(Yicai) Nov. 22 -- Several Chinese provinces not known for their car manufacturing are rolling out supporting measures for the new energy vehicle sector in a bid to boost their regional economies amid an economic downturn. But the sector will face greater risks as it develops, market insiders said.

Not only provinces such as Hubei in the center of the country and Anhui in the east which already have a strong automotive manufacturing industry are investing in electric cars, but provinces like Guizhou in the southwest, which are historically less involved in the auto industry, are also moving in this direction, Feng Lei, deputy head of Big Data platform HSMAP’s research institute, told Yicai.

The NEV industrial chain is made up of over 400 links, from manufacturing segments such as equipment and metal processing to cutting-edge sectors including new materials, artificial intelligence and third-generation semiconductors. Developing the NEV sector will prominently boost the regional economy, he added.

The “electrification” revolution in the auto sector is spreading to areas that are not known for their car production. For instance, Shaanxi province climbed five places to eighth place in terms of electric car output from newly constructed factories in 2022 from the year before, according to the HSMAP report. 

In fact the northwestern province's NEV output for the year nearly quadrupled from the year before to 1.02 million units, accounting for 14.5 percent of the country’s total. With the help of this tremendous growth, Shaanxi’s gross domestic product expanded at a 4.3 percent clip last year, ranking sixth in the country along with two other provinces.

However, there are also great risks, such as overcapacity as well as those faced by cities which lack the ability to innovate in auto technologies.

Although there is not yet an oversupply in the NEV sector, there is overcapacity in some links in the industrial chain, such as battery production. Demand for electric car batteries is expected to reach 1,200 gigawatt hours by 2025, but planned capacity from various Chinese regions has already reached 4,800 GWh, which means that smaller suppliers are likely to be eliminated.

Intelligentization in the auto sector will become more dependent on technologies and investment, Feng said. Cities which have strong tech strengths, such as Shenzhen, which is home to Huawei Technologies and Tencent Holdings, will deeply influence the development of the auto sector even though there are no vehicle manufacturers based there.

And those cities that have a flourishing conventional auto industry might not be able to keep up with the pace of development due to a lack of skilled workers, creative talent and investment in intelligentization and AI. They will just make their money from car production, Feng added.

Editors: Tang Shihua, Kim Taylor