Chinese authorities are stepping in to curb excessive electric vehicle manufacturing capacity after years of unrestrained growth fueled by heavy government subsidies. While still strongly supporting the transition to electric mobility, officials warned of overinvestment and aim to prevent wasted resources.
Government Restricts New EV Projects
On January 18th, China’s Ministry of Industry and Information Technology (MIIT) ordered local governments to halt approvals for new EV plants and expansions. The MIIT statement slammed officials for “blindly” greenlighting projects without proper planning and feasibility studies. This led to duplicated construction and overcapacity in a race to win subsidies.
The central government set a target for new energy vehicles (NEVs) to reach 45% of overall new auto sales by 2027. Generous incentives at local levels sparked an investment frenzy, with hundreds of new players entering the market. Established automakers like BYD and Geely also aggressively expanded production.
“The disorderly development of new energy vehicles not only damages the healthy development of the industry, but also wastes a large amount of resources,” the ministry said.
This nationwide crackdown aims to prevent further duplicate construction while still encouraging EV growth in an “orderly” way. The goal is to boost China’s global competitiveness by consolidating the industry.
Oversupply and Quality Issues
Rapid capacity growth led to more supply than demand, with dealers stockpiling vehicles to access government subsidies. Over 20 new EV brands entered the market in 2022 alone, leading to concerns over the ability to maintain quality with so many inexperienced manufacturers.
“The disorderly development of new energy vehicles…also damages the healthy development of the industry,” MIIT said.
The ministry cited issues like inadequate testing facilities, lack of core technology capabilities, and insufficient control over quality and safety. For example, a 2022 spate of EV fires involving brands like Nio, Li and Ora damaged consumer confidence.
|Number of 2022 EV Fires
By restricting new players and expansions, regulators aim to “guide enterprises to focus on their main business” to mature technologies and ensure product quality. This should benefit established automakers focused on improving existing EVs rather than rushing out capacity for new models.
The MIIT vowed sustained support for EV development as a “new leap” towards green mobility. But projects must now meet revised requirements showing sufficient demand, technical capabilities, research strength and quality control.
Industry leaders convened in Beijing for emergency meetings on ensuring quality while maintaining global competitiveness. The focus is shifting from scale and speed to deliberate, planned growth meeting stricter approval criteria.
Most analysts expect this “forceful measure” to slow EV sales growth from over 50% to around 35% annually. But it may aid productivity by culling weaker firms, reducing wasted investment, and promoting mergers. Streamlining the sprawling industry while upholding strict standards should help Chinese automakers better compete globally with the likes of Tesla as the inevitable EV future arrives.
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