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The first China-made vehicle, a Jiefang-branded truck, rolled off the
assembly line in 1956 in Changchun, Jilin province. The city, known as
the cradle of the country's auto industry, has since produced millions
of vehicles of marques such as the indigenous Jiefang and Hongqi and the
foreign Toyota and Audi. In the new energy vehicle or NEV segment, however, Hefei, the capital
of East China's Anhui province, is a better known name, mainly thanks
to its hugely rewarding investment in Nio. In early 2020, the city, through its State-owned investment arm,
reached out to salvage the cash-strapped startup, acquiring a 24.1
percent share for 70 billion yuan ($10.8 billion). Back then, the New York-listed carmaker was on the brink of
bankruptcy, having failed to secure more finance for vehicle development
and business operations. Its net loss was over 11 billion yuan by the
end of 2019. Thanks to people's increasing confidence in the sector and the
success of Tesla, Nio has a valuation similar to Volkswagen AG's, the
world's second-largest carmaker by sales, with its stock price surging
13 times to around $60 in less than a year. Hefei is one of the many Chinese cities that are looking to the NEV industry in the hope of finding new economic drivers. Real estate was a quick choice, but China is calling for efforts to
cool down the overheated segment for healthy and sustainable
development. "To many, the investment in Nio was like a lucky and massively
rewarding bet. Yet, a closer look will reveal that Hefei was determined
to upgrade its local industry," said Roy Lu, director of the Gasgoo Auto
Research Institute. Hefei's pillar industries include household appliances. Official data
show its annual output hit 100 billion yuan back in 2011, becoming the
first of industries in the city to reach the milestone. Yet, without new economic drivers, the city's GDP growth slowed down from 9.8 percent in 2016 to 7.6 percent in 2019. The deal with Nio has sped up the city's growth through more
lucrative high-end manufacturing. In November 2020, Hefei released a
blueprint, planning to build an annual production capacity of 1 million
NEVs in five years, with the industry generating an annual output of 100
billion yuan. One month later, Volkswagen announced it would build a $3 billion
electric vehicle plant in the city with its partner JAC. The German
carmaker also increased its stake in the joint venture from 50 percent
to 75 percent. Volkswagen is also in the process of paying $1.34 billion for a major
stake in a local battery maker. In January, another EV startup,
Leapmotor, moved to Hefei. Nanjing, capital of East China's Jiangsu province, is trying its hand
with the industry again, after startup Byton's plant in the city
stalled operations in 2020 because of financial difficulties. Founded by BMW executives, Byton was one of the most promising
startups in China, with its models expected to take on those from
premium brands, including Audi and BMW. With the help of the Nanjing government, Byton inked a $2 billion
deal in January with Apple's contract manufacturer Foxconn, which will
also help the startup to ensure that its first volume vehicle will roll
off the assembly line in the first quarter of 2022. Foxconn, with smartphone plants in the city, is planning to make
Nanjing a production base of its automotive business, according to a
source with knowledge of the matter. Several days after its deal with Byton, it established an NEV company with a registered capital of 323 million yuan in Nanjing. "This will allow us to contribute toward the further growth of the EV
industry, a demonstration of our commitment in the transformation of
the traditional automotive industry," said Young Liu, chairman of
Foxconn, in a statement. While encouraging the sector's growth, the central government is asking local authorities to be prudent to prevent overcapacity. In November, the National Development and Reform Commission launched
an investigation into NEV projects planned since 2015, to examine their
construction and production. Lu at the Gasgoo Auto Research Institute said local governments were
more enthusiastic about the sector several years ago. They started to
show restraint when a project involving US carmaker Saleen in Jiangsu
province proved to be bogus in 2019. Data show that from 2015 to the end of the first half of 2017, there
were more than 200 NEV projects in the country, some planned and some
under construction. They involved projected investment of 1.03 trillion yuan and combined
planned production capacity of 21.24 million vehicles. Last year, 1.37
million NEVs were sold in China. "The cooperation between Nio and Hefei is a very positive case in the
development of the NEV industry," said John Zeng, managing director of
consulting firm LMC Automotive Shanghai. "It shows that local governments should have a professional and
qualified team, which can offer scientific project evaluation and
investment suggestions, to avoid aimless development."
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