Electric vehicle industry developed in China as the government decided to tackle the pollution as well as to become the market leader. China’s economy is growing, and currently, its economy is the second-largest in the world.
In the last several years, venture capitalists invested billions of dollars into the emerging electric vehicle industry. However, it is hard to say that many companies prospered in this business. Only several companies survived, which continue to operate on the market.
There are other problems, as well. Auto sales declined in China and this is not the only major problem. It will be hard to develop the electric vehicle industry without government subsidies. However, as the government plans to phase out the consumer subsidies in 2020, companies should look for other sources of income. Companies didn’t expect the subsidies to last this long.
Electric cars and China
The roots of this industry date back to the early 2000s when a former engineer for Audi returned to China. Wan Gang convinced the central government to create a national strategy for developing new energy vehicles and battery technology.
Wan Gang became China’s minister of Science and Technology, even though he was not a member of the Chinese Communist Party. His idea to develop an electric car was supported by the government, as Beijing wanted to become the global leader in emerging technology.
In six years, from 2009 to 2015 central government spent at least 33.4 billion yuan in subsidies. Based on the information provided by the Ministry of Finance.
Subsidies played a crucial role as the number of new electric cars sold in China quadrupled in 2014. Moreover, next year in 2014, Chinese customers bought more than 330,000 vehicles. This data comes from China’s Automotive Industry Association.
Nevertheless, some of the companies which received state subsidies used this money for other purposes. In 2016, the Ministry of Finance stated that at least five companies cheated the system. These companies misused more than 1 billion yuan.
Unfortunately, such cases are common in China. For example, between 2001 and 2011, about half of the Chinese companies which received direct grant subsidies for research and development failed to use these funds appropriately. Some of them used this money for private consumption and investments with higher returns.
Economy and automakers
Although all the problems mentioned above some companies are still confident in growth. For example, XPeng plans to reach breakeven in about two years. According to the Brian Gu president and vice chairman of XPeng, the company expects to sell about 150,000. It means that the company has to sell ten times more cars than it did.
Moreover, there is a chance that the company may reach breakeven in the next 12 months, as the start-up is paying more attention to consumer marketing. Currently, the company is raising $1 billion which should be enough to finance the automaker until a public offering.
Another company that has the ambition to change China’s economy is Aiways. This Shanghai-based start-up stated that it passed the certification process. As a result, it can sell cars in the European Union.