It has been more than a century since the birth year of the modern car when German inventor Karl Benz patented his Benz Patent-Motorwagen in 1886. Supported by various industries such as steel, petroleum and electricity, automobile technology was constantly evolving in the past years.
So far, automotive industry has become one of the largest industries in the world and serves as the pillar industry in national economies of the U.S., Japan, German, France and other developed countries. In the meantime, it is rapidly expanding in China, and Chinese automotive market has become the largest market across the world.
With consecutive development of automotive electronics, internet and information technology, intelligent new energy vehicles have become the future of automobile technology development. New technology gifts automobiles with more functions than ever before, making them not just means of transport or users.
Global new energy vehicle (NEV) market has boomed greatly since 2010. China Association of Automobile Manufacturers (CAAM)'s statistics show that the global NEV population between 2005 and 2009 was less than 20,000 but it soared in 2010 from 16,800 to 5,400,000 by the end of 2018. The number is expected to reach 8,500,000 in 2019 assuming a turnover rate of 69% for NEV this year.
Booming of global NEV market could not be achieved without supporting policies enacted by countries. NEV promoting policies are slightly varied across countries but mainly offer different degrees of subsidies. The U.S. authorities broadly provide subsidies for customers so as to promote NEV sales and also raise fuel oil tax for combustion vehicles. The European Union's subsidy policies are enacted mainly for the cut of carbon dioxide emission. In China, policies target the whole industry and offer subsidies to both business and customers.
With NEV-related policies pushed out, Chinese NEW industry gains full support from the national level and China has become the country with the largest growth rate of NEV sales up to 2018 in which Chinese NEV sales was around 56% of global sales. From 2012 to 2018, Chinese NEV population skyrocketed from 12,800 to 1,200,000.
In light of the significant growth of Chinese NEV industry, we will further analyze the industry by looking at its investment trend over the past years.
General Investment Trend
The NEV investment remained inactive before 2014, and sources from IT juzi indicates zero investment activity in 2008. However, both volume and frequency tripled in 2014, reaching CNY 1.16 billion and 16 respectively. Chinese NEV industry actually boomed in 2015 when China’s state council published the "Made in China 2025" document that indicates development of intelligent NEV as one of the most important strategies in the automotive industry. Due to policy effects, massive cash flooded into NEV market. Sharp growth of both volume and frequency appears in 2015 and remains in the next two years, with volume and frequency peaking in 2017.
After four-year rapid growth, investor enthusiasm waned as the number of activities and investment amount decline in 2018. By the mid of 2019, only 22 investment activities occurred but the amount is slightly below the 2018 annual number, so it is reasonable to expect a higher volume by the end of this year than 2018. Same with the findings of autonomous driving investment analysis, the trend illustrates that the intelligent NEV market is at the phase of concentrating.
Subsidiary Investment Fields
Investment in NEV covers five aspects in this article: NEV manufacturing, battery technology, charging facilities, electric motors and electronic control system.
In China, NEV is defined as the vehicles that are partially or fully powered by electricity, such as battery electric vehicles (BEV) and plug-in hybrid electric vehicles (PHEV). A BEV uses chemical energy stored in rechargeable battery packs as its only source for propulsion, whereas a PHEV operates as a BEV when operating in charge-depleting mode, but it switches to charge-sustaining mode after battery has reached its minimum state of charge threshold, exhausting the vehicle's all-electric range. BEVs use electric motors and motor controllers instead of internal combustion engines (ICEs) for propulsion, and PHEVs, in contrast, share the characteristics of both conventional hybrid electric vehicles and all-electric vehicles: it uses gasoline engines and electric motors for propulsion. Due to the different propulsion system from conventional ICE vehicles, NEV entails a customized vehicle platform that is also different from conventional cars.
