The Chinese electric car market is about to be cleansed

According to AlixPartners, as cited by Reuters, these 15 brands will account for about 75 percent of China’s electric vehicle and plug-in hybrid market by the end of the decade, with each having average annual sales of 1.02 million vehicles.

“However, consolidation in China is likely to be slower than in other markets,” said Stephen Dyer, head of AlixPartners’ automotive practice in Asia. “ Local governments may support unprofitable brands because of their importance to regional economies, employment and supply chains.”

“ China is one of the most competitive NEV (new energy vehicle) markets in the world, with intense price wars, rapid innovation and new entrants constantly raising the bar,” Dyer added. “This environment has led to extraordinary advances in technology and cost efficiency, but it has also left many companies struggling to achieve sustainable profitability.”

There are big problems with the profitability of Chinese producers

China’s auto market is the world’s largest. It’s currently struggling with a price war and significant overcapacity, which is weighing on profitability . Apart from BYD and Li Auto, no other publicly traded Chinese EV maker has achieved profitability in a full year .

Chinese regulators have urged carmakers to end the price war. But Dyer said it was likely to continue, but through “hidden” factors such as insurance subsidies and interest-free financing rather than direct price cuts.

Capacity utilization rates at Chinese car factories fell to an average of 50 percent last year, the lowest level in a decade , putting pressure on profits, Dyer said.