China, recognized as the world’s largest electric vehicle market, is witnessing a significant shift in the industry. The market begins to consolidate, and several players struggle to survive.
Government subsidies over a decade ago fueled the explosive growth in the Chinese EV market. It led to the emergence of around a hundred automakers producing battery electric and plug-in hybrid models. However, this number has reduced from approximately 500 registered EV makers in 2019, indicating a deflation of the market bubble.
Chinese EV market consolidation evident as automakers fight to survive
The transition from an overcrowded market to a moderately concentrated one became evident in the first quarter, as indicated by the Herfindahl-Hirschman Index.
For context, it is a metric used to measure market concentration. Established players such as BYD and Tesla have benefited from this consolidation and strengthened their positions.
In contrast, Shanghai-based 86Research Ltd., auto analyst Wang Hanyang revealed that around 80% of new energy vehicle startups have either exited the market or are in the process of doing so.
This occurrence poses challenges for struggling players like Nio, which has experienced declining sales. The Chinese automaker even recently announced that the government of Abu Dhabi had acquired a 7% stake in the following a capital infusion.
Just two years ago, Nio founder and CEO William Li enjoyed a strong fan base. Moreover, the company seemed to be thriving after receiving a significant financial injection from the municipal government of Hefei.
The Herfindahl-Hirschman Index reflects a clear trend of consolidation over the past few years, leading to the elimination of numerous new players that emerged when China introduced subsidies to support cleaner energy vehicles.
The dominance of major players has increased, while smaller automakers face challenges to survive. In the first quarter of 2023, the top four players accounted for 60% of the market share by unit sales. Notably, that figure represents a significant growth from just 44% during the same period three years ago.
Although China has extended tax breaks for consumers purchasing new energy vehicles until 2027, the government will unlikely continue supporting struggling carmakers.
Interestingly, market forces and regulatory mechanisms will contribute to the consolidation of surviving brands and make them globally competitive, according to Ministry of Industry and Information Technology official Xin Guobin.
BYD and Tesla strengthen positions in the Chinese EV market
Warren Buffett-backed automaker BYD has witnessed significant growth in its market domination over the past two years. Currently, over one in three of China’s NEV sales come from BYD, demonstrating an increase from less than 15% in late 2020.
This success has put pressure on the market’s second-largest player, Tesla. The American automaker experienced a decline in market share until a recent breakthrough in the first quarter.
Tesla is now poised to capture about 11% of the market, resulting in the top two players holding almost half the market share.
EV pioneers vanish amid the weakening industry
In the midst of this market consolidation, some of the early pioneers in the EV industry have quietly vanished.
A substantial number of early EVs were primarily designed to qualify for subsidies and meet regulatory requirements, often lacking high-quality design and performance. As requirements increased and competition grew, the demand for these vehicles diminished, particularly in the fleet market.
“We call them regulation cars…
The only important thing was that they had to be an EV.”
JSC Automotive’s Jochen Siebert
Companies like Zhidou Electric Vehicles, Beijing Electric Vehicle, Byton, and Zhiche Youxing Technology faced challenges and setbacks due to changes in subsidies, increased competition, and financial difficulties.
The market environment remains challenging for automakers attempting to attract customers based on factors beyond regulatory compliance.
WM Motor’s financial troubles highlight uncertainties in the Chinese EV market
One recent casualty in this ongoing industry shakeout is WM Motor Technology Group, a Shanghai-based electric automaker backed by tech giant Baidu Inc.
The company announced plans for a reverse merger to go public in Hong Kong. Soon after, reports arose of pay cuts and layoffs.
A resident of Shijiazhuang in northern China by the name of Freya Cui recently found herself in a predicament when she had to abandon her four-year-old WM Motor EX5 sports utility vehicle due to a battery pack defect.
The dealer informed her that no replacements were available due to WM Motor’s financial troubles. Unfortunately, Cui’s case was not an isolated incident.
The cost of purchasing a new battery pack from a third party would exceed the initial post-subsidy price of the vehicle.
After several unsuccessful attempts to reach WM Motor or CEO Freeman Shen through social media, Cui purchased a cheap gasoline car for her commuting needs while still hoping for the company’s recovery.
She had initially placed an order for the WM Motor vehicle, attracted by the lifetime warranty on the battery pack. Cui expressed her surprise and disappointment, stating, “Who would have thought the company would one day be on the brink of collapse?”
For context, WM Motor’s fortunes have taken a drastic turn. Previously hailed as a promising player in the EV industry, the company secured two of the top five venture capital investments by deal size in China’s clean car market since 2018, according to capital market data provider Preqin.
Notably, investors in these transactions included leading state-owned banks and tech firms.
However, the recent financial troubles have left customers like Cui stranded and questioning the company’s future.
All that said, the situation faced by WM Motor reflects the challenges and uncertainties in the Chinese EV market.
Uncertain future for struggling EV makers in China’s competitive market
NEV retail sales surged to 580,000 units in China last month, accounting for one-third of total passenger car deliveries. However, it is important to note that the market is still in its early stages, and consumer interest in electric cars is gradually growing.
Mr.Siebert believes that the initial surge of EVs focused on innovative features like autonomous driving functions, large built-in screens, and even karaoke systems. However, he predicts a shift in consumer priorities towards safety, performance, and durability, potentially providing an edge for legacy automakers like Volkswagen AG.
The pace of market consolidation and the future of struggling EV manufacturers remain uncertain. The next five years will prove decisive for the industry. The success of established players and the ability to meet evolving consumer demands will shape the future of the Chinese EV market.
“The next five years will be decisive.”
JSC Automotive’s Jochen Siebert
See Also:
- Tesla China sales grew 2.44% month-on-month in May 2023
- China: Plug-in car sales topped 500,000 units in April
- China: BYD posts record-breaking EV sales in May
- Tesla reported remarkable EV sales growth in March in China
- CPCA: China’s NEV retail sales in March will grow 27.5% to 560,000 from February
As the industry continues to mature, it remains to be seen which companies will thrive and which will face further challenges and setbacks.
You can watch Bloomberg’s full report here.
