Autoshow: China's rush to green vehicles fuels bubble concerns

Ev Dynamics Holdings

19/11/2014 21:00

By Samuel Shen and Kazunori Takada 
    GUANGZHOU, China, Nov 20 (Reuters) - Forget luxury limos, 
think green buses. 
    China's electric vehicle sales surged five-fold in the first 
10 months of 2014, powered by Beijing subsidies. In a 
long-awaited take-off, even unlikely firms like a metals trader 
and a soda ash producer are pouring money into green 
transportation. 
    As China's demand for luxury and premium cars cools, the 
Guangzhou autoshow this week hosts a separate event dedicated to 
green vehicles. But the gold rush is fuelling concern in the 
industry it may add to overcapacity, leaving new entrants 
struggling to survive even with state support.  ID:nL3N0T718I  
    "China's green vehicle market will be huge," said Arnold 
Chan, Deputy Chairman of China Dynamics Holdings Ltd  0476.HK . 
    The company, more than 11 percent-owned by Chan according to 
Thomson Reuters data, quit metals trading to start making 
environmentally friendly electric buses this year after losing 
money ever since its 2006 Hong Kong listing. 
    "There are 2 million buses on Chinese roads. A 10 percent 
share of that market would be enormous," said Chan, whose new 
entrant firm is worth about $440 million by market value. It's 
unclear how many electric vehicles could in practice replace 
buses now in service, but as the world's biggest auto market, 
China is a magnet for new firms. 
    Shanghai-listed Tangshan Sanyou Chemicals Industries Co ltd 
 600409.SS , a Chinese producer of soda ash worth $1.9 billion 
by market capitalisation, entered the green vehicle business in 
March. At Shenzhen-listed auto parts maker Wanxiang Qianchao Co 
Ltd  000559.SZ , shares have doubled since parent Wanxiang Group 
acquired bankrupt U.S. electric car maker Fisker Automotive in 
February. 
    The concern over potential over-investment stems from orders 
for electric buses and cars coming from local governments, 
rather than individual consumers.  
    Despite a flood of electric car models coming to the market 
this year, from BMW  BMWG.DE  and Mercedes Benz to Nissan 
 7201.T  and BYD  002594.SZ , many in China are just not yet 
ready to buy them, according to a survey earlier this year by 
consultancy A.T. Kearney. 
    Some 54 percent of survey participants said incentives 
wouldn't be enough to override other concerns. Fully 60 percent 
of consumers said they expect a minimum driving range of 250 
kilometres, much further than the range of most electric cars 
currently on the market. 
     
    CHASING SUBSIDIES 
    Beijing has introduced a slew of measures over the course of 
this year to support electric vehicle sales in a move to combat 
China's growing pollution problem.  
    These incentives include renewed subsidies for car buyers, 
exemption from purchase taxes and public funding to build 
charging stations. Another key strand that caught the eye of 
wannabe green vehicle makers was a purchase quota of at least 30 
percent by 2016 for the fleets of central government, as well as 
local government in 88 new energy vehicle pilot cities.  
    But China's industrial policies have backfired in the past. 
    In 2009, Beijing offered hefty subsidies to the solar power 
industry, triggering a race to develop multi-billion dollar 
solar projects. But the boom ended badly with the collapse of 
solar superstars such as Suntech Power Holdings  STPFQ.PK  and 
LDK Solar Co Ltd  LDKYQ.PK . 
    In shipbuilding, meanwhile, government-backed expansion also 
led to a bust that brought hundreds of small to mid-sized 
shipyards to the verge of bankruptcy. 
    "If the government keeps subsidizing an industry which 
itself is not profitable, there will be a lot of trouble," UBS 
Hong Kong-based auto analyst Hou Yankun said. 
    The potential for a supply-demand mismatch worries even 
new-comers like China Dynamics. 
    "I see a lot of people rushing into this business," Deputy 
Chairman Chan said. "Many will be weeded out in the future. Only 
those with real competitiveness can survive." 
     
 
 (Editing by Emily Kaiser and Kenneth Maxwell) 
 ((samuel.shen@thomsonreuters.com;  +86 21 6104 1789; Reuters 
Messaging: samuel.shen.thomsonreuters.com@reuters.net)) 
 
Keywords: CHINA AUTOSHOW/ELECTRIC CARS