Three months later, Reading Motors exited the market in disgrace.

At the cost of bankruptcy, this serves as yet another warning that local governments are footing the bill for car manufacturing.

In recent years, local governments have been under the illusion that “if you can do it, so can I.”

Consequently, from south to north and east to west, many regions have targeted the new energy vehicle industry in their investment promotion efforts.

When it comes to new energy vehicles, the journey is nothing short of a life-or-death struggle. Few emerge victorious, while the ranks of the defeated are teeming.

Against this backdrop, local governments have become the “scapegoats” for carmakers and mere “stepping stones” for the development of new energy.

Faced with the new energy vehicle industry—characterized by massive investment, intense competition, and long development cycles—we must ask: when taking on such a delicate task, do we truly possess the necessary expertise?

The quagmire of car manufacturing: warnings alone are not enough

At the height of the frenzy in the new energy vehicle sector, the number of automakers once exceeded 455.

The boom brought not only opportunities but also inflated the market with bubbles.

To this day, only about 40 new energy vehicle manufacturers remain with production lines still operating normally.

In some regions, despite concerns over fiscal health and employment, rather than pouring money into infrastructure, it might be better to choose the new energy vehicle industry—which can both stimulate economic growth and create jobs.

Practice has shown that for third- and fourth-tier cities, the good ones are out of reach, while the subpar ones are everywhere.

The main reason is that these regions lack the conditions necessary for developing the new energy vehicle industry—they lack talent and technology, so creating something out of nothing can only be achieved by “throwing money at it.”

Put another way, without supporting industrial infrastructure, why would any automaker choose to set up shop here?

In recent years, even in first- and second-tier cities, construction halts, unfinished projects, and bankruptcies have been a recurring cycle. Take Jiangsu Province, for example: it once actively attracted a large number of new EV startups, including Singulato, Li Auto, Qiantu, Landspace, Bojun, and Sae-Rin.

However, with the exception of Li Auto, the rest have largely ended in disarray. Qiantu Motors halted operations and filed for bankruptcy after failing to pay wages; Singulato, after six years, never produced a single vehicle; Byton’s cash flow dried up after four years; and Seres burned through 6 billion yuan before declaring bankruptcy.

And this year, WM Motor has stumbled, Le Ding has gone bankrupt, and Jia Yueting has partnered with Huanggang...

Not long ago, an automaker was selecting a site for expansion. Its existing production base, located in a second-tier city, was limited in size and situated near the city center. When the company sought to explore supporting facilities in several nearby major cities, some industrial parks offered to construct factory buildings on their behalf, inviting the company to “move in with just a suitcase.”

It is clear that in government investment promotion efforts, there remains an excessive focus on key metrics such as investment amounts and projected production capacity, while the ratio of input to output is overlooked. Especially when production capacity lies idle, both the government and the enterprise end up paying the price for their earlier “impulsiveness.”

This is entirely a side effect of “desperate” investment promotion. While localities go to great lengths to attract new energy vehicle projects, how thorough have their risk assessments actually been?

There is only one true mistake: failing to learn from past errors.

The government foots the bill, but shouldn’t take on such a delicate task

From the perspective of local governments, the new energy vehicle sector is a “goldmine.”

First, they generate tax revenue.

The performance-based agreement signed between Tesla and Shanghai stipulates that annual tax payments must exceed 2.23 billion yuan starting in 2023. Moreover, the smaller the overall economic scale of a city, the more significant the tax revenue boost from an automaker setting up a production facility there.

Second, they drive the industrial chain.

A single automaker typically involves thousands of suppliers at various levels. Since automakers are large-scale entities with significant bargaining power, this means that both jobs and economic output remain within the local area.

Finally, new energy vehicles represent the overarching direction of industrial upgrading.

The time from construction to production generally does not exceed two years for vehicle manufacturers, and priority projects can even be completed in less than a year. Once production begins successfully, it serves as a golden calling card for industrial upgrading.

In recent years, local governments have rolled out unprecedented industrial policies for the new energy vehicle sector, with investments totaling nearly one trillion yuan.

