With tougher rules, China seeks fewer, but better, EV makers
After paying out billions of dollars in subsidies to promote greener cars -- and creating a gold-rush among unknown startups -- China is tightening regulations to weed out weaker domestic firms.
But some leading local EV makers are, for now, ignoring calls to apply for costly manufacturing licenses, preferring to invest in design and technology innovation. That, analysts warn, could prove costly if they fail to secure permits to make and sell their new cars.
China has spent heavily to build the world's largest EV market, lower fuel imports, improve big city air quality and create technological champions.
Last year, government sales subsidies totaled $4.5 billion (31 billion yuan).
Subsidies, paid to the manufacturer for each car sold, can be worth more than a third of the sticker price of a model like BYD's e6. Subsidies are scheduled to be phased out over the next few years.
Automakers like SAIC Motor Corp., Chongqing Changan Automobile Co. and General Motors are displaying new electric cars at the Guangzhou auto show, which opened on Friday.
Beyond the traditional automakers, Beijing has opened up the sector to investment by technology firms and others. EV start-ups such as LeEco, Future Mobility and WM Motors have raised hundreds of millions of dollars to develop green car technology.
In the first ten months of 2016, sales of battery-electric cars and plug-in hybrids totaled 337,000 vehicles. While that was up sharply from last year, sales are still well short of China's goal to have 5 million electric vehicles on its roads by 2020.
Crackdown
In recent months, authorities have cracked down on automakers that inflated EV sales and produced substandard vehicles. The government has temporarily suspended subsidies and set new rules for companies applying for a license to make all-electric cars.
These include intellectual property rights; r&d; sales and after-sales support plans; trial production of at least 15 cars; and more. Separately, new safety rules such as battery testing will make life tougher for weaker firms.
Since March, the government has approved just one-quarter of the total applications, auto executives say.
The National Development and Reform Commission (NDRC), which approves the licenses, could not be reached for comment. The Ministry of Industry and Information Technology did not respond to requests for comment.
Some of the leading tech and start-up companies, including those backed by Tencent and Foxconn, have delayed their applications, noting that they are not ready to produce vehicles or expect the rules to change.
NextEV -- which is backed by Tencent and Hillhouse Capital -- will apply for a license -- eventually will apply for a license, said Jack Cheng, the company¡¯s chief of manufacturing. But Cheng added that NextEV will do so only after it makes its first car and teams up with a traditional automaker, Anhui Jianghuai Automobile.
"We don't really want to spend too much money on manufacturing, to be honest, and the government policy might change," Cheng told Reuters.
Wang Chao, chairman of EV start-up Kaiyun Motors, said that instead of applying directly for a license, he preferred to buy a struggling conventional automaker whose production license also could be used to make electric vehicles.
That 'grandfathering' process allows firms to produce cars in existing factories, though they would need permission for any new plant. "You can spend tens of millions and get a license, but all you get is a license," Wang said. "If you buy a company, you also get a factory."
High stakes
Startups are taking a gamble by not getting a license now, says Yale Zhang, Shanghai-based managing director of consultancy Automotive Foresight.
An NDRC license will be a likely prerequisite for selling an electric car. The public security bureau, which issues car license plates, is unlikely to issue plates for cars made by companies with no central approval.
"The best thing for them is to secure a license, otherwise there might be some problems," Zhang said.
The state-backed China Association of Automobile Manufacturers has said the new rules should lead to a more sustainable EV sector. "It will affect the market's short-term development, but in the long-term will lead to better quality and more cost effective development," said Shi Jianhua, a CAAM deputy secretary.
Zhang at Automotive Foresight estimates companies need to have least 3 billion yuan ($438 million) to meet the new r&d, sales and plant standards.
While several start-ups have the funding, they are reluctant to request licenses now, though several said it was inevitable.
For example, Cheng at NextEV -- which aims to raise 20 billion yuan ($2.9 billion) at home and abroad by December 31 -- said he'd rather invest in technology development.
NextEV will pay contract manufacturer JAC for each car produced, though Cheng foresees a deeper relationship in the future.
As China winnows down the number of firms racing to produce clean, smart, internet-connected cars, auto executives are calling for an end to the recent boom. "This is the golden era. In two or three years, you won't be able to start a new company," said Wang of Kaiyun Motors.
