China’s top economic planner has asked provincial governments to submit detailed reports about electrical vehicle firms’ investment and business activities in order to minimize financial risk, according to a notice seen by Chinese media.
Why it matters: The Chinese central government is addressing massive overcapacity in the EV industry in an attempt to head off financial crises in regional economies.
- Beijing is mulling further reductions in production capacity, concerned about an overheating EV sector. Tesla’s Shanghai factory is widely seen as an industry success story, reinvigorating the Chinese EV market and spurring local governments’ search for the country’s own Tesla.
- Poorly performing companies face higher default risk, compounded by significant overvaluation.
Details: National Development and Reform Commission (NDRC) had urged regional authorities in a notice issued Nov. 13 to provide updates on local EV manufacturing projects. Requested details include production progress and the implementation of investments over the past five years, Chinese financial media outlet Yicai reported on Wednesday.
- More notably, the country’s state planner in the notice asked local governments to report on EV projects from Chinese property developers Evergrande and Baoneng.
- Evergrande is known for its ambitious output goal of 5 million EVs per year over the next decade as well as a RMB 45 billion ($6.8 billion) investment project to build 10 manufacturing facilities around the globe by 2021.
- The would-be EV maker in August debuted six EV models which are scheduled for release in the second half of 2021. It began preparing a month later for a secondary listing on China’s Nasdaq-style STAR Market technology board.
- Concerns about Evergrande’s liquidity began to arise in September when the Guangzhou-based company reportedly resorted to asking a local government to approve a restructuring plan in order to repay as much as RMB 130 billion to strategic investors by January. The restructuring had been holding up a long-delayed backdoor listing on the Shenzhen stock exchange.
- The share price of China Evergrande New Energy Vehicle Group fell 5.2% to HKD 22.8 ($2.94) on Wednesday in Hong Kong. The property developer’s EV subsidiary still has a market capitalization of HKD 201 billion ($25.9 billion), close to that of Fiat Chrysler.
- Evergrande did not respond to a request for comment on Wednesday.
Context: China cracked down on EV overcapacity by suspending new plant approvals in mid-2017, when planned capacity reached 20 million EVs—more than 20 times total sales that year, according to state-owned China Securities Journal.
- This was followed by the enforcement of new rules in early 2019 that conditionally allowed new EV plant approvals. The new rules reopened the door to new plant approvals for EV makers and granted local governments with more discretion to oversee auto investments.
- Sales of new energy vehicles, mainly all-electrics and plug-in hybrids, declined 4% year-on-year to 1.2 million units last year in China, figures from the China Association of Automobile Manufacturers (CAAM) showed.