BYD.
The ones facing the biggest risk are the upstarts still seeking their footing.
Many are founded or funded by people with an internet or technology background, used to hefty cash-burn rates but still not necessarily fully aware of the massive investment needed for car manufacturing.
The non-car companies spending heavily on EVs include Foxconn Technology, Alibaba and China Evergrande Group.
Evergrande, better known for real estate development, has proclaimed it will become the world’s biggest EV maker in three to five years.
Faraday Future, which has its headquarters and production facility in California, has yet to start building its first model.
Byton, led by former BMW managers, said last month it’s seeking U
S$700 million in backing after already raising US$500 million earlier this year, with a view to start manufacturing late this year.
Startups need to secure their funding within the next year or risk being wiped out, said Li Xiang, founder and chief executive officer of the Chehejia brand.
After that, no investor will commit to a new contender while even the leading startups struggle to earn a profit.
Mr Li, among the first to own Tesla’s Model S in China, started his Beijing-based company after successfully launching car-buying portal Autohome, which trades in the US and has a market capitalisation exceeding US$12 billion.
Chehejia, which recruited talent from Daimler, Toyota and BMW, plans to start deliveries in the fourth quarter, after initially aiming for 2017.
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