OFFICIALS in the old mining town of Tongling, China, knew almost nothing about electric vehicles (EVs) when they gave a startup US$535mil in land and capital to build an electric-car plant there two years ago.
The startup, Singulato Motors, was founded by a group of tech professionals led by a former Internet-security executive who had never run a car company before.
Such partnerships are springing up all over China, spurred by Beijing’s call for the country to become a world power in EV technology and by local governments eager to jump on the bandwagon. President Xi Jinping’s Made in China 2025 plan, launched three years ago to promote “domestic dominance and global competitiveness” in 10 sectors, includes EVs.
There are now 487 EV makers in China, according to the latest official tally, and most are brand new. In June, the National Development and Reform Commission and China Construction Bank announced a new US$47bil fund for EVs and other high-tech industries. Regional governments are making similar funding commitments. Direct government subsidies on EV sales have totalled US$15bil over the last five years.
Singulato chief executive Shen Haiyin estimates that just 10% of today’s EV startups will survive the next five years. Some auto analysts put the figure nearer to 1%.
“A lot of capital is being invested in this industry,” said Paul Gong, an analyst at UBS. “A lot of it will be wasted.”
Lured by the prospect of handouts, many companies have concluded that “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,” said Scott Kennedy, of the Centre for Strategic and International Studies. “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.”
The Ministry of Industry and Information Technology, which oversees the auto sector, declined to comment.
Even the electric-car startups that succeed in mass-producing electric cars will have to compete against established foreign and domestic auto makers rolling out their own fleets. All auto makers operating in China are required to start building EVs by 2019.
Luxury electric-car maker Tesla Inc recently signed a deal to build its first overseas plant in Shanghai, with a 500,000-vehicle annual capacity.
China’s push for technological dominance is partly behind its escalating trade dispute with America. US Trade Representative Robert Lighthizer drew a bead on Made in China 2025 in his trade-related investigation in March, saying huge investments of state capital and attempts to force technology transfer threaten foreign companies.
Some 777,000 EVs were sold in China last year, nearly half of the global total. But with so many EV companies joining the race, excess supply looks inevitable.
“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.
Wang said Made in China 2025 was causing a new wave of overcapacity problems that China had previously suffered in heavy industries like steel and shipbuilding.
“It may be a cost that Beijing is willing to pay,” he said.
Having raised around US$1.2bil from private investors, Singulato has relatively deep pockets and therefore has a fighting chance of being one of the few startups to survive, Shen said.
Shen, previously a vice-president at an Internet-security company, said he chose Tongling, a city of 750,000 people in Anhui province, over at least 20 other cities and provinces vying for the factory. “We didn’t seek local governments in particular,” Shen said. “Local governments came to us.”
Tongling, which means “Copper Hill,” sits about 230 miles west of Shanghai. Like hundreds of cities around China, it is striving to upgrade its economy and move away from traditional heavy industry.
“Car manufacturing reflects a city’s strength,” said Liu Yi, director of Tongling’s investment bureau. “I don’t think we need to worry about overcapacity.”
There are more than 100 traditional auto makers in China, most of them unprofitable companies that survive on local-government handouts.
Before meeting Singulato executives for the first time, Liu pored over books on EVs to educate herself about the technology. When she met the Singulato team, everything clicked: their concept of an EV that would be easy to personalise, like a smartphone, sounded like a winner, Liu said. They quickly signed their deal.
Both sides acknowledged the risks of competing in such a crowded field, but they also emphasised the potential gains. Tongling could have spent its money building another stretch of highway, Shen said. Instead, it bought a stake in a strategic future industry, he said.
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