China should establish a merger and acquisition system for vehicle manufacturers, which also looks at qualification issues, to pool resources, prevent individual marques from going bust and to combat the problem of surplus capacity, said the chief executive officer of electric car startup Li Auto.
Not a few new carmakers will encounter operational and funding issues as a result of normal market competition, Li Xiang, who is also founder of the Beijing-based company, said on his Weibo account on Feb. 21 in response to the news that rival HiPhi will halt production for six months.
If the social fallout from mergers due to poor operations can be put at a figure of 10, the fallout from shutting down a business will be 10 times as much, Li said. The big three carmakers in the United States are the product of intense rivalry and hundreds of mergers over the years, he added.
China's NEV capacity began to expand around 2014, and as more carmakers arrived on the scene, competition became stiffer and capital less available, meaning that quite a few have fallen by the wayside.
Fifteen electric car startups, including WM Motor, Enovate Motors, Singulato and Aiways, have filed for bankruptcy recently or are stuck in a financial crisis, according to Yicai research. They have a combined annual output of over 10 million cars, a planned total investment of over CNY600 billion (USD83.3 billion) and have raised over CNY100 billion.
The closure of NEV makers has caused a lot of idle capacity. On top of this, many conventional fossil fuel-powered car makers are seeing their market share contract sharply, resulting in quite a few established marques in crisis. This has led to a number of closures, suspension of operations, mergers and shifting to other industries.
Over the next three to five years, around 80 percent of gasoline auto manufacturers are likely to shutter and there will be even more idle production lines, said Zhang Yongwei, secretary general and vice president at China EV100.
There is severe overcapacity in China’s auto sector. As of the end of 2022, the country had a passenger car output of 27 million units per year, but the capacity utilization ratio was only 63 percent.
