About a month ago, President Joe Biden took a big step toward his goal of reducing greenhouse gas emissions by 50% by 2030 by issuing an executive order targeting half of all new vehicles to be used by 2030. sold electrically. While the US electric vehicle market has grown rapidly in recent years, it still lags behind markets such as China and Europe, with the US accounting for only about 17% of the world’s total stock of 10.2 million EVs, compared to a segment of 44% by China.
In fact, the Chinese EV market has grown so rapidly that the country now faces a rather interesting conundrum: extreme market fragmentation.
Encouraged by the tremendous success of pioneers such as NIO Ltd (NYSE:NIO), Li Auto (NASDAQ:LI), and Xpeng engines (NYSE:XPEV), thousands of companies have jumped on the EV train, leading to a bloated and highly fragmented industry.
According to official data, in early 2019, China was home to as many as 635 companies making new energy vehicles, including electric cars. However, according to state media Xinhua News Agency, only 80 of them have had a real product to show for their efforts by the end of the year. According to China’s business database Qichacha, the number of new Chinese companies related to “new energy vehicles” rose by 81,000 this year to mid-August, bringing the total to more than 321,000. That’s in addition to the 78,600 new energy vehicle companies that entered the fray in 2020.
Sales growth has remained a bright spot: in the first eight months of 2021, electric vehicle sales in China more than tripled to 1.48 million units, compared to a 17.1% increase for the total auto market.
In stark contrast, the US market is dominated by a handful of players, with Tesla Inc. (NASDAQ:TSLA), General engines (NYSE:GM), and Ford Inc. (NYSE:F) combine for 80% of the BEV markett.
Beijing is reportedly alarmed by this turn of events and wants to consolidate the market and limit the number of new entrants.
“Our companies need to get bigger and stronger. At present, the number of new energy vehicle companies is too large and is in a small and scattered state,Minister Xiao Yaqing said at a press conference according to a CNBC translation of a Chinese transcript.
Beijing wants to encourage electric car manufacturers to merge and restructure to stimulate more investment in advanced technology.
There is no doubt that clean energy and EV themes have received a lot of entrepreneurial attention in China.
Qichacha says investors injected more than 82 billion yuan ($12.7 billion) into 50 electric-car-related projects in the first half of this year. Warren Buffett-backed EV maker WORLD was the main recipient of those funds; However, Qichacha says the other top five companies include names with: ties to highly indebted real estate developers as well as EV startups that have battled bankruptcy.
Last year, Nio shares rose more than 1,000% after a billion-dollar cash injection by a state-led group of investors, as Xpeng announced received 500 million yuan in funding from the investment branch of Guangdong Province, where the start-up is located. Even China’s smartphone and internet giants, including xiaomi, Huawei, and Baidu (NASDAQ:BIDU) were unable to resist the allure of the EV and jumped into the electric car race last year with significant investment and business partnerships.
According to Tu Le, founder of Beijing-based consultancy Sino Auto Insights, things like this often happen in the Chinese market across sectors and inevitably lead to a race to the bottom where companies want to compete solely on price.
China’s EV sector is still investable
Unsurprisingly, China’s top EV names have been slipping lately, with shares of NIO falling 21.2% in the year so far, Li gaining a paltry 2.6%, while XPEV is down 10, 5% has fallen over the time frame.
Don’t let that uninspired performance and EV frenzy put you off, though: China’s EV sector remains in the pink of health with the Global X China Electric Vehicle & Battery ETF (share code: 2845) an increase of 38.3% YTD and 137.3% in the past 12 months.
The ETF now has $1.04 billion in assets under management (AUM) and is likely to see plenty of inflows in the coming years as Beijing pushes towards its goal of representing 20% of all new cars in the country by 2025. .
By Alex Kimani for Oilprice.com
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