The Electric Vehicle Market in China is Growing Far Too Quickly

The Electric Vehicle Market in China is Growing Far Too Quickly

President Joe Biden made a huge step toward his goal of halving greenhouse gas emissions by half by 2030 by signing an executive order requiring half of all new cars sold by 2030 to be electric. Although the electric vehicle market in the United States has grown rapidly in recent times, it still trails behind economies such as Europe and China, with the United States accounting for just around 17% of the world’s total inventory of 10.2 million EVs, compared to 44% for China. In fact, the Chinese electric vehicle market has grown rapidly, that the nation is now confronted with an intriguing puzzle: severe market fragmentation.

Thousands of firms have jumped on the electric vehicle bandwagon, spurred on by the tremendous success of pioneers such as Li Auto (NASDAQ: LI), NIO Ltd (NYSE: NIO), and Xpeng Motors (NYSE: XPEV). The result is a bloated and extremely fragmented sector. According to government data, China had 635 enterprises producing new-energy vehicles, notably electric cars, in early 2019. As per Xinhua News Agency, a state media, only 80 of those had a tangible product to display for their attempts by the close of the year. The number of new Chinese enterprises associated with “new energy vehicles” increased by about 81,000 this year through mid-August, according to China’s business database Qichacha, increasing the total to moreover 321,000. This is in addition to 78,600 new energy vehicle companies that are expected to enter the market by 2020.

Growth in sales has been a bright spot: EV sales in China over tripled to reach 1.48 million units in the very first 8 months of 2021, compared to a 17.1 percent increase in the entire car market. The U.S. market, on the other hand, is dominated by a few companies, with General Motors (NYSE: GM), Tesla Inc. (NASDAQ: TSLA), and Ford Inc. (NYSE: F) accounting for 80 percent of the BEV market.

This situation has apparently upset Beijing, which is attempting to consolidate the industry and restrict the number of new competitors. “We need to grow and strengthen our enterprises. As per a CNBC translation of the Chinese transcript, Minister Xiao Yaqing stated at a media briefing that the amount of new energy car enterprises is “too high” and that they are “little and scattered.”

Beijing aims to encourage electric car manufacturers to merge and reorganize in order to spur more sophisticated technology investment. There’s no denying that sustainable energy and electric vehicles have sparked a lot of interest among Chinese entrepreneurs.

During the first part of this year, investors poured over $12.7 billion (82 billion yuan) into 50 electric vehicle-related projects, according to Qichacha. The top receiver of those funds was BYD, a Warren Buffett-backed electric vehicle manufacturer; however, Qichacha claims that the other top five companies included names with ties to heavily indebted property builders as well as Electric Vehicle startups that have struggled with bankruptcy.

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