Are the Wheels Falling Off the Chinese Electric Vehicle Industry?

The irresistible march of the EV in the world’s biggest car market, China, has been making global news. Everybody expected the future of personal vehicles to be electric and that the Chinese companies would dominate this sector as it matured. Chinese government money has been pumped into the sector with wild abandonment. In fact, so much money that by 2018, the Wall Street Journey reported that there were 487 EV manufacturers in operation but local governments wanted more.

Now, a new report shows that these companies are going bankrupt with perhaps as many as 400 of them already shuttering up their factories leaving partly made and unsold inventory to rot in abandoned parking lots. Analysts believe that as many as 90% of them will cease to exist in the near future in a sort of EV Armageddon.

There is so much over-production that a price-slashing race to the bottom has begun. Companies, such as NIO, the company that produces Tesla-rivalling and also Tesla-resembling cars, has just slashed their prices by 30,000 yuan to compete with Tesla, even though they are already facing mounting pressure mostly over earning losses and mediocre sales. Presently, Tesla outsells NIO by 5:1.

More than 40 separate manufacturers have entered into the price war this year in an attempt to win market share, all during a time when due to adverse economic conditions in the People’s Republic, demand for cars has shrunk massively. Of course, with constant news about new low prices, many consumers are delaying their decision to purchase cars to ensure that they get the best price possible or the next fashionable vehicle, preferably from a foreign manufacturer.

Local and State legislation has made the buying of an EV so very much easier and so very much cheaper than buying an ICE-powered vehicle. This has led to Chinese consumers embracing this technology—maybe as many as 25% of all cars there were what they call NEVs last year. But the hidden cost is high, with a lot of public money squandered into failing business concerns. Now it would appear only those with very deep pockets AND access to the equity markets will survive, with some industry experts saying that this could be as low as 5 left— well, that is what Xiaoping, the CEO of Xpeng, one of the troubled EV start-ups, believes.

The Chinese government, which once had thrown buckets of money at EV manufacturers, now has changed its mind and is warning of having too many players in the market, leading to a scattered approach and inability for any manufacturer to reach critical production mass. For the rest of us, we must fear Chinese manufacturers dumping unsold inventory in overseas markets, something we may already be seeing.

In Malaysia, we have seen the high-profile launch of Ora-Good Cat. This company only managed to sell about 103,000 cars in China last year. Now it is here and all at a price that seems to be remarkably low. The question is: how long will the likes of NIO or ORA or even Xpeng be in existence and what happens if you buy one of these cars and then the company goes bust?