China’s electric car makers face ‘critical’ maturity period over the next two years, KPMG says

The next two years will be “critical” for China’s new energy vehicle (EV) makers as the industry matures and Beijing slashes subsidies that have encouraged consumers to adopt the technology, a KPMG executive said on Wednesday.

Philip Ng, head of technology at KPMG China, said that consolidation is likely in the industry in the next 18 months to two years, particularly as EV makers face tighter capital markets and challenges to build consumer trust in the world’s largest car market.

“All of those [new energy vehicle makers] require very large capital to fund them,” Ng said at a media round table in Hong Kong on Wednesday. “Currently, the capital market itself has become cautious on very large scale investment. There will be a mismatch between the capital available and the capital spent by the NEVs.”

Last month, the Chinese government moved to slash subsidies on new energy vehicles (NEVs) by as much as 60 per cent in hopes of encouraging the industry to boost its technology standards. Beijing, which has subsidised electric vehicle purchases since 2009, is expected to fully eliminate the subsidies next year.

Ng offered his insights as part of KPMG’s 2018 Leading Autotech 50 in China report, which was released on Wednesday.

The report identified innovative, young companies in the electric vehicle, autonomous driving, vehicle technology and ride-sharing segments. None of the companies highlighted by KPMG in its report are listed.

One challenge for EV makers will be moving from their first deliveries to “true mass production”. KPMG said many of the new entrants have a “long way to go” to achieve mass production consistency on scale with traditional carmakers.

“They need to ensure the quality. They need to have the end customer community set up. They need to build the branding and the recognition,” Ng said.

As the industry consolidates, some of the second tier and third tier producers may “go out of the market”, Ng said.

“First tier [manufacturers] need to do quite a lot of refinement and improvement of production.”

Another issue for electric vehicles will be the development of the power grid in China, according to KPMG.

In the short term, EV makers will need to ensure that high-quality charging stations and effective operators of those stations are available.

The consultant said that in the long-term, a smart, seamless power grid that can handle shifting loads and has large-scale power storage systems, operates efficiently and safely will become critical to the development of the industry.

As that happens there will be a period of consolidation, KPMG said.