Abandoned factories in Nanjing show how the boom in Chinese electric cars has gone too far

Visitors to Byton Ltd.’s website they welcome color-saturated images of shiny electric cars gliding on landscaped streets. Those who visit the car factory in Nanjing in eastern China will be less impressed. The plant is modern and huge, shining under the hot summer sun. But there is complete silence. Production has been suspended since the pandemic, and there is no one but a lone security guard.

The Bordrin Motors situation is similar in the city. Weeds run around the perimeter of the factory and a court notice of the bankruptcy of an electric car is pasted on the main gate.

Bordrin and Byton are the flip side of EV’s Chinese success. While domestic stars like Nio Inc. and Xpeng Inc. They continued to raise billions of dollars and now sell cars in numbers that rival Tesle Inc., another score dropped on the sidelines because it could not raise the insane amount of capital needed to make cars in bulk.

In many cases, they have been lured to the existence of a provincial government, which has rocked cash and other incentives to make Beijing’s dream of turning China into an EV a reality. Local authorities have helped manufacturers set up factories that promised jobs and development – if they succeeded. However, the influx began to reverse in November, when regulators asked regional governments to review and report on the extent of their support to the automotive industry.

Beijing is concerned about unrestrained investment in the sector – and the slowing down of bankruptcies and bombed factories.

“We have too many EV companies,” Xiao Yaqing, China’s industry and information technology minister, told reporters on September 13. Mergers and acquisitions will be encouraged as the market needs to be further concentrated, he said. The government is also working to set production limits for the EV sector, people familiar with the matter told Bloomberg News this month, and the provinces cannot shed light on new projects until excess capacity goes online. Resources will also be routed to several selected EV centers.

These steps are a potential warning signal for investors who have invested money in electric car manufacturers and the technologies that support them over the last year.

There are approximately 846 carmakers registered in China, and more than 300 are spewing new energy cars, loosely defined as electric vehicles or plug-in hybrids. The vast majority are names unrecognizable elsewhere. In 2020 alone, the country added a new production capacity of around 5 million units, which is about four times the actual number of electric cars sold in China that year. According to regulators, almost half of this capacity was not used.

Bordrin, founded in 2016 by former Ford CEO Huang Ximing, focused on an annual production of 700,000 cars in three factories. But the money ran out and folded before making even one. Huang did not respond to messages seeking comment sent through WeChat.

China does not have public documentation of bankruptcies, but since last year it has been known that at least a dozen electric car manufacturers have failed or had to be restructured to avoid insolvency.

“It’s such a classic capitalist competitive shakeout,” said Gary Dvorchak, chief executive officer of Beijing at Blueshirt Group LLC. “You get a million companies and then you have a supply situation.” The failure process in China is usually much slower as companies receive state support. But in the end, some must die, and the pain caused by these deaths can be high. “

At least Byton still exists. The carmaker, co-founded by former executives of BMW AG and Nissan Motor Co., suspended all domestic operations and laid off employees in July last year as a pandemic made it difficult to start a business. Even before COVID-19, the company had problems meeting the announced deadlines for production and delivery of its first model, although its website still accepts car reservations.

Things began to be sought this year, when Byton signed a strategic cooperation agreement with iPhone maker Foxconn Technology Group (with the help of Nanjing’s Economic and Technological Development Zone) in January to begin mass production of the Byton M-Byte SUV by the first quarter of 2022. employees from the Nanjing plant after one of the carmaker’s largest creditors began taking control, Bloomberg reported in July, and Nikkei newspaper reported last week that cooperation had been suspended due to Byton’s deteriorating financial situation. .

A Byton spokesman declined to comment on the story.

Bordrin Factory in Nanjing  BLOOMBERG
Bordrin Factory in Nanjing BLOOMBERG

Nanjing’s Jiangsu Province has sought to become the center of electric vehicles, attracting $ 32 billion in automotive investment over the six years to 2020. It is now home to more than 30 car manufacturers. Earlier this year, however, it became the subject of a Beijing probe, which found that some local authorities provided tax breaks and land incentives to attract car manufacturers that went beyond government guidelines. This has led to “significant problems of low capacity utilization and spare capacity,” Jiangsu provincial officials said in a statement in February, without specifying.

“Local governments have high expectations for the development of new energy vehicle companies, hoping to seize the industry’s opportunities and support local economic expansion,” Cui Dongshu, general secretary of the China Automobile Association, told Cui Dongshu. “Investors have also seen huge potential for profit.” The result is excess capacity. “

Yinlong New Energy Co. Nanjing Factory broke in 2017 with a total planned investment of 10 billion yuan ($ 1.6 billion). Production was set at 30,000 new energy commercial vehicles, mainly electric buses, and EV battery production plans were also planned. Production was supposed to start in 2018, but today the plant is almost abandoned. Garbage has accumulated under its walls, and the roads connecting the buildings inside are deserted and its entrances barricaded.

The company’s largest shareholder, Gree Electric Appliances Inc., said there was still room for cooperation, either in strengthening the carmaker’s capacity utilization and competitiveness, or in promoting its battery technology.

Some Chinese automakers watch it all with a sense of inevitability. Zhejiang Geely Holding Group Co., one of the largest national privately owned carmakers with a range of brands ranging from the mass market to ultra-luxury race cars made by Lotus — which it controls — sees a natural cycle and one that will involve some victims.

“Some people are in a hurry to build one, two, three, five factories, even though their first car is not yet on the market,” said Lotus PLC Group CEO Feng Qingfeng.

“When everyone thinks it’s easy to make cars, people get into car production.” When they realize that doing business with cars is not so easy, they stop investing, “he said. “It is the invisible hand of the market economy command.”

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