It makes me wonder: there seem to be more companies announcing plans to build cars than there are brands actually on the road.

This massive “car-making” craze shows no signs of slowing down. Especially in the new energy sector, the pace has been relentless.

Once upon a time, this wave of enthusiasm “swept through” major cities, giving rise to Tesla in Shanghai, Xpeng in Guangzhou, NIO in Hefei, and WM Motor in Wenzhou. It must be said that this lucrative opportunity is incredibly tempting. However, only a handful of automakers ever reach the pinnacle of the industry. Once the high-end market hits a bottleneck, expansion inevitably spills over into lower-tier markets, reaching even county-level cities. Many of these counties took the plunge, dipping into decades of savings to blindly enter the “car-making” fray, fearing that even a moment’s hesitation would mean missing the boat. The result? Most new energy vehicle projects have led to factory shutdowns and abandoned construction sites, with billions in investment and land planning going down the drain. Only a tiny handful are barely clinging to life, and those that have truly succeeded are few and far between. Although this is common knowledge in the world of investment promotion, many localities are still repeating the same mistakes others have made during this trial-and-error process. China isn’t short of cars—what it lacks are “quality vehicles.” Don’t they understand this simple truth yet?

Quality Can’t Be Forced; Subpar Products Are Everywhere

New energy vehicles have evolved from relying on subsidies to constantly innovating and flourishing everywhere, long since becoming a high-growth sector with significant economic dividends. To date, China has nearly 500 new energy vehicle manufacturers. For county-level cities, rather than pouring money into infrastructure, it would be wiser to choose the new energy vehicle industry—one that can both drive economic growth and provide sustainable employment. Practice has proven that some small cities have indeed seized this industrial opportunity, achieving a spectacular turnaround to become sub-provincial centers and national industrial hubs. This explains why some county towns have set the ambitious goal of a “100-billion-yuan automotive industry,” building three vehicle manufacturing bases spanning over a thousand mu of land. Regardless of success or failure, judging by the scale of these plans, they aim to stand shoulder-to-shoulder with giants like SAIC and GAC. For county-level cities with a GDP of just a few tens of billions, the arrival of such projects is indeed a once-in-a-century opportunity. To secure these projects, they offer certain concessions, fast-track reviews and evaluations, and even prepare the land for automakers—all out of fear of being left behind. Generally, there are two possible outcomes: first, failing to secure a good project naturally means losing the opportunity for development.Second, even with a project they have a basic understanding of, a lack of ability to assess potential risks could end up burdening the local economy. What makes it even more difficult is that some county-level cities are not located near economic hubs like the Yangtze River Delta or the Pearl River Delta, nor are they within the reach of the new energy vehicle industry’s influence. Consequently, they cannot benefit from the spillover of industries relocating from these regions, nor can they take advantage of related policies. While others charge ahead, crossing the threshold of a 100-billion-yuan GDP, these counties cannot compete on location or policy. Yet this does not prevent them from building their own independent brands as a new force. That said, not every locality is capable of handling such projects. Ultimately, most make a brief appearance only to go bankrupt shortly after; the better-fated ones are sent back to the factory to gather dust as soon as they roll off the assembly line. Even seasoned industry veterans have likely never even heard of “brands” like Kangdi, Yundu, or Zhidian, let alone seen them. This suggests that among county-level “car-making” ventures, success belongs only to a fortunate few.

Nothing New Under the Sun

There’s nothing new under the sun. Whether it’s specialty towns, new infrastructure, or satellite internet—local governments have become venture capitalists, investing in whatever trend is hot at the moment. Is the new energy wave any different? As we enter 2022, the annual performance reports from the new electric vehicle startups are rolling in. Looking at the data, four automakers surpassed the 10,000-unit sales threshold in December alone: NIO, Xpeng, Li Auto, and Neta. No matter how much hype surrounds these new-energy brands, the success or failure of new-energy vehicles ultimately comes down to sales figures.

Brand

As the chart shows, the rankings among "NIO, Xpeng, and Li Auto" have shifted, with Xpeng currently in the lead. For the full year of 2021, Xpeng topped the charts with annual sales of 98,000 units, followed closely by NIO and Li Auto. Their annual cumulative sales reached 91,000 and 90,000 units, respectively, making them the only three new EV manufacturers to surpass the 90,000-unit sales mark in 2021.

