In Depth: New Rules Set to Give State-Owned Carmakers an EV Boost

China's three major state-owned carmakers, namely China FAW Group Co. Ltd., Chongqing Changan Automobile Co. Ltd., and Dongfeng Motor Corp. Ltd., have lagged in the electric vehicle (EV) market primarily due to their risk-averse nature and short-term thinking [para. 1][para. 2]. At the March's "Two Sessions," China’s state-assets authority announced new evaluation criteria to support the development of these companies' EV businesses [para. 3]. The focus will shift from profit to NEV technology, market share, and development potential, although the specifics and implementation date have yet to be disclosed [para. 4][para. 5].

Given this impending policy shift, the three SOEs might engage in aggressive pricing and acquisition strategies, prompting concerns from privately-owned firms about being crowded out of the market [para. 6]. As of 2023, NEV sales significantly underperformed industry averages for these state-owned automakers — Dongfeng Motor at 21.6%, Changan Automobile at 18.6%, and FAW Group at 7.1%, compared to the industry average of 31.6% [para. 7][para. 8].

Experts predict that NEVs could account for over 50% of automotive sales in China by 2026, and if the SOEs do not catch up, their market share might dwindle significantly [para. 10]. These companies' initial lag can be attributed to their preference for stability and reliance on joint ventures with foreign carmakers like Volkswagen AG and Nissan Motor Co. Ltd., who were also slow to adopt NEV technology [para. 11][para. 12].

Dongfeng Motor has faced significant losses, with its sales dropping by 17% last year. To compete in the evolving market, the company launched its Voyah subsidiary in 2020, focusing on a revised corporate structure, including a flat management structure and an employee stock ownership scheme [para. 14][para. 15]. Although Voyah raised 4.55 billion yuan ($637 million) in a Series A fundraising round in 2022, underlying management issues persist because ultimate control remains with Dongfeng [para. 19][para. 21].

Recently, the government aims for at least one of these SOEs to achieve NEV sales of 1 million units by 2025. This ambition is intensifying the existing price war in the industry, with Dongfeng Motor launching a comprehensive subsidy program and Changan Automobile targeting to exceed the 1-million-unit mark by 20% [para. 28][para. 31][para. 33].

Subsidies and aggressive pricing strategies are already underway; Dongfeng’s new 007 sedan was launched at 159,600 yuan, with an additional 30,000 yuan discount for early orders [para. 35]. This flexibility is due to the SASAC’s policy shift, allowing SOEs more latitude to cut prices and prioritize unit sales over immediate profitability [para. 36].

The competition is expected to become more intense, with EV startups like XPeng Inc. and Li Auto Inc. indicating a market phase of consolidation and potential bankruptcies within three years [para. 42]. The SASAC plans to facilitate high-quality mergers and acquisitions among central enterprises to enhance access to essential NEV-related resources and technologies [para. 43]. Private companies express concerns about being overshadowed by state-owned firms, stressing that competition from other companies keeps SOEs dynamic [para. 45].

Ultimately, the EV market will be dominated by those who can deliver superior products, suggesting that companies like BYD remain unconcerned about competition from SOEs [para. 46].