China’s Efforts To Develop Its Own Tesla Amid A Slowing Economy And Phasing Out Of Subsidies

In recent years, venture capitalists have invested billions of dollars into companies and startups that are focused on development of electric vehicles as the industry itself is strongly supported by the Chinese government.

While it is not yet clear what has been the result of those investments, recent headlines underscores the importance of those investments.

For example, the news that the shares of the U.S.-listed Nio which is considered to be the closest Chinese competitor for Tesla, was down by more than 50 per cent so far this year was given prominence in the Chinese media.

On the other hand, the news about how Alibaba-backed XPeng getting an investment of $400 million from its own Chairman and CEO He Xiaopeng in an investment round that included electronics company Xiaomi as a strategic investor was also prominently displayed.

On the other hand, there was the news in October about a 130.1 per cent fall in the third quarter in net profits, ex-items, for the Shenzhen-based BYD which has investments from Warren Buffett. The Hong Kong-listed shares are down 25 per cent for the year so far.

Analysts view these companies to be a few of the companies that have managed to survive as the Chinese government pushed forth its agenda of creating its own domestic made electric over the last decade.

However the times are tough now because of the slowing car sale in the country, the phasing out of consumer subsidies for new energy vehicles by next year and a general slowdown in the economic growth of the country.

Rupert Mitchell, chief strategy officer at Chinese electric car company WM Motor, founded in 2015, said that the start-ups didn’t expect the subsidies to last this long. “What was not in the business plans was that China would have its first fully blown automotive downturn in Chinese history,” he said to a television channel earlier in November

The Chinese push for electric car development of its own started after Wan Gang, a former engineer for Audi in Germany, was made China’s minister of Science and Technology even though he was not a member of the Chinese Communist Party in the early 2000s.

It was Wan’s efforts that convinced the Chinese central government to create a national policy and strategy for development of new energy vehicles and battery technology. This was in line with Beijing’s ambition to become a global leader in an emerging technology as well as tackle pollution from vehicular emission. And according to the Ministry of Finance, the central government ended up spending at least 33.4 billion yuan between 2009 and 2015 as subsidies for consumers.

According to data from China Automotive Industry Association accessed through Wind Information, the number of new energy vehicles sold in 2014 more than quadrupled from the year before/. The same was repeated in 2015.

However in 2016, the Ministry of Finance found that over 1 billion yuan had been cheated in subsidies by at least five companies while the new energy vehicle sales grew just by 53 per cent that year.

However there is still confidence of growth among some young companies that benefitted significantly from the electric vehicle boom in China.

According to Brian Gu, president and vice chairman of XPeng, provided that the company is able to sell about 150,000 vehicles annually, it will reach break-even in about two years.

On the other hand, WM Motor expects to break-even within the next 12 months as the company is now focusing on consumer marketing.

“Looking at the last 10 years of Chinese government subsidies, we think their effect is more positive than negative,” said He Hui, senior researcher on China’s new energy policy at The International Council on Clean Transportation.

“We can’t say our new energy vehicles are number one,” she said. “But our batteries are.”

(Adapted from CNBC.com)



Categories: Creativity, Economy & Finance, Geopolitics, Regulations & Legal, Strategy, Sustainability, Uncategorized

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