China’s EV Industry Faces Massive Shakeout

China’s central government is imposing tougher standards on vehicle makers in a bid to shrink the number of participants to as few as 10 from more than 200 today, Bloomberg News reports.

Only two companies have been approved to build cars under the new guidelines, according to the news service. Established carmakers, such as BYD and SAIC, won’t need one of the new licenses to continue their EV and hybrid vehicle activities.

China’s central government has been heavily promoting EVs with incentives worth as much as 60% of a vehicle’s retail price. Last year domestic manufacturers sold 331,100 EVs and plug-in hybrids, making China the world’s largest market for such vehicles. The government aims to boost annual sales tenfold to 3 million by 2025 in a bid to improve air quality in its largest cities.

But the government push has created an unwelcome gold-rush mentality that is attracting speculative and sometimes irrational investments, observers tell Bloomberg. One official adds that the average EV maker in China today builds only about 3,000 vehicles per year, well below the volume needed to be profitable.

To weed out ill-equipped entrants, the government’s new operating permits demand an applicant be proficient in 17 areas ranging from in-vehicle technologies and supply chain management to battery recycling or reuse. Bloomberg suggests one objective is to create an EV industry that will be sustainable when the government drops incentives in 2020.