"There are over 20 (electric passenger car) companies. Most will put out one model, maybe not even that, and disappear," he said, predicting only a handful will survive in the long run.
China has spent heavily to build the world's largest EV market, lower fuel imports, improve big city air quality and create technological champions.
Last year, government sales subsidies totaled $4.5 billion (31 billion yuan).
Subsidies, paid to the manufacturer for each car sold, can be worth more than a third of the sticker price of a model like BYD's e6. Subsidies are scheduled to be phased out over the next few years.
Automakers like SAIC Motor Corp., Chongqing Changan Automobile Co. and General Motors are displaying new electric cars at the Guangzhou auto show, which opened on Friday.
Beyond the traditional automakers, Beijing has opened up the sector to investment by technology firms and others. EV start-ups such as LeEco, Future Mobility and WM Motors have raised hundreds of millions of dollars to develop green car technology.
In the first ten months of 2016, sales of battery-electric cars and plug-in hybrids totaled 337,000 vehicles. While that was up sharply from last year, sales are still well short of China's goal to have 5 million electric vehicles on its roads by 2020.
Crackdown
In recent months, authorities have cracked down on automakers that inflated EV sales and produced substandard vehicles. The government has temporarily suspended subsidies and set new rules for companies applying for a license to make all-electric cars.
These include intellectual property rights; r&d; sales and after-sales support plans; trial production of at least 15 cars; and more. Separately, new safety rules such as battery testing will make life tougher for weaker firms.
Since March, the government has approved just one-quarter of the total applications, auto executives say.
The National Development and Reform Commission (NDRC), which approves the licenses, could not be reached for comment. The Ministry of Industry and Information Technology did not respond to requests for comment.
Some of the leading tech and start-up companies, including those backed by Tencent and Foxconn, have delayed their applications, noting that they are not ready to produce vehicles or expect the rules to change.
NextEV -- which is backed by Tencent and Hillhouse Capital -- will apply for a license -- eventually will apply for a license, said Jack Cheng, the company¡¯s chief of manufacturing. But Cheng added that NextEV will do so only after it makes its first car and teams up with a traditional automaker, Anhui Jianghuai Automobile.
"We don't really want to spend too much money on manufacturing, to be honest, and the government policy might change," Cheng told Reuters.
Wang Chao, chairman of EV start-up Kaiyun Motors, said that instead of applying directly for a license, he preferred to buy a struggling conventional automaker whose production license also could be used to make electric vehicles.
That 'grandfathering' process allows firms to produce cars in existing factories, though they would need permission for any new plant. "You can spend tens of millions and get a license, but all you get is a license," Wang said. "If you buy a company, you also get a factory."
High stakes
Startups are taking a gamble by not getting a license now, says Yale Zhang, Shanghai-based managing director of consultancy Automotive Foresight.
An NDRC license will be a likely prerequisite for selling an electric car. The public security bureau, which issues car license plates, is unlikely to issue plates for cars made by companies with no central approval.
"The best thing for them is to secure a license, otherwise there might be some problems," Zhang said.
The state-backed China Association of Automobile Manufacturers has said the new rules should lead to a more sustainable EV sector. "It will affect the market's short-term development, but in the long-term will lead to better quality and more cost effective development," said Shi Jianhua, a CAAM deputy secretary.
Zhang at Automotive Foresight estimates companies need to have least 3 billion yuan ($438 million) to meet the new r&d, sales and plant standards.
While several start-ups have the funding, they are reluctant to request licenses now, though several said it was inevitable.
For example, Cheng at NextEV -- which aims to raise 20 billion yuan ($2.9 billion) at home and abroad by December 31 -- said he'd rather invest in technology development.
NextEV will pay contract manufacturer JAC for each car produced, though Cheng foresees a deeper relationship in the future.
As China winnows down the number of firms racing to produce clean, smart, internet-connected cars, auto executives are calling for an end to the recent boom. "This is the golden era. In two or three years, you won't be able to start a new company," said Wang of Kaiyun Motors.
"There are over 20 (electric passenger car) companies. Most will put out one model, maybe not even that, and disappear," he said, predicting only a handful will survive in the long run.
