Sunday, January 16

Abandoned factories show how China’s electric car boom went too far


Visitors to the Byton website are greeted with color-saturated images of brilliant electric cars gliding down the manicured streets. Visitors to the automaker’s factory in Nanjing, eastern China, may be less impressed. The plant is modern and huge, gleaming in the hot summer sun. But there is total silence. Production has been suspended since the pandemic began and there is no one around except a lone security guard.

It’s a similar situation across town at Bordrin Motors. Weeds dot the perimeter of the factory and there is a court notice taped to the front door announcing the bankruptcy of the electric car maker.

Moneyweb InsiderWELL-INFORMED PERSONGOLD

Subscribe to get full access to all of our shared and untrusted data tools, our award-winning articles, and support quality journalism in the process.

Bordrin and Byton represent the flip side of China’s electric vehicle success. While local stars like Nio Inc. and Xpeng Inc. have raised billions of dollars and are now selling cars in amounts that rival Tesla Inc., many more have been left by the wayside, unable to raise insane amounts of capital. . necessary to build cars to scale.

In many cases, provincial governments lured them into existence with cash and other incentives to make Beijing’s dream of turning China into an electric vehicle powerhouse a reality. Local authorities helped manufacturers establish factories that promised employment and development, if they were successful. But the tide began to turn in November, when regulators asked regional governments to review and report on the scale of their support for the auto industry.

Alarmed by the rampant investment in the sector, and the bankruptcies and zombified factories that accompanied it, Beijing is holding back.

“We have too many electric vehicle companies,” Xiao Yaqing, China’s minister of industry and information technology, told reporters on September 13. Mergers and acquisitions will be encouraged as the market needs to become more concentrated, he said. The government is also considering setting production limits for the electric vehicle sector, people familiar with the matter told Bloomberg News this month, and provinces cannot green-light new projects until excess capacity is online. Resources will also be channeled to selected EV centers.

The measures are a potential red flag for investors who have invested money in electric carmakers and the technologies that support them over the past year.

There are some 846 registered car manufacturers in China, and more than 300 of them produce new energy cars, loosely defined as electric vehicles or plug-in hybrids. The vast majority are names unrecognizable elsewhere. In 2020 alone, the country added new production capacity of around 5 million units, roughly four times the actual number of electric vehicles sold in China that year. According to regulators, nearly half of that capacity was not in use.

Bordrin, founded by former Ford executive Huang Ximing in 2016, was targeting annual production of 700,000 cars at three factories. But he ran out of money and folded before making even one. Huang did not respond to messages seeking comment via WeChat.

China does not have a public bankruptcy file, but since last year, at least a dozen electric vehicle manufacturers are known to have gone under or had to be restructured to avoid insolvency.

“This is a kind of classic competitive capitalist restructuring,” said Gary Dvorchak, managing director of Beijing-based investment advisory Blueshirt Group. “You get a trillion companies and then you have an oversupply situation. The process of failing is usually much slower in China because companies get support from the government. But eventually, some have to die and the pain inflicted for those deaths to occur can be high. ”

Byton factory in Nanjing. Image: Bloomberg

Byton at least still exists. The automaker, co-founded by former executives from BMW AG and Nissan Motor Co., suspended all domestic operations and licensed staff in July last year as the pandemic made it difficult for its business to get off the ground. Even before Covid, the company had struggled to meet its announced deadlines to produce and deliver its first model, although its website still accepts reservations for cars.

‘Idle capacity’

Things started to look up this year, when Byton signed a strategic cooperation agreement with iPhone maker Foxconn Technology Group in January (with the help of the Nanjing Economic and Technological Development Zone) to begin mass production of the Byton SUV. M-Byte in the first quarter of 2022. But Foxconn has been withdrawing staff from the Nanjing plant after one of the automaker’s biggest creditors began to take control of management, Bloomberg reported in July, and the week Last year, the Nikkei newspaper said the collaboration had been suspended due to Byton’s worsening financial situation. .

A representative for Byton declined to comment for this story.

Jiangsu Province, where Nanjing is located, strove to become a hub for electric vehicles, attracting $ 32 billion of investment in the auto industry in the six years to 2020. Now, it is home to more than 30 manufacturers of automobiles. But it became the focus of an investigation ordered by Beijing earlier this year, which found that some local authorities had been distributing tax breaks and land incentives to attract automakers that were beyond the reach of government guidelines. . This resulted in “outstanding problems of low production capacity utilization rates and idle capacity,” Jiangsu provincial officials said in a statement in February, without giving further details.

“Local governments had high expectations for the development of new energy vehicle companies, hoping to seize opportunities in the sector and drive local economic expansion,” said Cui Dongshu, secretary general of the China Passenger Car Association, at a interview. Investors also saw huge profit potential. This has resulted in a surplus of capacity. ”

Bordrin factory in Nanjing.

Yinlong New Energy’s Nanjing factory began construction in 2017 with a total planned investment of 10 billion yuan ($ 1.6 billion). Production was set at 30,000 new energy commercial vehicles, mainly electric buses, and there were also plans to build batteries for electric vehicles. Production was supposed to start in 2018, but today the plant is practically abandoned. Trash has piled up along its walls and the roads connecting the buildings inside are deserted and their entrances barricaded.

The company’s largest shareholder, Gree Electric Appliances, said there is still scope for collaboration, either to bolster the automaker’s capacity utilization and competitiveness, or to boost its battery technology.

Some of China’s established automakers are looking at all of this with a sense of inevitability. Zhejiang Geely Holding Group Co., one of the country’s largest private automakers with a range of brands ranging from mass-market vehicles to ultra-luxury race cars made by Lotus, which it controls, sees a natural cycle that unfolds, and one that will. involve some casualties.

“Some people rush to build one, two, three, five factories, although their first car is not yet on the market,” said Group Lotus CEO Feng Qingfeng.

“When everyone thinks it’s easy to make cars, people dive into making cars. When they realize that the car business is not that easy, they stop investing, ”he said. “It is the invisible hand of the market economy that dominates order.”

© 2021 Bloomberg


www.moneyweb.co.za

Leave a Reply

Your email address will not be published. Required fields are marked *