E-car over­ca­pac­ity looms large

Com­pa­nies chas­ing new en­ergy ve­hi­cle prof­its could crowd each other out

China Daily (Hong Kong) - - MOTORING - LI FUSHENG li­fusheng@chi­nadaily.com.cn

C h i n a ’s f l e d g i n g n e w e n e r g y ve­hi­cle sec­tor is con­fronted with the risk of se­vere over­ca­pac­ity as tra­di­tional au­tomak­ers and fresh faces are rush­ing to ex­ploit the seg­ment that is be­lieved to be the largest gold mine of the au­to­mo­tive in­dustr y.

O n Tu e s d a y, Wa n x i a n g G r o u p won the nod from the au­thor­i­ties for its plant in Zhejiang prov­ince, which will be able to pro­duce 50,000 elec­tric cars per year when com­pleted.

The move made the gi­ant auto par ts sup­plier the sixth com­pany ap­proved to jump on the wagon of elec tric car mak­ing in China this year.

The six new­com­ers’ an­nual ca­pac­ity will reach a com­bined 1.13 mil­lion units per year around 2020.

The fig­ure ex­ceeds 2 mil­lion units when cou­pled with those from Nex­tEV, Che­he­jia and LeEco, all dot­com com­pa­nies.

Tra­di­tional au­tomak­ers have even more am­bi­tious plans. Pub­lic statis­tics show that the com­bined an­nual ca­pac­ity of 13 ma­jor pas­sen­ger car­mak­ers in­clud­ing BYD, SAIC Mo­tor and JAC Mo­tor will ex­ceed 4 mil­lion units by 2020.

That means China will be able to pro­duce about 7 mil­lion new en­ergy ve­hi­cles a year by the end of the decade, more than three times the goal the coun­try has set: 2 mil­lion units sold an­nu­ally in 2020.

The sim­ple math shows plants with a com­bined ca­pac­ity of around 5 mil­lion units will stand idle even if China man­ages to ful­fill the am­bi­tious tar­get, and some suggest an even worse sce­nario as the goal would be dif­fi­cult to achieve con­sid­er­ing the sec­tor’s cur­rent per­for­mance.

China sold 400,000 new en­ergy ve­hi­cles from Jan­uary to Novem­ber this year for year-on-year growth of 60 per­cent, ac­cord­ing to statis­tics from the China As­so­ci­a­tion of Au­to­mo­bile Man­u­fac­tur­ers.

Such ve­hi­cles are de­fined in China to con­sist of elec­tric cars, plug-in hy­brids and fuel cell cars but ex­clude hy­brids like Toy­ota’s Prius.

De­spite a growth rate much faster than that of the in­dus­try’s av­er­age of around 13 per­cent, Wang Bing­gang, an ex­pert on China’s new en­ergy ve­hi­cles pro­gram, said: “It is mainly driven by gov­ern­ment poli­cies in­stead of mar­ket de­mand.”

The cen­tral gov­ern­ment of­fers a sub­sidy up to 55,000 yuan ($7,913) for an elec­tric pas­sen­ger car, 30,000 for a plug-in hy­brid, and 500,000 yuan for an elec­tric bus. Sub­si­dies from lo­cal gov­ern­ments vary re­gion­ally.

The cen­tral gov­ern­ment started of­fer­ing sub­si­dies in 2009 to stim­u­late the devel­op­ment of new en­ergy ve­hi­cles.

By the end of last year, 33.4 bil­lion yuan had been ear­marked, ac­cord­ing to the fi­nance min­istry.

But re­cently, things have started to change.

On Tues­day, the Min­istry of In­dus­try and In­for­ma­tion Tech­nol­ogy said the au­thor­i­ties will cut sub­si­dies and to­tally with­draw them in four years now that some car­mak­ers have been caught swin­dling the sub­si­dies.

Ye Sheng ji, a CAAM deputy sec­re­tary-gen­eral, said the scheme was ad­justed to en­sure the steady and healthy devel­op­ment of the sec­tor as it has grown rapidly in the past sev­eral years.

