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Domestic automakers should get rid of government support

Source: 21st Century Business Herald | Date: Nov. 24

  • Almost all executives attending Auto Guangzhou 2015 face one question about what plans they may have to build or develop new-energy vehicles (NEVs). A number of domestic automakers have already launched their battery electric vehicles (BEVs). The booming BEV market tells executives that domestic automakers' advantages in this market segment are being challenged, especially as joint venture (JV) automakers have begun tapping into this particular market.

  • According to one industry analyst, there are two main reasons that have led to the fact that most of the available NEVs are made by domestic automakers. First, the Chinese government has offered domestic automakers a slew of incentive policies, which are viewed as the most lucrative in the world, to support their NEV development and promotion. Second, since the NEV market is still in its infancy, JV automakers are waiting for an appropriate time to enter.

  • The second situation has changed, as recent data shows that sales of NEVs, including BEVs, have grown explosively in recent years. The first situation has also changed, as domestic automakers are getting less and less incentives from the government as time goes on.

  • An executive from GAC has said that domestic automakers will face a major challenge as government incentives will expire by 2020. Taking advantage of a booming NEV market and the phase-out of government support for domestic automakers, JV automakers are aggressively promoting their BEVs in China, with many new models expected to go on sale in 2016 and beyond.

  • As a result, JV automakers' challenge has exposed domestic automakers to two vulnerabilities. First, domestic automakers do not have a diversified product portfolio. In contrast, JV automakers backed by foreign companies boast a variety of NEV technologies, including fuel cell.

  • Second, domestic automakers are lagging far behind global leaders in power cell technology. The analyst goes so far as to claim that the lagging battery technology could become the biggest obstacle to China's NEV development in the future. The analyst estimates that domestic automakers will find it difficult to compete with JV rivals unless they build large conglomerates, cut costs, or upgrade their brands, all of which have to be completed before the expiration of government incentives.

  • Should government incentives cease to exist, it will be very difficult for domestic automakers to compete with foreign companies with cost performance only. This, coupled with lagging battery price and technology, will give domestic automakers a hard time if they merely relies on cost performance to sell NEVs. In this regard, whether domestic automakers can get rid of their dependence on government support will be a systematic issue.