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[Asia Economy Beijing=Special Correspondent Jo Young-shin] Chinese state-run media has focused on the issue of the proliferation of electric vehicle companies. As the number of electric vehicle manufacturers has surged, various problems such as overproduction have emerged. The reports by Chinese state media on the overproduction of electric vehicles seem to imply that the Chinese government may undertake a large-scale restructuring of the electric vehicle industry in the future.

State-run Xinhua News Agency reported on the 5th that the number of newly registered new energy vehicle-related companies in the first half of this year reached 73,000, a staggering 183.4% increase compared to the same period last year. Xinhua also noted that existing major companies such as Baidu, Foxconn, Didi Chuxing, and Xiaomi have entered the electric vehicle industry.

[Image source=Yonhap News]

◆ Everyone is throwing their hat into the electric vehicle ring = Xinhua explained that large-scale capital is flowing into the electric vehicle sector due to the development potential of the new energy vehicle industry, lowered entry barriers, and the soaring stock prices of electric vehicle companies like Tesla and NIO. According to Xinhua’s analysis, many are entering the new energy vehicle field because of its high growth potential.

An industry insider told Xinhua, "It is natural for companies to emerge rapidly in the early stages of a new industry’s development," adding, "Since new energy vehicles receive government policy support, it is only natural that companies flock to this sector." However, Xinhua expressed concern that overproduction of electric vehicles could put new companies at risk of bankruptcy.

Xinhua also pointed out that the enthusiasm of local governments is problematic. It cited Sailin Automobile as a representative case. Established in 2017 in Nantong, Jiangsu Province, Sailin Automobile’s total investment at the time was 17.8 billion yuan (approximately 3.1459 trillion KRW), the largest investment by a single company in Nantong. Xinhua explained that some local governments were overly eager but failed to fulfill their supervisory responsibilities related to new energy vehicle projects. Ultimately, the Jiangsu Provincial Development and Reform Commission criticized the project for violations of construction and production regulations and preferential treatment in electric vehicle industry investments, Xinhua added.

◆ Concerns over bankruptcy of emerging companies due to overproduction = Xinhua pointed out that as the number of companies entering China’s new energy vehicle industry has surged recently, problems related to overproduction have become rampant.

Using Byton Automobile as an example, Xinhua described the situation faced by emerging Chinese electric vehicle manufacturers. Sun Renjun, CEO of Suzhou Runyi Machinery Tools, said, "We started supplying Byton’s subsidiary Zixing in May 2019, but payments began to be delayed from October that year and eventually stopped altogether," adding that the unpaid amount reached 2.5 million yuan. Sun lamented, "We ultimately had no choice but to file for bankruptcy liquidation in court."

Xinhua noted that from 2015 to 2017, the number of emerging electric vehicle companies exploded, with production capacity reaching 20 million units at the time. However, except for a few leading companies, most emerging companies failed to reach mass production. It added that many companies did not sell a single vehicle last year.

According to the "2020 Analysis of China’s Passenger Car Production Capacity Issues" released by the China Automobile Dealers Association, the utilization rate of passenger car production facilities in China dropped from 66.6% in 2017 to 48.5% last year. This statistic shows that the Chinese car industry is in an overcapacity state.

Among emerging companies, NIO, Xiaopeng Motors, and Li Auto have entered mass production and successfully gone public, following a virtuous cycle, while Sailin, Bojun, and Changjiang are facing difficulties such as production halts, wage arrears, and bankruptcy. Xinhua predicted that the bankruptcy of emerging companies is only a matter of time.

[Image source=Reuters Yonhap News]

◆ China’s electric vehicle industry relying solely on capital = The Chinese automobile industry agrees that capital alone cannot lead the car industry. Former Changan Automobile President Zhu Hualong said, "You cannot make cars with money alone," emphasizing, "Capital inflows cannot change industrial competitiveness and development rules."

Chui Dongsu, Secretary-General of the China Passenger Car Market Information Joint Conference, said, "The massive emergence of new companies is a necessary stage in the development of the new energy vehicle industry," adding, "We need to observe whether their appearance brings vitality, new ideas, technologies, and paradigms to the automobile industry."

Xinhua emphasized that companies newly entering the electric vehicle market are differentiated from existing companies. In Baidu’s case, it has been accumulating technology in autonomous driving for 10 years before announcing its entry into the electric vehicle market and has cooperated with several automakers. Xiaomi also focuses on technology development rather than capital, and it announced plans to hire 500 R&D personnel in the autonomous driving sector.

Xinhua cited Li Auto’s utilization of Beijing Hyundai’s Plant 1 as a good example. It explained that although Beijing Hyundai Plant 1 has an annual production capacity of 300,000 units, its production utilization rate has recently plummeted. Xinhua stated that Li Auto invested 6 billion yuan in the plant, which had lost competitiveness, to convert it into a smart factory, adding that this rational approach of utilizing production facilities of uncompetitive plants instead of blindly building new ones is a good example.

This content was produced with the assistance of AI translation services.