At the same time, 2021 also saw its share of dark horses among new EV makers. Neta emerged as the fastest-growing player over the past year. In November of last year, Neta’s monthly deliveries exceeded 10,000 units for the first time. Driven by this momentum, Neta delivered a total of 69,674 new vehicles throughout 2021. In fact, within this high-growth market environment, changes in the new EV sector are occurring constantly. For local governments, there is the “1:7 theory” regarding job creation: a single position at an automaker can generate seven jobs in related industries. This appears to be a cost-effective proposition and has the strongest positive impact on the local economy. It is therefore not difficult to understand why county-level cities are willing to go to any lengths to capitalize on the “new energy boom.” From a consumer perspective, the pursuit of high value for money remains the primary driver of consumption. Furthermore, not all regions are suitable for new EV startups that aim to establish themselves through high-end models. The concept of the “lower-tier market” has thus gained momentum, opening up a new growth opportunity.Wuling Hongguang and Chery New Energy dominate micro-vehicle sales, targeting third- and fourth-tier cities. However, county-level cities have failed to distinguish between the concepts of “tier-down” and “low-end.” The “tier-down market” is a geographical concept defined by the city’s location and consumer demographics, whereas “low-end” is a product-level classification primarily measured by price. It can be said that county-level cities have embraced the philosophy of “if we can’t attract it, we’ll build it ourselves.” In doing so, they completely overlooked the fact that new energy vehicles evolve much faster than gasoline-powered cars, and that county-level cities lack the capability to master core technologies. The automotive industry relies heavily on market conditions, talent, and infrastructure; rushing in to launch car brands solely on the basis of low prices is bound to be short-lived. Take the smartphone industry as an example: overseas brands seized the high-end market in China early on.Whether it was Nokia and Motorola during the feature phone era or Samsung and Apple in the smartphone era, they have firmly dominated the high-end market. For domestic brands to survive in this competitive space, the only path forward is to “overtake on a curve.” In contrast, in the new EV sector, most county-level cities have limited automotive industry foundations, financial resources, and policy support. Forget about overtaking on a curve—they can’t even manage a simple turn while driving straight.

No need to dwell on long-term concerns—there are plenty of immediate worries

Today, it is clear that automotive players fall into four main categories:

First, traditional automakers represented by BYD, Geely, and SAIC

Second, new energy startups represented by Tesla, Xpeng, and NIO

Third, major internet companies like Baidu, Huawei, and Alibaba

Beyond these existing players, another trend is emerging: partnerships.

Baidu and Geely have jointly established Jidu Auto

Huawei partnered with Seres to launch Aito

360 and CATL have invested in Neta

SAIC and Alibaba have established IM Motors

It is worth noting that, for the time being, there are no internet companies in the “10,000-unit club.” The future landscape of the new energy vehicle industry has already taken shape, and from this perspective, it may be difficult for new players to enter the market. The era of capital scrambling for industry dividends has played out in full in the market. As the “cannon fodder” that followed along have fallen one after another, the new blue ocean of capital is rapidly turning red. Meanwhile, new-energy vehicle startups require a constant infusion of “nutrients.” These “nutrients” may come from talent, technology, policy support, or capital injections. However, the market’s capacity to supply such nutrients is finite. Capital, being profit-driven, has no interest in “pumping money” only to see companies collapse or disintegrate afterward. Consequently, to secure capital backing, automakers are forced to cut costs and reduce losses. Consequently, when some automakers cut costs and reduce investment, they resort to shortening R&D cycles and cutting corners. We must not let vehicles that run on watered-down fuel become mere relics of the past; we must remember the lessons of past missteps. When county-level cities witness the sales of new energy vehicles skyrocketing, they should also formulate future development strategies based on their own circumstances. A little more realistic thinking, a little less daydreaming about the future.

Conclusion

For county-level governments, “building cars” is not like a race where whoever starts earliest arrives first. It is more like a game of mahjong: there is luck in drawing tiles, there is the order of play, but what matters most is who “wins the hand” first. In the new energy vehicle industry, this “winning the hand” depends on a combination of multiple factors. Each factor will emerge at different times, and the decisive factor is whether one can draw a critical tile at the crucial moment.