At a CAAM press con­fer­ence ear­lier this year, Wu Wei, an of­fi­cial at the Na­tional Devel­op­ment and Re­form Com­mis­sion, said: “Due to rapid ex­pan­sion in the sec­tor, we have seen the prob­lem of blind in­vest­ment, which must be ad­dressed in or­der to pre­vent risks.”

A sur­vey by the China Times news­pa­per says that 32 ma­jor au­tomak­ers have an­nounced plans to in­vest 311 bil­lion yuan in new en­ergy car and bat­tery plants.

Yet even more are mak­ing for­ays into the al­ready over­heated seg­ment.

Last Mon­day, tele­com equip­ment and smart­phone maker ZTE Corp an­nounced that it has pur­chased a 70 per­cent stake in Gran­ton Auto, which is lo­cated in Zhuhai, Guang­dong prov­ince, and plans to build a man­u­fac­tur­ing base with in­vest­ment of 14.6 bil­lion yuan.

Tian Feng, an ex­ec­u­tive in ZTE’s car di­vi­sion, said it was not an im­pulse pur­chase.

“We tend to look at cars as smart­phones with wheels. If you see from this per­spec­tive, you can find it is log­i­cal that we en­ter into the sec­tor.”

T h r e e d a y s b e f o r e Z T E ’s an­nounce­ment, Dong Mingzhu, chair­woman of China’s lead­ing ap­pli­ances maker Gree Elec­tric Ap­pli­ances, and four part­ners in­clud­ing China’s rich­est man, Wang Jian­lin, made pub­lic their plans to in­vest 3 bil­lion yuan in a car­maker called Zhuhai Yin­long New En­ergy Co.

The move came af­ter Gree’s plan to ac­quire the com­pany was ve­toed by its share­hold­ers in Novem­ber.

“Gree failed to buy it. But I, Dong Mingzhu, will do it,” said Dong at a re­cent fo­rum in Beijing. She said this time she in­vested as an in­di­vid­ual and that she has “put all (her) money into the pro­ject”.

Ex­perts are not as op­ti­mistic as Dong. Cui Dong­shu, sec­re­tary-gen­eral of the China Pas­sen­ger Car As­so­ci­a­tion, said: “It is easy to churn out cars but dif­fi­cult to pro­duce good ones. And a num­ber of fac­tors in­clud­ing de­clin­ing sub­si­dies will make it dif­fi­cult for the mar­ket to see ex­plo­sive growth.”

John Zeng, man­ag­ing di­rec­tor of LMC Au­to­mo­tive Con­sult­ing (Shang­hai), said the new­com­ers have un­der­es­ti­mated the dif­fi­culty of build­ing a car brand.

“There may be chances in the auto parts sec­tor if they can pro­duce break­through tech­nol­ogy. But car mak­ing is dif­fer­ent.

“They have to win recog­ni­tion from sup­pli­ers, deal­ers and cus­tomers. But if they in­sist on mak­ing cars, there is a 99 per­cent chance that they fail,” he said.

Volkswagen is com­mit­ted to earn­ing back the trust of all our stake­hold­ers and thank our cus­tomers and deal­ers for their pa­tience as the process moves for­ward.” Volkswagen AG

JIA NAIDE / XIN­HUA

A worker works on elec­tric cars at a plant in Zoup­ing county, Shan­dong prov­ince. The fast-grow­ing new en­ergy ve­hi­cle sec­tor now faces the risk of over­ca­pac­ity.

WANG JILIN / FOR CHINA DAILY

Due to de­clin­ing sub­si­dies, the mar­ket for new en­ergy ve­hi­cles is un­likely to con­tinue the mo­men­tum it has seen in re­cent years. John Zeng, man­ag­ing di­rec­tor of LMC Au­to­mo­tive Con­sult­ing (Shang­hai) were sold in China from Jan­uary to Novem­ber this year

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