Chinese homegrown automakers forthright about potential EV overemphasis

The Chinese car market has gained worldwide traction because of EVs. Homegrown automakers seize the opportunity to scale inside and outside China. The country has put many resources and effort into the EV sector, drawing criticism and doubts.

Foreign-based gasoline carmakers, joint venture companies, and leading local automobile brands have participated in the cutthroat price competition in recent years. Executives from three major Chinese automakers, Changan Automobile, Geely, and GAC, have raised the issue of whether China overemphasizes EVs.

Those three carmakers said that the market must be aware that EVs have had difficulties bringing a company out of the red. Over-investment in the sector will likely put the whole automotive industry at risk. BYD and Li Auto have been the two leading EV makers that see profits. GAC Aion's outstanding EV sales in 2023 could not offset the group's loss.

As domestic competition in the Chinese car market has heated up, automakers are under more pressure to earn profits. The rivalry also facilitated mergers and acquisitions. Some homegrown car companies still believe they can edge out foreign competitors in China.

Based on the experiences of other industries, the nature of China's supply chains differs from that of their counterparts overseas. The Chinese government will take every measure to maintain an iconic enterprise's livelihood. However, those not receiving the government's support will be eliminated quickly.

Is it too risky to go "all-electric"?

The Beijing Auto Show, which returned four years later, demonstrated a dramatically different picture in the Chinese car industry this year. According to Chinese media reports, only a limited number of gasoline cars were exhibited. Moreover, 24 automotive brands withdrew from China in the past four years. The country's local carmakers dominated the market with an EV line-up, defeating a joint venture brand that claimed the best-seller title for about 40 years in China.

Zhu Huarong, chairman of the state-owned Changan, questioned earlier this year whether it is wise for Chinese automakers to ramp up EV production regardless of their financial loss. Global carmakers have not been as aggressive as their Chinese competitors in EV investment due to the challenges in earning profits.

In a March interview with China-based CCTV, Li Shufu, Geely's chairman, said gasoline cars are critical to stabilizing the automotive market during the transition to EVs. The automaker will not terminate gasoline car production easily, he added.

Feng Xingya, a GAC board director, previously submitted a proposal to China's National People's Congress, saying energy-efficient gasoline cars will be the foundation and dominate the automotive sector in the coming years. Feng said China will face risks as the car industry over-relies on EVs.

Automotive industry players said Europe and the US are experiencing a transition in the EV sector. They have satisfied the initial demand driven by environmental consciousness and the high-spending group. The current focus is on general consumers, who are vulnerable to EV prices, range anxiety, and the lack of charging infrastructure. Governments canceling or downsizing subsidies have also impacted EV demand growth.

The market has yet to determine the portion of gasoline cars and EVs after the industry crosses the above hurdle, a main reason why legacy European and US automakers scale back EV investments.