Big Auto Wins as China Pulls the Plug on Electric-Car Permits
(Bloomberg Gadfly) -- China's plan to halt new electric-vehicle permits may prevent the market from overheating. But it's also likely to crowd out new energy startups and pave the way for the nation's incumbent manufacturers to gain an even greater share of the world's largest car market.
Make no mistake, China is still committed to its goals of increasing annual sales of electric vehicles, plug-in hybrids and fuel-cell cars by 10-fold in the next decade, part of efforts to cut air pollution and oil imports.  Government support to consumers and manufacturers to achieve those targets will persist.
It's just that authorities were caught flat-footed when a rush of new entrants with no automaking experience, as well as scammers that claimed to be manufacturing cars but never actually did, sprouted up in order to claim government subsidies.
To rein in the disorder and seize more control over how the electric-vehicle market develops, China now seems to be reverting to an old strategy of hand-picking big, established companies as predestined winners. It's the safe, expected route, albeit one that quashes any (misplaced) glimmer of hope that the country might have let technological innovation rather than central planning drive the still-nascent industry.
Winners will no doubt include BYD Co., whose shareholders include Warren Buffett's Berkshire Hathaway Inc., and BAIC Motor Corp., China's fifth-largest automaker. They have the scale, cash, expertise and technical mettle to churn out automobiles to Beijing's liking.Â
Not so lucky will be the dozens of tech companies and startups like LeEco, run by billionaire Jia Yueting, or Tencent Holdings Ltd.-backed Nio that have raised hundreds of millions of dollars on the promise of developing clean-energy technology. These now may be locked out of the industry when China stops issuing permits beyond the 15 early movers that currently hold them.
It's a good sign that China wants to implement regulations around who can make these cars to ensure safety, performance and environmental considerations are met. Consolidation might help reach production goals more quickly, while positioning Chinese carmakers to potentially compete among global auto brands, according to a report from Bloomberg New Energy Finance.
Just don't be surprised by the follow-on effect: Tech companies and startups that might have pushed the industry forward faster than auto veterans, much like Tesla Inc. has done in the U.S., may be stopped in their tracks.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
Shelly Banjo is a Bloomberg Gadfly columnist covering retail and consumer goods. She previously was a reporter at Quartz and the Wall Street Journal.
China's sales target is million units a year by EVs are expected to represent all new vehicle sales growth in China in the next years, according to Bloomberg New Energy Finance.Â
To contact the author of this story: Shelly Banjo in New York at sbanjo@bloomberg.net.
To contact the editor responsible for this story: Matthew Brooker at mbrooker1@bloomberg.net.
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