China to consolidate overcrowded EV industry, minister says

BEIJING -- China has "too many" electric vehicle makers and the government will encourage consolidation, Industry and Information Technology Minister Xiao Yaqing said on Monday.

The minister also said China would improve its charging network and develop EV sales in rural markets.

The government's promotion of greener vehicles to cut pollution has prompted EV makers such as Nio, Xpeng and BYD to expand manufacturing capacity in China.

Xiao said the ministry was speeding up alternative solutions to address an auto chip supply shortage.

China's market regulator last week fined three auto chip sales companies for driving up prices, in a move to help auto production in the world's biggest vehicle market.

A prolonged global chip shortage has affected major automakers, including Ford, Honda, and Volkswagen Group, forcing many to idle or curtail production.

"It is gonna be a no brainier," Hong said.

“The firms are mostly small and scattered,” the minister said of the nation's EV industry. “The role of the market should be fully utilized and we encourage merger and restructuring efforts in the EV sector to further increase market concentration.”

China, which built its EV industry into the world’s biggest, is putting a new focus on consolidating the ranks of EV makers which has ballooned to about 300. The government is drafting measures to rein in overcapacity in the sector and channel resources to a number of key production hubs, Bloomberg News reported last week, citing people familiar with the matter.

Regulators are considering setting a minimum production capacity utilization rate for the industry, and provinces that are not meeting it will not be allowed to approve new projects until surplus capacity comes online, Bloomberg reported.

The focus on moving the EV industry to a more sustainable footing comes as China shakes up a raft of industries from tutoring to property to big-tech in President Xi Jinping’s quest to remodel the nation’s economy and society.

The rapid growth of China’s EV market has been spurred by government subsidies to encourage consumers to switch to cleaner automobiles. Total central government subsidies for new energy vehicle purchases stood at 33 billion yuan ($5.1 billion) in the five years through 2020, Ministry for Industry and Information Technology data shows.

In response, provincial authorities have offered tax breaks and other incentives for EV manufactures to set up shop, leading to over-capacity. Jiangsu province, north of Shanghai, for example is now home to around 30 automakers, several of them bankrupt.

The average production capacity utilization rate for automakers in China overall was about 53 percent last year, according to calculations based on a Jiangsu province submission to the National Development and Reform Commission earlier this year. China has around 300 EV makers, according to a Xinhua report in April that cited official statistics.

Reuters and Bloomberg contributed to this report