Third of China's Vehicle Makers Risk Extinction, BAIC's Xu Says

(Bloomberg) -- At least a third of China’s vehicle makers are set to get squeezed out of the business as the country opens up its auto market to global competition, said the head of the nation’s largest electric-car maker.

Competition will intensify as China lowers import tariffs and allows foreign car brands to fully own their local units. That will result in consolidation, with some domestic manufacturers surviving and a third or more getting forced “out of the game at some time between 2020-2022,” BAIC Group Chairman Xu Heyi said in an interview with Bloomberg Television.

BAIC, Daimler AG’s partner in China, is preparing to work with more companies to bulk up and ready itself for tougher competition in the world’s largest car market. The company is also diversifying by listing its Beijing Electric Vehicle Co. unit, which is the biggest electric-vehicle maker in China.

Though the opening of China’s car market happened sooner than expected, it isn’t a bad thing as the resulting intense competition will “help optimize the market structure,” Xu said. BAIC will collaborate with new partners in vehicle and component manufacturing, as well as in various parts of the new-energy vehicle industry, Xu said.

“There will surely be new joint venture and joint collaboration projects coming -- big ones,” Xu said. An announcement about a new car-manufacturing joint venture is coming “really soon,” he said.

There are about 70 major vehicle manufacturers in China, and other executives have also predicted consolidation and companies exiting the market. A lot of the car industry’s newer players are set to fail because they don’t understand the business’s complexities such as manufacturing technologies, Andy Palmer, chief executive officer of Aston Martin Holdings Ltd., said in an interview on Bloomberg Television at the Beijing auto show in April.

BAIC’s electric-vehicle unit, known as BJEV, is set to start trading in two months, Xu said. The business is on track to become the first car manufacturer that makes only electric vehicles to list on a mainland stock exchange.

BJEV will compete for attention from investors who have driven up the share price of BYD Co., a Warren Buffett-backed carmaker that trades both on the mainland and Hong Kong. BJEV said last week it won approval from regulators for a listing in Shanghai via an acquisition of Qian Feng Electronics Co., which is already publicly traded.

BAIC Group’s BAIC Motor Corp. unit, traded in Hong Kong, will get a second listing on the mainland as soon as this year, Xu said. The division sold shares in Hong Kong in 2014, raising about HK$12 billion ($1.5 billion). The company makes vehicles with Daimler and Hyundai Motor Co.

In February, BAIC Motor and Daimler revealed plans for a new factory in China for Mercedes-Benz vehicles, pledging to invest more than 11.9 billion yuan ($1.9 billion) to build the facility. The announcement came a day after Li Shufu, the billionaire founder of Zhejiang Geely Holding Group Co., said he had acquired a stake of almost 10 percent in Daimler.

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