Car sales are down in China, and around the world — so why is Great Wall Motors still bullish on building a new factory in Jiangsu province?

Bucking the trend, the Chinese carmaker has soldiered on, beginning work on its 8 billion yuan (US$1.1 billion) factory  as it looks to make new-energy vehicles under its Haval brand and ramp up sales, in a report from Yicai Global.

The plant, in Taizhou city, will be mass producing cars for the East China market by December next year, the Hebei province-based firm said online. The facility will span 782,000 square meters and include a car assembly line and automotive technology industrial park.

Great Wall is also planning to set up an East China headquarters in Shanghai, where it will build its second-largest research and development center to better serve the Yangtze River Delta market, a megalopolis that makes up 10% of China’s population and 20% of its economy.

The factory will be Great Wall’s eighth in its home country. It has four up and running in Hebei, Chongqing and Tianjin and three under construction in Jiangsu and Zhejiang.

The firm built its first overseas plant in Russia in June, spending US$500 million to open a facility capable of making 150,000 cars a year.

The factory was its first wholly owned plant abroad making complete cars, though it also owns parts production lines in Ecuador, Malaysia, Tunisia and Bulgaria and has a research center in India.

Great Wall’s Haval brand is best known for its sports-utility vehicles and its H6 was China’s most popular SUV last year, selling 452,552 units.

Great Wall’s entire portfolio of brands sold 683,251 units in the first 10 months of this year, up 5.6% annually and ranking it seventh among all local brands.

Meanwhile, CNN reported that data released this week suggests that the Chinese market for new energy vehicles could shrink, according to an industry group.

The China Association of Automobile Manufacturers said that sales of electric, hybrid and fuel cell cars plunged by over 45% in October, marking four straight months of declines in the sector.

“Because of the insufficient demand of the domestic market, the pressure for automakers to upgrade their technology to the national standard, and the major subsidy cuts for new energy vehicles, the recovery of production and sales is still limited,” said Chen Shihua, assistant secretary general of the group.

“Based on the current developing trend, we may see negative growth for new energy vehicles this year.”

The findings underscore the delicate spot that Beijing is in. China wants new energy vehicles to make up a fifth of its auto sales by 2025, and the government has outlined a goal of reaching 7 million in annual sales for those vehicles by that year.

To that end, it has implemented a range of government subsidies and tax incentives for the production and purchase of electric cars, which has helped the industry grow, CNN reported.

But in recent months, authorities have had to balance that objective with another goal: weeding out an overcrowded field of automakers.

As of March, 486 new energy vehicle manufacturers were registered in China, according to the National Monitoring Platform for New Energy Vehicles, a group that tracks the sector, CNN reported.

Several of them have raised billions of dollars in funding over the last few years, raising the specter of an industry bubble.

That has led the government to slash incentives dramatically. In March, it reduced subsidies for new energy vehicles, saying it wanted “to promote the survival of the fittest,” according to China’s official state news agency.

The cuts have exacerbated a sales slump in the world’s biggest auto market, which has also been hit by a broader economic slowdown. In October, total car sales fell 4% compared to the same time last year, according to CAAM, the auto industry group.

Several prominent players in new energy vehicles are now suffering — and blaming it on the drop-off in subsidies, CNN reported.

Last month, BYD, one of China’s top electric vehicle makers, reported an 89% plunge in net profit for the third quarter, saying that sales had failed to meet expectations partly due to “the considerable reduction” in subsidies.

In September, NIO, the Shanghai-based unicorn once known as China’s answer to Tesla, also blamed a sales dip in the most recent quarter on lower incentives.
“People currently associate EVs with some form of government welfare being handed out,” said Tu Le, founder of Beijing-based consulting firm Sino Auto Insights.

He said the latest sales data marked “a huge hiccup” for Beijing, “but it doesn’t dissuade what their long-term plans are.”