Proposed policies pose a questions on future of start-ups and battery makers operating in China
Chinese government policy has been largely considered extremely supportive of electric vehicles (EV) over the last few years. Generous subsidies for both manufacturing and buying EVs and various other policies have resulted in China becoming a magnet for automakers building up their EV portfolio. But now the government is raising the bar for companies to enter and establish themselves in the highly competitive market segment.
Recently, Chinese authorities formed new regulations for certification of EV battery manufacturers in the country that are far stricter than the ones previously in force. According to the proposed regulations, the annual output target for EV battery manufacturer in China will be increased from 0.2 gigawatts hours (GWh) to 8 GWh. The output of 8 GWh translates into a capacity of 130,000 EVs batteries with a 60-kWh battery pack per year. Currently, none of the foreign manufacturers have capacity in China to meet that. In fact, only two of the local manufacturers have that kind of capacity; BYD and OptimumNano.
Battery-makers hit speed bump
This would put the Chinese operations of some of world’s major EV battery manufacturers such as LG Chem, Samsung SDI, and Panasonic at risk. Battery makers have invested heavily in capacity building, keeping the Chinese market at the centre of their plans. LG Chem recently said that its EV battery sales will reach KRW1.2 trillion (more than USD855 million) this year and grow between 30% and 60% year-on-year (y/y) next year, with these predictions resting on China's authorities awarding the company EV battery certification, which will be pivotal to doing business in the world's largest EV market.
This is not the first time that Chinese authorities have made South Korean battery makers jittery about their growth in the country. In the past, China's Ministry of Industry and Information Technology (MIIT) had rejected South Korean companies Samsung SDI's and LG Chem's applications for certification for nickel-cobalt-manganese (NCM) type of batteries they produce in China. The government also cancelled subsidies for nickel-cobalt-manganese (NCM) batteries, citing safety concerns. Although the ban was relaxed later, the companies are still to get the certification.
No more EV start-up hub?
The move will not only affect glocal EV manufacturers in the region; the many EV start-ups that are growing in China are now also under pressure to regulate. In early September, it was reported that the government aims to cut down the number of EV companies that will get an EV production license to only 10 firms. A draft policy document posted by China's MIIT lists that EV makers must have 17 technologies to meet the requirements for legitimate EV producers in the country. These include a control system that determines the performance and stability of the NEV (new energy vehicle), an information system that tracks the sources and conditions of key parts, a process for recycling or reusing batteries, battery testing, and also trial production of at least 15 cars.
Such stringent requirement will put an end to small-scale start-ups. The bigger traditional automakers and a selection of extremely well-funded start-ups, such as and WM Motors, are the only ones that would remain eligible for the licenses. Only five companies have received an EV manufacturing license until now, the latest being Jiangsu Minan Electric Automobile Company, a subsidiary of Minth Group.
According to a report by Reuters, EV start-up Kaiyun Motors is one of the companies that is not looking to apply for a license and instead planning to acquire another company that already has one. “You can spend tens of millions and get a license, but all you get is a license. If you buy a company, you also get a factory,” Wang Chao, chairman of Kaiyun Motors was quoted as saying.
Life without subsidies
Even the famed subsidies for EVs in China are on their way out. Subsidies were one of the major routes to quickly turn EV manufacturing profitable. In fact, China was one of the very few countries that give subsidies not only to buyers but manufacturers as well. Subsidies are paid to the manufacturer for each car sold and can amount to more than a third of the sticker price of an electric model, like BYD’s e6. Reuters reports that China has given USD4.5 billion of subsidies in the last year alone. This has helped China become the largest EV adopter in the world with NEV sales already crossing 337,000 units in the January to October period this year alone. It remains to be seen what impact the new regulations, if and when they are implemented, will have on the sales growth of NEVs in the country.
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