EV startups, glut prod Beijing to dial back on new plants

Yang Jian

Automotive News | 2018-12-21

SHANGHAI -- Behind generous subsidies, Beijing has succeeded in making China the world¡¯s largest market for battery-electric vehicles. 

Yet with output rising rapidly and startups sprouting across the country, the government fears capacity is coming online too fast. 

So the National Development and Reform Commission, China¡¯s central economic planning agency, this week released a drastically revised version of its policy on investment in the auto industry. 

The new blueprint, due to take effect Jan. 10, bans new plants in the traditional auto industry. That is not something new -- the commission stopped approving standalone construction projects for fossil fuel-powered vehicles a few years ago. 

The main purpose of the revised policy is to rein in new EV plants by establishing two sets of rules. 

One set of rules, which stipulate where new EV plants will be allowed, apply to existing automakers and licensed EV startups. They require that new EV plants only be built in provinces where capacity utilization rates at local EV factories have remained above the national average over the past two years. 

The other set of rules are intended to raise the bar for new EV makers and curb speculative investment in the sector.

Prospective EV makers, in addition to complete r&d operations and proven capability in vehicle development, are required to have intellectual property rights for key components including vehicle control systems, electric motors and battery packs.

Primary investors in new EV projects must also hold more than one-third of the financial stake in projects and guarantee they have sufficient funds to finance construction and operation.

The rules also bar shareholders of new EV programs from withdrawing investments before projects reach planned production capacity.

EV production in China jumped 56 percent to approach 791,000 vehicles in the first 11 months of the year. 

More than 400 EV startups have emerged in the past few years. It is estimated that left unchecked, these companies, along with existing automakers, will increase annual EV production capacity in China to 20 million in 2020. That¡¯s 10 times the government¡¯s target of 2 million a year.

Will the commission¡¯s new policy slow EV projects in China? 

It might in the long term by pushing automakers to build EVs at current plants and deter some aspirants.

But not in the near future. 

Sixteen EV startups the commission has licensed for production so far this year can produce more than 1 million vehicles a year. 

Two global heavyweights also received the green light to build EV plants in China this year.

Tesla¡¯s plant now under construction in Shanghai is slated to start production in late 2019. It will churn out more than 250,000 EVs a year at full capacity. 

And Volkswagen Group has broken ground on an EV factory at its joint venture in Shanghai with SAIC Motor Corp. After starting output in 2020, the factory will build up to 300,000 EVs based on VW¡¯s MEB platform annually.

With a mix of global automakers and new startups, China¡¯s EV sector seems certain to keep forging ahead with new plants over the next few years. But the road ahead also appears dotted with a few short circuits and burnouts.

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