China has chosen to pull the switch on its fragmented electric vehicle industry. Over the past decade, the Chinese government has submerged the EV market with subsidies and tax breaks to incentivize the production and purchase of cleaner cars (probably Elon Musk’s wildest dream). From 2015 to 2020, the government’s subsidies for new EV vehicles stood at a shocking $5.1b. As a result, the number of EV makers in the country jumped to more than 300.
This decision has proven to be a boomerang as it led to overcapacity and bankruptcy for many small EV producers. Regulators are now thinking of setting a minimum production capacity utilization rate for the industry. This move should help to consolidate the market and reduce the number of small EV manufacturers. New measures to regulate the industry by channeling resources to production hubs are not to be excluded.
why it matters
China's crackdown on the EV industry has caused many EV makers' shares to drop. Xpeng plummeted 3.2% in Hong Kong, while Li Auto dropped 1.8%.