The last two decades have seen China rapidly become a major player in the automotive market. However, when it comes to electric vehicles, it appears the government may be concerned at the level of competition within the country. Industry and Information Technology Minister Xiao Yaqing stated there are “too many” companies building EVs in China, and that the government will aim to guide the industry to consolidate in future, reports CNBC.
It’s a state of affairs assisted in some ways by the Chinese government’s own policies. As reported by Fortune, Beijing has implemented measures such as tax breaks for companies entering the EV market and subsidies to encourage customers to purchase EVs. Since 2010, these have helped spur development, but the government has grown concerned at the sheer number of players competing in the same space. Approximately 300 EV makers are estimated to be in operation in China at present.
The press conference also touched on broader topics in the electric vehicle space. Xiao also commented on the government’s goals to build out a broader charging network and to also push for sales of EVs in rural areas. The chip shortage also got a mention, with Xiao explaining that the ministry hoped to deliver alternative solutions to deal with the shortage against a backdrop of three chip suppliers receiving fines for inflating prices.
However, don’t expect a strict edict from up high to immediately shutter smaller players on the EV scene. Xiao stated in a press conference on Monday that “The role of the market should be fully utilized, and we encourage merger and restructuring efforts in the EV sector to further increase market concentration.” It may sound like an odd statement from a government minister from the Chinese Communist Party. However, as anyone that’s counted the number of McDonald’s restaurants in Beijing can tell you, the reality of the country is far more of a mix between top-down rule and a typical market economy.
Instead, the government is contemplating regulations to help encourage consolidation, aiming to result in fewer, more viable companies in the market. According to Bloomberg, one measure taken could be to implement regulations around the utilization of production capacity. New projects could be denied approvals until existing operations improve their production utilization. On average, Chinese automakers are operating at just 53% utilization.
In comparison, US automakers typically consider a plant below 80% utilization to be unprofitable. Market fundamentals like wages and input costs vary, but it’s clear there are significant gains to be had if Chinese automakers can improve those figures. Perhaps one of the biggest gains to be had is in the supply chain. Flows of parts and raw materials can be greatly simplified with less players in the market building a more focused range of models.
Overall, if there’s a trend we’ve seen, it’s that when the Chinese government makes a call, its will is usually done in short order. Expect the numbers of unique Chinese EV manufacturers to drop precipitously in the coming years. Bigger players like Nio and Xpeng will likely continue on unbothered, but smaller operations yet to make a big splash could be absorbed by larger juggernauts as time goes on.
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