China's New Energy Vehicle Industry: A Decade of Boom and Bust, From Garage Startups to Oversupply

Tech 2024-12-03 18:13:47 Source: Network

China's New Energy Vehicle Industry: A Decade of Boom and Bust, From Garage Startups to OversupplyIn 2014, XPeng Motors started in an air-conditioned-less garage, a stark reflection of the nascent challenges faced by China's new energy vehicle (NEV) industry. Founder He Xiaopeng even insisted employees wear tank tops to work, prompted by a female job applicants attire

In 2014, XPeng Motors started in an air-conditioned-less garage, a stark reflection of the nascent challenges faced by China's new energy vehicle (NEV) industry. Founder He Xiaopeng even insisted employees wear tank tops to work, prompted by a female job applicants attire. That year saw the emergence of several new players, including NIO, Li Auto, XPeng, and others, marking a new era for the Chinese auto industry. However, a decade later, the landscape has dramatically shifted. From initial exuberance, the industry now grapples with overcapacity and fierce competition, having undergone a baptism of fire.

Between 2014 and 2019, the Chinese NEV market experienced unprecedented growth, with over 60 new brands emerging, though as many as 400 registered companies never actually produced vehicles. These new entrants aggressively recruited talent from established automakers, leveraging innovative designs, advanced battery technology, intelligent connectivity, and disruptive business models to challenge the long-held market dominance of foreign brands. Ironically, some NEV companies that went bankrupt between 2019 and 2021 were once prominent at auto shows, attracting significant attention from both the public and executives from established automakers. This entrepreneurial wave, spearheaded by both internet and traditional automotive professionals, fundamentally reshaped the century-old structure of the Chinese automotive industry.

This surge propelled companies like CATL (Contemporary Amperex Technology Co. Limited) and BYD to global leadership in their respective fields. Chinese vehicle manufacturers and parts suppliers experienced simultaneous growth in volume and price, significantly increasing their market share and ascending to higher value-added segments of the industry. The Chinese market transitioned from dependence on imported products and technology to becoming a global powerhouse capable of exporting its own technological advancements.

China

However, this rapid growth concealed significant risks. According to incomplete statistics from First Financial News, over the past decade, Chinese NEV startups built or planned a total production capacity of 13.55 million vehicles, with planned capacity investments reaching 685.3 billion yuan. Of this, 10.3 million vehicles of planned capacity from companies that have since halted operations represent planned investments of 606.58 billion yuan. An estimated 3.89 million vehicles of already established capacity represent a total of 107 billion yuan in cumulative funding. Local government support played a crucial role. In 2018, authorities criticized Jiangxi province for overheated NEV investment and significantly underutilized production capacity compared to the national average. Many companies benefited from local government-backed industrial funds and enjoyed various incentives, including land, factory space, funding, and tax breaks. However, brutal market competition ultimately led to the failure of most startups. An executive from a parts company noted that while the Chinese auto industry has made significant strides, the overall industry sentiment is poor, partly due to an inadequate exit mechanism. Several automotive executives also pointed out that despite China's efforts to control automotive production capacity, it continues to expand, highlighting the concerning role of local governments and the need for reform.

Significant progress coexisted with significant waste, a defining characteristic of the NEV industry's first decade. In 2017, then-CEO of Chery Automobile, Chen Anning, stated that the goal of Chinese independent brands was to bridge the gap with foreign brands. Over the past two decades, Chinese independent automakers have undergone four transitions: (1) around 2000, gaining market share through low-price strategies; (2) around 2008-2009, competing with joint ventures in the compact car segment; (3) around 2014, capitalizing on the high growth of the SUV market; and (4) since 2014, using NEVs as a breakthrough point to fiercely compete with foreign brands.

In this fourth transition, NEV startups spearheaded the electrification and intelligent vehicle wave, becoming a crucial force in independent brands' efforts to break into the high-end market. Independent brands have not only achieved remarkable success in the A-segment SUV and B-segment sedan markets but have also made inroads into the luxury car market above 300,000 yuan. Since 2021, the market share of independent brands has steadily risen, reaching 65.8% in the first ten months of 2023 and exceeding 70% in October, setting a historical high. Independent brands have made significant progress across various segments, with models like the BYD Dolphin and Wuling Bingo excelling in the A0 segment, the BYD Qin surpassing the Nissan Sylphy and Volkswagen Lavida in the A-segment sedan market, and models like the BYD Han and Zeekr 007 making breakthroughs in the B-segment sedan market. Independent brands have also seen penetration in the 200,000-300,000 yuan and above-300,000 yuan luxury car markets. Brands like Li Auto and Huawei's AITO have achieved notable success, with average vehicle prices exceeding 300,000 yuan and monthly deliveries exceeding 50,000 units.

