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China's Electric Car Bubble on the Verge of Popping

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【Summary】More and more automakers and companies are coming out with electric vehicles for the Chinese market, but there’s not enough consumers to purchase the cars, leading to a large bubble that could burst.

Original Vineeth Joel Patel    Apr 18, 2019 6:00 AM PT
China's Electric Car Bubble on the Verge of Popping

In a knee-jerk reaction to tightening regulations and changes in consumer perception, automakers and companies have all but bombarded China with new electric vehicles. China is the largest automotive market, has consumers that are in love with EVs, and has some of the strictest air pollution regulations in the world. All of this has created the perfect recipe for automakers to invest millions into developing EVs for the country. But as Bloomberg outlines in a lengthy report, China's $18 billion electric-car bubble is at risk for falling apart.

More EVs Than The Market Wants

As the outlet points out, there are roughly 486 electric-vehicle manufacturers that are registered in China. That's an alarming figure on its own, but it's even more staggering when you take into account that the number has almost tripled since 2017.  With that many automakers all competing for sales, saying China is now a cutthroat market for EVs is an understatement. Despite projections that claim EV sales are going to hit 1.6 million units, it won't be enough to keep all of factories going.

"We are going to see great waves sweeping away sand in the EV industry," said Thomas Fang, a strategy consultant at Roland Berger, told Bloomberg. "It is a critical moment that will decide life or death for EV startups."

Startups alone, according to the outlet, will account for 3.9 million vehicles a year. And that's before you begin to account for large automakers like Volkswagen and General Motors enter into the mix. Clearly, there's going to be a problem. China may be home to 1.418 billion people, but only a small slice are contributing to the rise of EVs. Bloomberg's report claims that EV sales in China only just crossed over the 1 million mark last year.

What EV Automakers Will Suffer?

At the rate automakers are producing vehicles in China, the country will have an excess of 3 million EVs lying around. In China, electric vehicles account for just 4% of automotive sales. Ramping up production of EVs before demand is there is putting the entire market on shaky stilts.

"There is still huge room out there in the new-energy vehicle market with China's relatively low vehicle-penetration rate," Cui Dongshu, secretary-general of the China Passenger Car Association, told the outlet. "Yet that market is for the competitive players, not the weakest ones, and the latter will be squeezed out."

When it comes to those major players, Bloomberg claims that NIO (the brand's ES6 is pictured above), WM Motor, NEVS, Fisker, and Xpeng Motors are the top five startups. As far as fundraising is concerned, NIO has raised a total of $4.1 billion, while WM Motor is in second with a total of $2.3 billion. NEVS and Fisker have raised $1.4 billion a piece, while Xpeng Motors is in fifth place with $1.3 billion. With the top five outranking other startups in terms of money raised, others are likely to struggle to keep up with production or stay afloat in financial trouble hits. Eventually, though, some companies will have to shut their doors.

"A large amount of companies will be eliminated in a year, and 90 percent of the investors will suffer great losses," said Li Xiang, founder and CEO of Chehejia brand.

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