China’s Electric Vehicle Bubble Is Starting to Deflate
The world's largest electric vehicle market is putting its crowded infancy stage behind it.
The explosive industry in China — supercharged by government subsidies more than a decade ago — now spans about a hundred manufacturers churning out pure-electric and plug-in hybrid models. While that's down from roughly 500 registered EV makers in 2019, the end now looks to be in sight for scores more.
The cutthroat market formally transitioned from over-crowded to moderately concentrated in the first quarter, based on the Herfindahl-Hirschman Index, a metric used by academics and regulators to evaluate competition and measure market concentration. The biggest winners are players already at the top, like BYD Co. and Tesla Inc., which have been consolidating their power.
According to Wang Hanyang, an auto analyst at Shanghai-based 86Research Ltd., “80% of the new energy vehicle startups, if we count all of them since the initial subsidies, have exited or are exiting the market.”
That's not good news for struggling players like Nio Inc., whose sales have been tumbling and which said last week that the government of Abu Dhabi is taking a 7% stake following a capital infusion. Just two short years ago, Nio's founder and CEO William Li was being mobbed by fans at customer gala dinners and the company was riding high after already escaping one near-death experience, fixed by a large financial injection from the municipal government of Hefei.
The Herfindahl-Hirschman Index shows a clear consolidation trend over the past several years, winnowing the initial surge of new players that emerged when China first rolled out plans to support cleaner energy vehicles with state subsidies and other sweeteners.
The squeeze has only intensified over time,
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