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September 15, 2021

The electric vehicle sector is seeing its “most exciting moment” now — and consolidation in the sector cannot be avoided, says Bain & Company’s Helen Liu. “I would say that consolidation is an inevitable trend in this industry,”  She cited reasons such as the electric vehicle sector’s capital-intensive and tech-heavy nature.

“Historically, we have seen invisible hands like the market and also visible trends, regulations, navigated the industry through the consolidation trend continuously,” she said. On Monday, China’s minister for industry and information technology the country has “too many” EV makers. Those comments sparked fears of further regulatory action by Beijing, this time targeted at the autonomous vehicle sector following previous moves in other industries such as private education and technology.

IHS Markit’s Huaibin Lin said he sees a low chance of regulatory intervention by Beijing in the short term. Calls by the industry and information technology ministry for consolidation of the auto sector are not new and have been happening in the last 20 years.

“We are in [an] ever-increasing market where we have been seeing tremendous growth for the past 20 years in auto ... sales,” said Lin, who is the manager of China automotive at IHS Markit. He added that the new energy vehicles market is currently seeing very strong momentum. “Are we going to see drastic consolidation within the industry itself? We think there’s a big question mark over it as long as the market keeps going,” he said.

Liu from consultancy Bain concurred, saying that growth momentum and the outlook for the sector both look highly positive at the moment. That’s backed by factors such as supportive policies and most importantly – customer acceptance. “Based on our Bain study this year, we have found that actually, the Chinese customers’ acceptance to the EV is leading the global sort of trends and also, we think that’s increasing continuously,” she said.

China’s EV boom

China’s electric car sector is seeing rapid growth, with tens of thousands of companies jumping on the bandwagon and shares of Chinese electric car makers such as Nio and Xpeng surge, according to business database Qichacha. For its part, China mentioned previously that it would like 20% of new cars sold to be new energy vehicles by 2025.

Beyond competing domestically, IHS Markit’s Lin said China’s electric car makers are also expected to contend with increased capital competition in the next decade. Some of this competition could come from longstanding incumbents in the auto sector, he said, with traditional internal combustion engine vehicle makers such as Volkswagen, BMW, and Daimler’s Mercedes now coming up with “drastic” electrification strategies.

“In the next 10 years, you’re gonna see a very fierce competition within the new energy vehicle industry,” Lin predicted. “Nobody knows who actually is going to survive in the end.”

Analyst View
The need to be climate-friendly for all segments of industry has over the years crystallize an increased appetite for other means of powering vehicles aside from hydrocarbons. We are now in the energy-saving era of industry and the automobile industry is one of the leaders. The Chinese automobile industry is not going to be left out and appears to be ready to give the western automakers a run for their money.

There is still a lot to be done in view of development and efficiency, consolidation will definitely optimise resources, technology, and skill for the Chinese automakers.











SOURCE: CNBC