China plans to temporarily halt the issuance of production licenses for new energy vehicles.
The rumor went viral in industry circles on June 5. Though not officially being confirmed, it still touched a nerve with many people who are already halfway in or plan to enter the NEV sector.
China’s top economic planner National Development and Reform Commission (NDRC) has granted 15 NEV production licenses over the last 14 months. Still there are dozens waiting to get licenses. With JAC and Volkswagen’s EV joint venture signed on June 1 and approved in late May, more foreign brands and JVs could follow, warned industry experts.
Right now, there are more than 30 NEV programs under construction nationwide. It is estimated that NEV production capacity would reach 5 million units by 2020 when puttig together production capacity expansion plans released by major auto OEMs and newly approved NEV programs. The 15 NEV production license holders alone contribute 1.17 million units but this volume is far beyond industry target of 2 million units by 2020.
“The most worried is we may care only about volume growth but ignore technology up-gradation. If all the resources are used on capacity expansion, the outlook will not be bright,” commented Chen Qingtai, chairman of China EV 100 Forum, to the media.
Cross border car building became popular in the past several years, but its risk can’t be ignored. EV industry entry threshold is lower when compared with gasoline vehicles, but it still requires huge investment and for a long time before becoming profitable. The phase out of the subsidy policy also affects many small industry players heavily. Many have drawn back their investments.
On May 2, FESE Stock announced it would give a unrequited transfer of 40 percent of Detroit Electric’s market share to its parent company Far East Holding Group and FESE explained that the NEV business would affect the listed company’s market performance, so it decided a spinoff.
LeEco also got stuck in its costly supercar program and shrank its businesses. Co-invested by Tencent, Foxconn and Harmony Motors, EV startup Future Mobility has not seemed to make much progress with lesser involvement of the former two big investors.
In the past three years, more than 68 listed companies had invested some ¥100 billion ($14.53 billion) into NEV building, battery, engine, charging facility, car sharing and other businesses.
In 2015, Chery planned to sell 30 percent stock in its subsidiary NEV company at ¥920 million, which is 4.7 times the subsidiary’s asset value. In 2016, Foton sold 10 percent stock of a battery company at ¥475 million, which is 50 times of its initial investment.
The NEV industry investment rush has led to over appreciation of NEV related companies. When the fever cools down, the industry will gradually mature.