We’ve mentioned Chinese startups working on electric vehicles in the past. You’ve got the American-based (but Chinese-owned) Faraday Future that couldn’t pay its bills, its big brother LeSEE (which is facing similar troubles), the performance-focused NIO, the luxury-minded Byton, the German-named Weltmeister, and a handful of others making ink every so often.
While EV startups from other countries (Tesla, Rimac, etc.) garner their own headlines, it’s more common to see a Chinese startup angling for media exposure as of late.
Of course, established automakers are busy setting up their own electric divisions to fulfill the nearly absent Western consumer demand for EVs. They’re gambling on a future where electrification replaces internal combustion, but nobody is betting more on “green” than China. As of today, it’s estimated that the country has 487 electric car companies, and the nation feels this still isn’t enough. Holy shit.
A report from The Wall Street Journal illustrates the extreme depths of China’s EV investment as the country tries to get as many green car manufacturers up and running as humanly possible. It’s in part due to the government’s insistence on bolstering electric vehicle sales, but it’s also because China wants to have a stranglehold on all advanced technologies and manufacturing by 2025.
President Xi Jinping has made it clear his country will do everything in its power to ensure China leads the world in cutting-edge tech within few years. But this EV strategy seems completely ridiculous. China has already handed over $15 billion in subsidies toward the cause and expects to drop another $47 billion in the pipeline to continue its progress. A sizable chunk of that will be reserved for new businesses.
One of these companies is Singulato Motors, founded by a group of tech professionals and led by a former internet security executive. China handed over $535 million in land and capital to build an electric-car plant in a small mining town, with the hopes that it would create jobs and new industries in the region. But it knows that its odds of success are slim.
Singulato’s Chief Executive Shen Haiyin assumes that only 10 percent of today’s EV startups will survive the next five years. We’d say that’s an overambitious estimate with no historical precedent, while industry analysts suggest a number closer to 1 percent.
“A lot of capital is being invested in this industry,” said Paul Gong, an analyst at UBS. “A lot of it will be wasted.”
Be that as it may, handing money over to companies to allow them to buy land and build factories helps to further industrialize the nation. Even if these companies fail, the facilities can be used for other projects in the future. The rampant competition between a multitude of new automakers could also force the brightest and savviest minds to emerge. Even if 99.9 percent of those startups fail, you still have a huge group working toward the common goal of advancing the technology behind electric vehicles.
Still, Scott Kennedy of the Center for Strategic and International Studies says there’s a chance that not all of the startups actually want to build cars. With the government issuing large paydays to new businesses, “simply giving it a shot and receiving government support can be a reasonable business model, even if they never put an electric car on the road,” Kennedy said.
“The moment of truth will come when China’s national and local authorities have to decide whether to let the losers fail or keep them afloat.”
There’s reason to think the People’s Republic might throw them a bone, though. China already has over 100 traditional automotive manufacturers operating inside the country. Most are unprofitable and depend on local government handouts to stay afloat.
Overcapacity issues could also arise. Last year, China’s top state planner said it would tighten regulations for the construction of new factories for traditional gas-burning vehicles. The country has attempted to crack down on zombie companies and push automakers to convert to “non-polluting electric vehicles.” But, while China accounts for the majority of the world’s EV sales, there still isn’t nearly enough demand to support even a fraction of these new companies once (or if) they start production.
“China wants to be a high-tech power and catch up to the technology frontier, and one of the costs is likely to be overcapacity,” said Dan Wang, technology analyst at Gavekal Dragonomics in Hong Kong.
Local governments are fighting amongst themselves to have the next auto plant built in their backyard as China continues seeking new startups to fund. Production for most of these companies is anticipated to begin within the next couple of years. We’ll see how it plays out.