(Bloomberg) -- The head of China’s electric vehicle maker Li Auto Inc. called on the government to boost mergers and acquisitions among distressed EV makers, warning that failed companies could cause significant social loss.

Li Xiang, the company’s founder and chief executive officer, said China should set up a consolidation mechanism for the auto industry in a social media post on Wednesday. 

“In the future, many new brands will encounter operational and financial problems as a result of competition,” Li said on China’s X-like Weibo. “If social loss caused by mergers and acquisition is 10, that by bankruptcies is 100.”

Li gave the example of how the US’ Big Three auto giants were the products of fierce competition and mergers among hundreds of car companies, calling for the Chinese government to guide domestic automakers to consolidate.

China’s new-energy vehicle sales are off to a sluggish start this year, hampered by weak consumer sentiment and strife in the property market. Shipments of NEVs — fully electric and plug-in hybrids — to dealers in January dropped 37% from December to 700,000 units, according to preliminary data released by China’s Passenger Car Association earlier this month.

Cutthroat competition in the world’s largest EV market has squeezed out smaller players. Supercharged by government subsidies more than a decade ago, China’s EV industry spanned about a hundred makers last year, down from roughly 500 registered EV makers in 2019.

Read More: China’s New Energy Vehicle Sales Are Softening in Early 2024

Adding to the headwinds, the Biden administration is considering restrictions on imports of Chinese “smart cars” and related components to address growing US concerns about data security.

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