New Energy Car Makers Fierce Battle For Production Qualification

(Chinese Version)

Production license is the must-have qualification for car makers. And it’s the stepping stone for new energy companies to enter the whole car production sector. Hence, there is a fierce competition going on in the Chinese new energy car industry, as companies fight with each other on the capital, experience, technologies and even government policies.

TMTPost learned that to date only ten companies have acquired the license for new energy car production: BAIC BJEV, JMC, Chongqing Jinkang New Energy, Chery New Energy, Changjiang EV, Qiantu Motor, Wanxiang Group, Jiangsu Minan, gnnysolarbe, YudoAuto etc. And there are more new energy car companies than that. The production license serves as a production and survival guarantee for new energy car companies. However, it had been reported that “only ten companies will be able to receive the production license from the assessment.” Is it true? Are those companies that claim to have a license telling the truth, or it’s only National Development and Reform Commission had made a document of their project? New energy car companies are facing pressures from both the policies and capital.

Driven by policies

China is quite unique in terms of assessing car production qualification. However, pushed by the country ‘s new energy strategy, the Ministry of Industry and Information Technology of the People's Republic of China and the National Development and Reform Commission have lowered the thresholds for new energy car companies.

Car manufacturer FMC’s COO Dr. Daniel Kirchert subtly expressed in an interview to TMTPost that the car production qualification mechanism is a very Chinese thing. “However, the Chinese market has the biggest support for the development of new energy car,” he added.

Compared with the production qualification assessment mechanism for the traditional automobile industry, the one for new energy car industry has gone through the strict regulation period to present’s easy-application and hard-to-get phase.

TMTPost notices that the Policy on the Development of the Automobile Industry issued by the National Development and Reform Commission in 2004 states out the investment requirements for emerging car manufacturers:

The minimum volume of the project investment is ￥2 billion and the annual production capacity of the quadruple cylinder engine models should be more than 50,000

However, the Management Regulations for New E-Car Automobile Companies issued jointly by the National Development and Reform Commission and MIIT in 2015 didn’t clearly state out the investment volume and production capacity but let the investment body decide. The regulation abandons the lifelong tenure for production qualification assessment, but states the valid period is only three years and if expired reassessment should be implemented.

Many entrepreneurs including Dai Lei believe that China’s support for the new energy car industry is attributed to the fact that with emerging technologies such as new energy and material Chinese auto industry might have a chance of catching up with developed countries.

The battle of standards

There is a very popular say among media report and industry discussions, which is that the MIIT only will only approve ten new energy car makers. But there is no official source for that rumor according to TMTPost’s research. Furthermore, there is no a set-in-stone regulation that says so whether it’s in the National Development and Reform Commission’s note or the policy.

At present, YudoAuto’s new energy car project has been officially approved. That said, the MIIT has approved ten projects. Would that mean other car makers now have zero chance of getting the approval? That’s apparently not the story at all. From this perspective, the rumor is just a rumor.

However, it should be noted that:

Among the companies that have got the approval, Chery New Energy, BJ EV, JMC and CH Auto are subsidiaries. Strategically speaking, they might be separated from the main businesses to seek more opportunities.
Changjiang EV is Sinopoly Battery Limited’s attempt in the new energy automobile sector through acquiring Hangzhou Keche Factory. Jiangsu Minan also has a background in commercial cars for logistics.

Wanxiang Group acquired American e-car company Karma and battery maker A123. YudoAuto on the other hand is invested by ；FJ Motor, Putian SDIC, and Haiyuan Group.

Although Jinkang New Energy and Guoneng New were integrated in a short term, the former has traditional technologies accumulated from its Xiaokang car while the latter has investment from FJ Motor.

That being said, these ten approved new energy car makers all have some background in manufacturing and car making.

In comparison, popular car makers such as LeSEE, NEXT EV etc. are not on the approved list yet.

