China’s Growing Electric Vehicle Sector Could See Consolidation

Recent remarks by China’s minister for industry and information technology that there are “too many” EV makers reflect a booming EV market, but they also spark fears of potential regulations in the long term, reports CNBC.

Bain and Company’s Helen Liu, a partner at the global management consulting firm, said in an interview with CNBC that consolidation is an “inevitable trend”, but it’s one that has played out many times before in the sector.

Liu references the growing capital that is currently in the industry as well as its technologically intensive nature as reasons why she anticipates consolidation.

“I would say that consolidation is an inevitable trend in this industry,” she said on CNBC’s Capital Connection. “Historically, we have seen invisible hands like the market and also visible trends, regulations, navigated the industry through the consolidation trend continuously.”

Others acknowledge that while consolidation is likely, there seems to be no immediate risk of regulation. Huaibin Lin, manager of China automotive at IHS Markit, explained that there has been pressure by the industry and information technology ministry to consolidate the automotive industry for the last twenty years.

The rapid growth of the EV market doesn’t appear to be slowing any time soon, with new companies constantly entering into the space and shares of major electric car makers in China, such as Nio, continuing to grow.

“Are we going to see drastic consolidation within industry itself? We think there’s a big question mark over it as long as the market keeps going,” said Lin.

China’s government has previously lent support to the space with its goal of 20% of new cars being new energy vehicles by 2025.

KARS Invests in the Rapidly Growing Chinese EV Market

The KraneShares Electric Vehicles and Future Mobility ETF (NYSE: KARS) invests in Nio and many of the leaders in the electric vehicle industry in China.

KARS measures the performance of the Bloomberg Electric Vehicles Index, which tracks the industry holistically, including exposure to electric vehicle manufacturers, electric vehicle components, batteries, hydrogen fuel cells, and the raw materials utilized in the synthesis of producing parts for electric vehicles.

The index has strict qualification criteria. Companies must be part of the Bloomberg World Equity Aggregate Index, have a minimum free float market cap of $500 million, and have a 90-day average daily traded value of $5 million.

Top holdings for KARS include Tesla Inc at 5.39%, top Chinese electric vehicle (EV) producer Nio Inc at 4.72%, and BYD at 2.25%.

The ETF has an expense ratio of 0.70%.

For more news, information, and strategy, visit the China Insights Channel.