An electric-vehicle battery or traction battery is a battery used to power the propulsion of BEVs. The type of NEV depends on traction sources such as rechargeable battery and hydrogen battery, and each traction battery has its own pros and cons. Batteries for electric vehicles are characterized by their relatively high power-to-weight ratio, specific energy and energy density. Due to technology issue, vehicle batteries are usually the secondary (rechargeable) battery, which includes lead-acid, nickel-metal hybrid and lithium-ion batteries. The most common battery type in modern EVs is lithium-ion battery, because of its high energy density compared to its weight.
An electric motor is an electric machine that converts electrical energy into mechanical energy. Hence, it directly determines the performance of EV driving and is an essential part of the vehicle. Electric motors can be powered by direct current sources, such as from batteries, motor vehicles or rectifiers, or by alternating current sources, such as a power grid, invertersor electrical generators.
The electronic control system mainly covers motor controller and battery management system. It is a group of devices that serves to govern the performance of electric motors and batteries, based on some predetermined algorithms. It also helps to reduce emission of harmful gas, lower fuel consumption and improve power efficiency of vehicles. However, the electronic control system heavily relies on some power semiconductor devices such as insulated-gate bipolar transistor that basically lean on import.
Investment Structure Layout
We calculate the accumulated amount of investment activities that occurred in China between 2007 and mid of 2019 in subsidiary fields of NEV industry. The chart below indicates 76% of total investment flows to NEV manufacturing. The finding is consistent with our autonomous driving analysis that found more than half of the amount were poured into manufacturing, but in this case, the share notably increases by around 20%.
The primary reason behind is the high cost of car platform making which covers the purchase of materials and equipment, vehicle design, manufacturing, quality control and so on. Due to different internal devices, NEV entails customized vehicle platforms from traditional one. NEV startups could either build platforms on their own or partner with traditional manufacturers to get vehicle platforms, but two options take massive costs.
NEV batteries gain 14.04% of the investment in the past 12 years. Following the trend of rapid growth of NEV industry, some Chinese battery providers with global competitiveness already emerged. Sources from GGII show that in 2017 CATL replaced Panasonic to be the best seller in terms of global traction battery sales, taking 17% shares of global market. Several Chinese battery providers such as BYD are listed in the top 10 sellers. However, growth of Chinese traction battery industry is still under expectation despite increasing scale of industry as there exist problems with battery size and energy density.
Charging facilities have 5.21% of the investment, higher than investment in electric motors (2.68%) and electronic control system (2.08%). If technology issue is a key factor restricting development of NEV market, unsound complementary infrastructure is the other one. Insufficient charging stations and inconvenient charging process could hinder the penetration of NEV. Data from the Ministry of Public Security indicate up to May 2019 the ratio of NEV to charging station is about 3.52:1, leaving charging facilities inadequate. In terms of motors and controllers, Chinese NEV market heavily relies on foreign suppliers, limiting the amount of investment in domestic industries.
We further analyze the investment trend in NEV industry by calculating the average investment amount in these fields.
The average investment amount was calculated by total volume dividing total number of investment activities. It could represent barrier level of entering an industry to some extent.
Results show the amount of NEV manufacturing is drastically higher than other sectors, which approves our hypothesis that car making requires tremendous capital injection.
As shares of the average investment volume are in line with the accumulated amounts, total investment amounts in subsidiary fields are mainly determined by the frequency. For electric motor and electronic control system markets that are weak to Chinese NEV industry compared with foreign markets, investors prefer to invest a small proportion of capital in such sectors. In electric motor market, American, European and Japanese companies still remain dominant, and many Chinese companies would partner with foreign companies to produce electric motors while some strong motor companies would develop motors on their own. With regard to electronic control system, incapability of producing some core parts of controllers heavily impose restrictions on development of electronic control technology. However, by means of government support, some Chinese companies are gradually on the rise.
Since hardware has always been the weakness of Chinese automotive industry: demands of core parts of intelligent vehicles heavily rely on foreign suppliers, investment in subsidiary fields of NEV industry is far from adequate.
In conclusion, investment trend in NEV industry illustrates an increasingly concentrated NEV market.