TMTPost learned that currently Internet car makers are still preparing for the qualification application and haven’t officially entered the application process. Are Internet car makers facing challenges due to their lack of technological accumulation and production scale?

Here is an important fact: Most of the car companies that have claimed to acquire the new energy car production application in fact only get project approval of their car project from National Development and Reform Commission.

Whether it’s the Three Requirement Plan issued by the National Development and Reform Commission in 2008, or the Management Regulations for New E-Car Automobile Companies issued jointly by the National Development and Reform Commission and MIIT in 2015, both set a clear definition for the management role of National Development and Reform Commission and MIIT in the car making industry:

The National Development and Reform Commission deals with the investment and set up requirements for the investment body. And different levels of the commission will complete the investment body assessment within 30 days. MIIT on the other hand is in charge of approving and management.

The approval depends on the test result of 15 sample cars and the investment structure. As for the company and product assess approval, it requires MIIT to test and assess the mass-produced cars.

From the establishment of the project to getting the approval might take one or two years. Compared with the project approval from the National Development and Reform Commission, MIIT’s approval is hard to get.

FMC’s Dr. Daniel Kirchert holds the same belief, thinking that it wouldn’t be hard for FMC to apply for production qualification with its technological and team background. According to him, once FMC’s factory project in Nanjing is set, the company will initiate the production qualification application process.

However, TMTPost learned that car makers including Jiangsu Minan, Chery New Energy etc. started their factory projects after they got the approval. It’s not hard to tell that Internet companies are more cautious about the application process and wouldn’t jump into it before having more cards on factory, production, investment and R&D etc.

Waves of factories

It’s easy to tell from the information above that why Internet car makers are choosing to prepare for factory construction in advance.

LeSEE pours in ￥20 billion for factory construction in Moganshan, Zhejiang province;
WM Motor invests ￥6.7 billion in Wenzhou, Zhejiang province for factory construction;

SINGULATO invests $8 billion in Tongling, Anhui province for factory construction;

NEXT EV builds Sandian factory in Nanjing, Jiangsu province;

Chehejia invests ￥5 billion in Changshu Jiangsu province for factory construction;

FMC invests ￥11.4 billion in Nanjing for factory construction;

Besides Internet car companies, car makers that have acquired approvals from the National Development and Reform Commission are starting to go into factory construction.

TMTPost also learned from the National Development and Reform Commission’s approval report that Chery New Energy’s project investment is ￥2.046 billion, and its main construction is factory construction. Wanxiang Group’s investment situation is quite similar with an investment of ￥2.745 billion. Other companies share similar investment volume as well.

The technology chain of new energy car includes many emerging production techniques.

For instance, FMC plans to adopts magnalium as a body material while Qiantu Motor and Jiangsu Minan will adopt carbon fiber body material. Changjiang EV on the other hand will implement the Industrial 4.0 standard and experiment on smart factory, which brings up new challenges for the production line. New energy car companies must build factories with relevant production techniques.

Besides new production technique standards, the construction of factories also requires the production qualification approval from the MIIT.

In the New Energy Car Company Approval Requirements and Assessment Standards, there are 17 requirements covering core technologies, sales and channels for the production companies, among which eight are refusal conditions. If an applying company fails to meet more than two requirements, then it will fail the process.

These eight refusal conditions are centered around the development of new energy cars and manufacturing technologies, including the design of the vehicle control system, the development and testing of the power-driven system, the production of engines(with refined production line for cylinder, cylinder cover), and the establishment of product quality data base and origin etc.

Even though there are no requirements that have set a bar for investment volume, annual capacity, and factory planning, the requirements above force new energy car makers to follow the original policies and increase their production capacity to 50,000 cars, or invest more in factory construction to earn more say in production technologies.

“If you are an OEM, then you have two brands. It’s never an independent brand since according to China’s current trademark mechanism, the car will have the OEM’s logo on the body as well,” SINGULATO’s founder Shen Haiyin told TMTPost.

