Only by attracting more capital and businesses, and encouraging innovation in various technological approaches and business models, can the new energy vehicle industry truly take off.
Not long ago, Henan Suda became the twelfth company to obtain the qualification to independently build a new pure electric passenger vehicle production facility. At the same time, dozens of emerging car manufacturers, such as NIO, Aiways, and CHJ Automotive, are doing everything they can to obtain a "production license".
The number of companies investing in China's booming new energy vehicle market is far more than just these few dozen. According to incomplete statistics, including traditional automakers, investments in the new energy passenger vehicle market have reached hundreds of billions of yuan, with planned production capacity of nearly 5 million vehicles, far exceeding the 2 million vehicle production and sales target for 2020 set in the "13th Five-Year Plan for the Development of National Strategic Emerging Industries".
Hundreds of billions of yuan invested in pursuit of a 2 million car market.
Starting from March 26, 2016, 12 companies, including BAIC New Energy, Yangtze Automobile, and Great Wall Huaguan, successively obtained independent production qualifications for new energy passenger vehicles.
According to the project approvals from the National Development and Reform Commission, the 12 automakers have invested a total of 24.772 billion yuan, with a planned annual production capacity of 690,000 vehicles. However, given that maximum production capacity generally exceeds planned capacity by 20%-30%, the maximum actual production capacity of these 12 automakers is expected to reach 1 million vehicles.
Although none of the internet companies that have announced plans to manufacture cars have obtained production licenses so far, publicly available information shows that LeEco, Aiways, Singulato Motors, WM Motor, and Bordrin Motors have established production bases in Zhejiang, Anhui, Jiangxi, Jiangsu, and other locations. The publicly announced investment scale of these companies is 20 billion yuan for LeEco and 10 billion yuan for Bordrin alone.
To meet the government's "dual-credit" requirement (simultaneous issuance of average fuel consumption credits and new energy vehicle credits), traditional automakers are accelerating the mass production of electric vehicles. According to statistics, nine major domestic automakers—FAW, Dongfeng, SAIC, Changan, BAIC, GAC, Chery, Geely, and Great Wall—have announced a sales target of nearly 4 million new energy vehicles for 2020, with a total investment of up to 80 billion yuan.
The "dual-credit" system is creating a pressure on automotive joint ventures and even their foreign multinational automakers. Last November, Toyota, which had never ventured into pure electric vehicles before, launched its own pure electric vehicle project with the full force of the company. According to Volkswagen's plan, it will sell 400,000 new energy vehicles in China by 2020.
Power battery companies are also accelerating their capacity investment. According to incomplete statistics, even excluding investments in battery materials, total investment in lithium-ion power batteries exceeded 37.4 billion yuan in 2016. Among them, CATL, the world's third-largest and China's leading power battery company, invested 10 billion yuan last September to build a production base in Jiangsu, with an annual capacity of over 10 GWh (gigawatt-hours).
The industry has shifted from concerns about a lack of players to a surge in investment.
In 2016, my country sold 507,000 new energy vehicles, a year-on-year increase of 53%, a significant slowdown compared to the 3.4-fold increase in the previous year. Meanwhile, government subsidies, a major support for the development of new energy vehicles, are being phased out annually and will be completely eliminated by 2020.
Having just stepped out of the commercialization process without government subsidies, how can the new energy vehicle industry attract sustained participation? In addition to using the "dual-credit" system to force traditional automakers to comply, relevant departments have relaxed the entry barriers for new energy vehicles while reiterating the suspension of qualification approvals for traditional automakers.
The policy has had an immediate effect. Since the "Regulations on the Management of Newly Established Pure Electric Passenger Vehicle Enterprises" came into effect on July 10, 2015, 12 new car manufacturers have obtained production qualifications, and it has been revealed that there are currently 30 to 40 more companies queuing up to apply for qualifications.
"The automotive industry is probably one of the few sectors currently experiencing simultaneous growth in production, sales, and profits," said Zhang Zhiyong, a senior automotive industry analyst. He believes that capital is profit-driven, and more and more companies outside the industry want to share in the profits. Furthermore, the industry regulators' initial intention to achieve technological breakthroughs through new energy vehicles, along with the numerous preferential policies implemented to support this, have further fueled the investment boom in the industry.
