How China’s EV boom went off the road
Visitors to the website of Byton Ltd are greeted with colour-saturated images of shiny electric cars gliding along manicured streets. Those paying a visit to the automaker’s factory in Nanjing in eastern China may be less impressed.
The plant is modern and huge, gleaming under the hot summer sun. But there’s total silence. Production has been suspended since the Covid19 pandemic began and there’s no one around except a lone security guard.
It’s a similar situation across town at Bordrin Motors. Weeds dot the factory’s perimeter and there’s a court notice pasted to the main gate announcing the electric vehicle (EV) maker’s bankruptcy.
Bordrin and Byton represent the flipside of China’s EV success. While homegrown stars like Nio and Xpeng have gone on to raise billions of dollars and are now selling cars in numbers that rival US-based Tesla, scores more have fallen by the wayside, unable to raise the crazy amounts of capital needed to make automobiles at scale.
In many cases, they were lured into existence by provincial governments dangling cash and other incentives to make Beijing’s dream of turning China into an EV powerhouse a reality.
Local authorities helped manufacturers set up factories that promised jobs and development — if they succeeded. But the tide began to turn in November last year, when regulators asked regional governments to review and report back on the scale of their support for the auto industry.
Alarmed by unbridled investment in the sector — and the bankruptcies and zombified factories that came with it — Beijing is applying the brakes.
“We have too many EV firms,” Xiao Yaqing, China’s minister for industry and information technology, declared on Sept 13. Mergers and acquisitions will be encouraged as the market needs to be further concentrated, he said.
The government is also looking at setting production limits for the EV sector, people familiar with the matter told Bloomberg News, with provinces unable to approve new projects until surplus capacity comes online. Resources will also be channeled into a few select EV hubs.
The moves are a potential warning sign for investors who have poured money into electric carmakers and the technologies that support them over the past year.
There are 846 registered automobile manufacturers in China, and more than 300 of them make new-energy cars, loosely defined as electric vehicles or plug-in hybrids. The vast majority are names unrecognisable elsewhere.
In 2020 alone, the country added new production capacity of around 5 million units, about four times the actual number of EVs sold in China that year. According to regulators, almost half that capacity wasn’t in use.
Bordrin, founded by former Ford executive Huang Ximing in 2016, was targeting annual output of 700,000 cars from three factories. But it ran out of money and folded before making even one. Huang didn’t reply to messages seeking comment.
China doesn’t have a public record of bankruptcies, but since last year, at least a dozen EV makers are known to have gone under or have had to be restructured to avoid insolvency.
“This is kind of the classic capitalist competitive shakeout,” said Gary Dvorchak, a Beijing-based managing director at the investment advisory firm Blueshirt Group.
“You get a zillion companies and then you have an oversupply situation. The process of failing is typically a lot slower in China because companies get government support. But eventually, some have to die and the pain inflicted to get those deaths to happen can be high.”
Byton at least still exists. The carmaker, co-founded by former BMW and Nissan executives, suspended all domestic operations and furloughed staff in July last year as the pandemic made it tougher to get its business off the ground.
Even before Covid, the company had encountered difficulties meeting announced deadlines for producing and delivering its first model, although its website still accepts reservations for cars.
Things started to look up this year, when Byton signed a strategic cooperation deal with the iPhone maker Foxconn Technology Group in January (aided by the Nanjing Economic and Technological Development Zone) to start mass production of the Byton M-Byte SUV by the first quarter of 2022.
But Foxconn has been withdrawing staff from the Nanjing plant after one of the carmaker’s biggest creditors started taking management control. And the Nikkei newspaper reported last month that the collaboration had been put on hold due to Byton’s worsening financial situation.
A representative for Byton declined to comment.
Jiangsu province, where Nanjing is located, strove to become an EV hub, luring US$32 billion worth of auto-industry investment in the six years through 2020. Now, it is home to more than 30 carmakers.
But the province became the focus of a Beijing-ordered investigation earlier this year, which found some local authorities had been doling out tax breaks and other incentives beyond the scope of government guidelines. This resulted in “salient problems of low production capacity utilisation rates and idle capacity”, Jiangsu provincial officials admitted, without elaborating.
The Nanjing factory of Yinlong New Energy Co broke ground in 2017 with a total planned investment of 10 billion yuan ($1.6 billion). Output was set at 30,000 new-energy commercial vehicles, mainly electric buses, and there were EV battery making plans too. Production was due to start in 2018 but today the plant is all but abandoned.
The company’s biggest shareholder, Gree Electric Appliances Inc, said there is still scope for collaboration, either in bolstering the carmaker’s capacity utilisation and competitiveness, or in pushing its battery technology.
Some established automakers are watching all of this with a sense of inevitability. Zhejiang Geely Holding Group Co, one of the country’s biggest privately owned carmakers with a range of brands spanning mass-market vehicles to ultra-luxury racing cars made by Lotus — which it controls — sees a natural cycle playing out, and one that will involve some casualties.
“Some people rush to build one, two, three, five factories, even though their first car isn’t yet on the market,” said Feng Qingfeng, CEO of Group Lotus Plc.
“When everybody thinks it’s easy to make cars, people dive into car making. When they realise the car business isn’t that easy, they stop investing,” he said. “It’s the invisible hand of the market economy commanding order.”
“Some people rush to build one, two, three, five factories, even though their first car isn’t yet on the market”
FENG QINGFENG CEO, Group Lotus Plc