Lin Jinwen, vice president of Zeekr Technology, points out that the fundamental reason for China's breakthroughs in various NEV segments lies in the generational advancements of its products. Independent automakers have also begun using digital management tools to improve efficiency and execution. Chinese parts companies, through breakthroughs in intelligent technology, have escaped the low value-added trap and secured more high value-added orders for intelligent hardware. Driven by NEV startups and the industry chain, China's intelligent and electric vehicle technologies are at the forefront globally. While there is still reliance on overseas suppliers for vehicle operating systems and computing chips, companies like NIO, Geely, XPeng, and Li Auto are actively developing their own chips, with some already achieving tape-out results.

The rise of China's NEV industry is not only reflected in the expansion of domestic market share but also in the growth of automotive exports. In 2023, China's automobile exports surpassed 5 million units for the first time, making it the world's largest exporter. However, despite the overall progress, the industry sentiment remains poor. Domestic companies face intense pressure to compete for market share, while some foreign brands have experienced declining sales, leading to factory closures and layoffs. Of particular concern is the role of local governments. In 2023, Dongfeng Peugeot-Citron launched a "half-price car purchase" campaign driven by local subsidies, triggering a price war. Some auto executives believe that excessive government intervention disrupts market competition, forcing already struggling companies to take actions that harm the entire industry.

The 10 million units of stalled production capacity from failed startups highlight the drawbacks of the "rush-to-build" approach. The delivery of the Tesla Model S in the Chinese market in 2014 triggered a wave of NEV startup creation. 2018 marked a peak for the number of NEV startups, exceeding 400. In the first half of the decade, the industry basked in accolades and rapid expansion. Companies aggressively expanded capacity and sought funding. Statistics show that 23 NEV startups planned an annual production capacity of 13.55 million vehicles, with planned investments exceeding 680 billion yuan.

However, in the latter half of the decade, market competition intensified, leading to the decline of many once-prominent companies. Currently, only 8 NEV startups have verifiable sales data, and former top seller Nezha Auto faces layoffs, pay cuts, and operational crises. The failure of numerous NEV startups has not only impacted employees but has also resulted in a significant waste of social resources. Statistics indicate that 16 bankrupt or defunct NEV startups planned an annual production capacity of 10.3 million vehicles, with planned investments exceeding 600 billion yuan, and 3.9 million vehicles of already established capacity, representing over 107 billion yuan in cumulative funding. Companies like Evergrande Auto, BAONENG Auto, and Leiding Auto exemplify this "rush-to-build" approach, ultimately ending in failure.

Local governments played a significant role in promoting the NEV industry, but in some areas, excessive intervention led to overcapacity and resource waste. In provinces like Zhejiang, Jiangsu, and Jiangxi, numerous cities attracted NEV projects, but most failed, resulting in unrecoverable investments for local governments. In 2019, Jiangxi province was criticized for overheated NEV investment, and Jiangsu province has long suffered from automotive capacity utilization rates below the national average.

While most NEV startups face difficulties, some leading companies continue to expand. NIO has a planned and under-construction factory capacity exceeding 1 million vehicles, while Leapmotor is building new factories, and XPeng is also planning future capacity. Xiaomi Auto, a newcomer, has also invested heavily in factory construction. Even leading companies cannot guarantee survival in this fiercely competitive market, leaving the future NEV landscape highly uncertain.

Ten years of development have seen China's NEV industry transform from "garage startups" to grappling with overcapacityan experience that presents both opportunities and challenges. Balancing growth with sustainability and perfecting market mechanisms are now crucial for the future of China's NEV industry

Disclaimer: The content of this article is sourced from the internet. The copyright of the text, images, and other materials belongs to the original author. The platform reprints the materials for the purpose of conveying more information. The content of the article is for reference and learning only, and should not be used for commercial purposes. If it infringes on your legitimate rights and interests, please contact us promptly and we will handle it as soon as possible! We respect copyright and are committed to protecting it. Thank you for sharing.(Email:[email protected])

Mobile advertising space rental

Tag: China New Energy Vehicle Industry Decade of Boom and