"Some argue that the current new energy vehicle industry is experiencing overcapacity, but I don't see it that way," said Gao Lixin, general manager of Chery New Energy. He believes that only by attracting more capital and companies, and encouraging innovation in various technological approaches and business models, can the new energy vehicle industry truly take off. "Statistics show that over 90% of internet startups fail, but if less than 10% of them succeed, the industry is considered successful."
While it may be premature to assert that the new energy vehicle industry is experiencing overcapacity, industry insiders believe that several issues remain concerning, primarily manifested in three ways: First, a lack of emphasis on core technology research and development, resulting in products being cobbled together from various sources, employing a low-quality, low-price strategy, and desperately pursuing large-scale production to secure more government subsidies; second, a penchant for creating concepts, producing cars through PowerPoint presentations and press conferences, often boasting of being number one globally and investing hundreds of billions, all to cater to investors and enhance value in the capital market, ignoring the reality that developing a car requires not only capital, technology, and talent, but also at least 30 months; third, a true "catfish"—someone with an international perspective, mastering leading "three-electric" core technologies (battery, motor, and electronic control), and capable of guiding the future automotive industry's R&D, production, and sales models—has yet to emerge.
Dual supervision before and after the event provides institutional guarantees for the survival of the fittest.
Given the special nature of transportation vehicles, my country has consistently followed Europe's approach, adopting a strict pre-approval system for automobile production qualifications. In recent years, relevant departments have explored reforms to effectively utilize this "visible hand" of approval in the development of new energy vehicles.
The "Guiding Opinions on Accelerating the Promotion and Application of New Energy Vehicles," issued in 2014, proposed supporting social capital and enterprises with technological innovation capabilities to participate in the research and production of new energy vehicles. This paved the way for high-quality social resources from across sectors to enter the new energy vehicle field. More importantly, the opinions emphasized that newly established enterprise investment projects were not subject to the minimum requirements of the "Automotive Industry Development Policy," thus lowering the entry threshold. Furthermore, while facilitating entry, the opinions implemented dual pre- and post-event supervision through a dual-department industrial management structure, with the National Development and Reform Commission (NDRC) overseeing project investment and the Ministry of Industry and Information Technology (MIIT) overseeing product access. It also stipulated project completion deadlines and clearly stated in product announcements that "pure electric passenger vehicle products have a validity period of 3 years," providing a system guarantee for the survival of the fittest.
"When the expert group from the National Development and Reform Commission comes to review companies, they mainly look at three things. The first is the ability to develop in the forward direction. All processes, standards, procedural documents, review records, and inspection records that can prove that forward development has been carried out are used as evidence," said Liu Xinwen, general manager of Yundu New Energy.
The second assessment item is how the battery control system was developed, and whether the 15 prototype vehicles were developed independently or by a design company. "You must prove that you have independent R&D capabilities. If you don't have capabilities in vehicle integration, battery control, lightweighting, and intelligent connectivity, you simply won't pass the test."
"Third, we look at the company's testing and trial production capabilities, including laboratory equipment, vehicle trial production workshops, and battery pack production lines. Of course, the company's long-term development plan, market strategy, and commitments to customers are also factors to consider," Liu Xinwen said.
"The National Development and Reform Commission (NDRC) approved Chery New Energy's investment project, which clearly required all project investments to be completed within two years, that is, by December 2018, otherwise the project permit would be revoked," Gao Lixin revealed. He added that post-approval supervision also includes a "look back" by the expert review group after the project approval.
Clearly, compared to traditional automakers or companies incubated by them, it's unrealistic for internet-based car manufacturers with no prior automotive production experience to meet the aforementioned requirements in the short term. This is the real reason why no internet-based car manufacturer has obtained the necessary qualifications so far. Partnering with traditional automakers like JAC or Changan through contract manufacturing or joint ventures, as NIO has done, has become the preferred option.
It has been revealed that my country currently has a production capacity of 31 million gasoline-powered vehicles, with an additional 6 million vehicles under construction, for a total capacity of 37 million vehicles. How to reduce and control the production capacity of gasoline-powered vehicles while continuously increasing the production capacity of new energy vehicles has become a new challenge testing the wisdom of regulators.
