China is spending billions to build electric car making cities

China's electric vehicle cities have failed to make a splash.

Despite decades of economic upheaval, Detroit remains one of the world’s great auto manufacturing centers. In 2017, Motor City produced more than 2 million cars and trucks, more than any other town in America. Moreover, the city’s production efficiency has helped the United States maintain its position as one of the world’s greatest vehicle producers.

With the rise of electric vehicles (EV), China is aiming to become the hub of global auto manufacturing. As part of a multibillion-dollar government plan, the international trade giant now hosts 20 cities dedicated to making consumer EVs. However, Beijing’s efforts to mass-produce all-electric Chinese iterations of Detroit have been unsuccessful.

The Origin of China’s Electric Motor Cities

In 2015, Chinese Premier Li Keqiang launched an initiative called “Made in China 2025.” The program is intended to help the Asian superpower realize its potential as a manufacturing powerhouse. As part of that endeavor, the government has invested massive amounts of capital in subsidizing the local EV industry.

Furthermore, Beijing didn’t want to open up factories to ramp up its domestic electric car, truck, and SUV production. Instead, it sought to establish several cities that would function as EV equivalents to tech hubs like Shenzhen.

To that end, Bloomberg reports the government has pumped $30 billion into its EV cities. As a result, China’s southern boondocks are now home to industrial municipalities like Shunde New Energy Vehicle Town.

Chinese land developers such as Country Garden Holdings Company are working to transform the country’s borderlands into thriving manufacturing sectors. Thanks to government subsidies, Country Garden has been able to offer domestic original equipment manufacturers substantial rent discounts.

Accordingly, the firm played a role in bringing researchers, battery makers, and car manufacturers to Shunde. It’s also planning to bring hospitals, schools, and an elevated railway system to the area.

Beijing expects to receive an ample return upon its multibillion-dollar investments. Government officials told Bloomberg that Shunde is expected to generate $15 billion in annual revenue once its development phase is completed. However, there are a few obstacles in the way of China’s march to become a global leader in EV manufacturing.

Chinese Electric Cars are Non-starters

While Chinese politicians, automakers, and developers are bullish about the future of the EV cities, they aren’t doing well now. Despite the government’s massive spending on the domestic electric automotive sector, EVs only represent five percent of the local car market. Consequently, original equipment manufacturers (OEM) have struggled to establish a foothold in their home region.

Last January, Country Garden made a deal with Shaanxi J&R Optimum Energy Co., a Chinese EV battery maker, to open an anchor facility in Shunde. Unfortunately, the OEM encountered severe cash flow problems and the deal collapsed. Because other automotive firms have had similar issues, many of China’s developing EV cities feature noticeably understaffed manufacturing plants.

Additionally, Beijing is growing increasingly impatient with the sector’s inability to crack the domestic car market. As a result, the government subsidies that funded the creation of China’s EV cities are slowly drying up.

The U.S.-China trade war has also become a significant obstacle to the anticipated Sino EV manufacturing revolution. The Trump Administration’s hefty tariffs on Chinese imports make it difficult for foreign EV makers like Tesla clone Xiaopeng Motors to establish a beachhead in America.

Because China’s electric car makers are struggling to gain market share in domestic and international markets, industry experts are pessimistic about the future of the EV cities. John Zeng, a forecaster for LMC Automotive Shanghai, told Bloomberg that most of the manufacturing municipalities would ultimately fail.

While electric vehicles are the future of the global automotive industry, China’s EV cities stand as a reminder that real innovation can’t be fabricated.