Evergrande to Deepen Investments in EV, Despite Warnings of Unstable Market
With 15 vehicle projects and 10 production centers on the way, will the market keep them afloat, or will a bloodbath follow as subsidies decrease?
Since this year, Evergrande has made a series of high-profile forays into the EV market, pouring billions of dollars into what many see as the fast-moving front line of the auto industry. The erstwhile property-oriented giant has ambitions to become the world's biggest maker of electric vehicles.
Through many investment activities and much strategic cooperation, Evergrande is getting more involved in processes across the whole auto supply chain, from component suppliers to manufacturing factories and also dealers. It also keeps a good relationship with the State Grid Corporation of China, to build up the energy network.
On November 12, the 'Evergrande New Energy Vehicles Global Strategic Partner Summit' was held in Guangzhou. More than 1,100 CEOs and executives from 206 global companies covering the automotive industry supply chain (engineering, design, manufacturing equipment, components, motors, batteries) attended the summit.
According to Brand Finance, Evergrande is the ‘top 20’ Chinese company with the most valuable brand. During the AFC Champions League quarter-final on August 28, 2019, the brand name of its NEV car, "Heng Chi was shown to hundreds of millions of TV viewers. To a certain extent, the EV sales performance is seen as policy-driven in China, and it's still uncertain whether the strong brand promotion will be effective.
On November 11, the China Association of Automobile Manufacturers released data showing that China's automobile production and sales in October were 2.295 million and 2.284 million respectively, down 1.7% and 4% on a year-on-year basis. In October, the production and sales volume of passenger cars in China was 1.938 million and 1.928 million representing decreases of 3.2% and 5.8%. If this is the state of play for auto overall, how about electric?
Following phases of intensive growth, China's new energy vehicles have experienced a year-on-year decline for four consecutive months. From January to October, the production and sales volume of new energy vehicles in China were 983,000 and 947,000, respectively, down 11.7% and 10.2% year-on-year. The growth rate continued to fall from January to September.
The development of new energy vehicles in China is still closely related to the government’s proactive involvement; however, with the subsidies for domestic new energy vehicles gradually receding, the new energy models of the joint venture brands are also being launched, one after another, and the competition in the domestic new energy vehicle market is set to intensify. According to Bloomberg, China is considering further cuts to subsidies for electric-vehicle purchases. Furthermore, according to people familiar with the matter, this threatens to deal another blow to a once-burgeoning industry that’s facing an unprecedented slump.
Evergrande's investment budget for the next three years is CNY 45 billion, and it plans to have an annual production capacity of 500,000 units, with ten factories worldwide. The first phase is 100,000 units. In the next five to ten years, it will reach an annual output of 1 million units; in the next 10 to 15 years the annual production scale is expected to exceed 5 million. At the same time, Evergrande will cooperate with the top sports car brand Koenigsegg, with plans to produce 1,000 super sports cars per year.
Evergrande aims to develop 15 vehicle projects simultaneously and construct ten complete vehicles and components production factories around the world.
This play shows a level of confidence that has attracted interest and speculation in the international media already. For a real estate company to divert its resources so wholeheartedly into an entirely different industry is a move without many precedents in China. Yet mogul Xu Jiayin, Chairman of Evergrande, is not so far lacking in bravado. Jiayin stated on November 12 that “Evergrande is aiming at all the top international resources that are conducive to building world-class products. Standing on the shoulders of many world automobile giants, this dream will certainly be realized.”