However, the double brand trademark mechanism makes it more difficult for aftersales service, which actually is contradictory to the assessment principles.

Some car makers are pushing their new material techniques and build factories based on that to insure they have the capability for the design, production and capacity of the new energy cars.

The capital stirs up

The capital invested in getting the production qualification is stirring up the whole industry. Behind that it’s all about car companies’ abilities to relocate the capital.

Chongqing Jinkang New Energy is Xiaokang Holdings’ subsidiary. On January 10th 2017 the company received the project approval from the National Development and Reform Commission and is planning to pour in￥2.5 billion to develop an e-car project that aims to produce 50,000 cars. Wait, where does that ￥2.5 billion fund come from?

On December 2016, Xiaokang Holdings made 20 announcements, all of which had a common theme: the company would raise funding through private placement. On January 13th 2017, three days after Jinkang New Energy received the approval from the National Development and Reform Commission to establish its project, its parent company Xiaokang Holdings issued an announcement that 40 million tradable shares will be transferred to Chongqing Rural Commercial Bank Jiulongpo branch as pledge.

This is the financing advantage that a car maker with both the approval from the National Development and Reform Commission and a background in traditional manufacturing industry has.

It has the financing channels a listed company has, accumulation from the traditional industry, or let’s say, it has a blood tank pumping blood into its system. Compared with that, Internet car companies face a fiercer capital scene.

After car makers that have received approval from the National Development and Reform Commission all set their production capacity at 50,000, Internet car companies have no choice but to raise their own standard by 4-5 times once they start their factory project.

FMC’s production capacity is 300,000 and LeEco’s first-phase factory in Deqing has a capacity of 200,000 while SINGULATO’s capacity is also 200,000. From this, it’s easy to tell that Internet car makers are facing increasing pressure from the capital.

On the annual China EV, NEXT EV’s founder Li Bin expressed his disappointment about the current situation. From this view, startup companies should focus their energy on R&D as well as aftersales services. As a matter of fact, factory development costs a lot of capital and is quite beyond startup companies’ capacity, which will bring great risks to startup companies. Li Bin:

“A car company needs a minimum investment of ￥20 billion. If we invest all of it in R&D and customer service, then we might have a 60% to 70% of chance to succeed. However, if we put half of it on building a factory, the success rate is much lower.”
TMTPost learned that companies generally need to invest 40% of its funds to push the development of factory project, which is quite a burden on startup companies, especially for Internet car companies who need to invest in attracting professional talents, technology R&D and production.

SINGULATO’s founder Shen Haiyin shared a similar opinion,

“In this phase, China still requires car companies to undergo National Development and Reform Commission’s assessment procedure. I think this is not reasonable. From my stand point, car production is more of a market behavior.

In developed countries, the development of this industry doesn’t have such limits. They only impose restrictions on the products you make. They assess the products you produce.”

From Shen’s perspective, OEM is quite a good model. If the country encourages to utilize excessive production capacity for OEM, then a industrial mechanism similar to Foxconn would form.

“China doesn’t lack production capacity, but the ability to develop good products. Companies like us need to spend our time and energy on designing a better product instead of wasting our time going through the complicated qualification process. I think this will benefit the industry as a whole,” Shen told TMTPost.

In November 2016, the State Council issued the 13th Five Year Plan concerning greenhouse gases emission control, which points out that by 2020 the production capacity of e-cars and hybrid cars should reach two million and with a total production and sales volume of over five million.

China is betting on the upgrade of automobile industry to drive the development of the manufacturing, energy and technology industry. And the big wave of factories construction is part of the hot scene. The fact is, under these circumstances it’s hard to get a production license, or qualification, and therefore companies might need to come up with leading technologies to break off the chains casted by the policies.

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[The article is published and edited with authorization from the author @Li Qin, please note source and hyperlink when reproduce.]

Translated by Garrett Lee (Senior Translator at PAGE TO PAGE), working for TMTpost.

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