During the previous wave of bankruptcies, many were opportunists who had merely exploited new energy vehicle subsidies to make a quick buck, possessing virtually no competitiveness in vehicle manufacturing. Consequently, some automakers rushed to sell their vehicles to car-sharing companies.

However, with the onset of the car-sharing industry’s winter, these vehicles could not be absorbed, ultimately creating graveyards of new energy vehicles across the country.

On one hand, there was a wave of companies “crossing industry boundaries”; on the other, a wave of local government “investment.” The new energy vehicle sector visibly became overcrowded.

In particular, most internet-based carmakers have failed to turn a profit, as their funding relies on the capital markets. However, with the capital markets facing another severe downturn, these companies are finding it extremely difficult to secure financing.

Furthermore, recurring issues at some automakers have intensified market concerns. As challenges related to chips and new materials continue to mount, internet-based carmakers are being “swamped” by multiple crises.

In 2023, China’s new energy vehicle sector witnessed two landmark events:

On one hand, subsidies were completely phased out.

On the other hand, a price war has erupted.

This signals that NEV manufacturers have entered a "survival of the fittest" phase, and some may still face financial difficulties, often requiring local governments to step in and cover the costs.

However, this does not mean the new energy vehicle industry has lost its momentum. On the contrary, it may be poised to embrace new opportunities. Local governments are currently reviewing the lessons learned from the previous phase and considering how to catch this fast-moving train.

First, local governments are assessing whether they have the capacity to absorb excess production. Second, they are evaluating whether they can resolve debt issues.

In the past, some startups acquired qualifications by purchasing licensed automakers—a practice akin to a “backdoor listing.” Today, this route has been completely blocked.

It must be said that licensing requirements for new energy vehicle manufacturing are indeed tightening. Decision-makers at all levels hope that by tightening the issuance of licenses, they can increase industry concentration and better compete on the global stage.

New energy vehicles are consumer goods. From the perspective of long-term industrial development, market-driven survival of the fittest is an inevitable trend, and whether the consumer market will buy into a product ultimately comes down to “hardware.”

Therefore, simply pouring money into a project does not guarantee the production of a quality vehicle. The future will test a company’s ability to foster an ecosystem across the entire industrial chain—not rely on services provided by local governments, such as acting as a proxy builder or investor, and especially not allowing them to become the “largest shareholder.”

Industrial Transformation: A Turning Point for Automakers

Will 2023 be a watershed year? There are certainly grounds for concern.

First, growth is showing signs of slowing.

Since last October, sales of domestically produced new energy vehicles have continued to grow rapidly, but the pace of growth has slowed.

Clearly, this year’s momentum is no longer as strong. Once growth slows, when the tide goes out, those swimming naked will find it hard to escape unscathed.

Second, the competitive landscape is intensifying.

Domestic new energy vehicle manufacturers are not only facing frequent price cuts from their “powerful rival” Tesla, but also intensified competition from traditional automakers rapidly transitioning into the sector. With the same pie to share, if some take a larger slice, others are bound to get a smaller one.

Practice has shown that the logic of “burning cash” does not necessarily lead to profitability.

In fact, neither the tech giants entering the market nor the new automotive players that have already achieved mass production are necessarily safe at this stage.

The companies going bankrupt now are those unable to achieve mass production, but what about the next phase? Once technology matures, widespread adoption is inevitable. When all automakers can mass-produce vehicles, what will be the next criterion for market consolidation?

Industry development takes time, but against the backdrop of accelerating competition, the window of opportunity for latecomers is shrinking.

Although there is an oversupply of outdated new energy vehicle production capacity in some regions or among certain companies, high-quality new energy vehicle production capacity is not in excess relative to development needs.

For example, there is still a shortage of high-quality final assembly and die-casting capacity. Similarly, within the supply chain for new energy vehicles, there is currently no surplus of high-quality, specialized aluminum alloys required for die-casting.

Moving forward, the industry must develop in an orderly manner, with local governments effectively utilizing their policy tools to maximize returns on appropriate investments.