Under the title "In China Alone: 321,000 Companies in the Electric Vehicle Industry!", the Arabic website reported that while shares of electric vehicle manufacturers in China such as Nio and Xpeng are soaring, tens of thousands of companies have jumped on the bandwagon with the growth of this industry, according to the business database Qichacha. A report from Qichacha stated that the number of new Chinese companies specializing in "new energy vehicles" rose by 81,000 this year until mid-August, bringing the total to over 321,000 companies!
The database showed that this year's growth follows the entry of 78,600 companies into the sector in 2020, at the peak of the coronavirus pandemic in China. New energy vehicles refer to a broad category primarily consisting of pure electric vehicles and hybrid cars. China is the largest car market in the world and has set a goal for 20% of new cars sold to be new energy vehicles by 2025.
**Anticipated Mergers**
Shares of major electric vehicle manufacturers fell on Monday after China's Ministry of Industry and Information Technology indicated that there may be mergers in the sector. Minister Xiao Yaqing stated at a press conference, "Our businesses should be larger and stronger." He added, according to a CNBC translation of the Chinese version: "Currently, the number of new energy vehicle companies is too large, and they are very small and scattered."
For his part, To Li, founder of the Beijing-based consulting firm Sino Auto Insights, said, "This is just the central government's version 2.0 looking to reduce the number of entrants, as they did when they restricted manufacturing licenses and permits in 2017." He added, "They likely saw a backlog and too many brands that would not be able to compete in the market... This has often happened in the Chinese market across sectors and leads to a race to the bottom where companies compete solely on price."
It is expected that major electric vehicle manufacturers in China like Nio, Xpeng, Li Auto, and BYD—backed by billionaire Warren Buffett—will benefit from efforts to consolidate the industry "as it will eliminate potential competitors and possibly allow them to acquire teams or technologies to enhance their products."
**Heavy Investments**
The Qichacha database found that investors pumped more than 82 billion yuan (12.7 billion USD) into 50 electric vehicle-related projects in the first half of this year in China. The report indicated that BYD ranked first in amounts raised. However, the other five major companies included names linked to debt-laden property developers like Evergrande and the struggling electric vehicle company Faraday Future.
Last year, technology companies such as Huawei, Baidu, and Xiaomi entered the electric vehicle race through business partnerships and investments. Nio's shares soared more than 1,000% in 2020 after raising 7 billion yuan (1 billion USD) from a group of state-led investors. Xpeng announced it received 500 million yuan in funding from the investment arm of Guangdong Province, where the startup is based. However, Nio's shares listed in the United States have fallen by 22% so far this year, while Xpeng's shares listed in New York have decreased by 10% during the same period.