The next two years will be “critical” for China’s new energy vehicle (EV) makers as the industry matures and Beijing slashes subsidies that have encouraged consumers to adopt the technology, Philip Ng, head of technology at KPMG China, said. Consolidation is likely in the industry in the next 18 months to two years, particularly as EV makers face tighter capital markets and challenges to build consumer trust in the world’s largest car market. “All of those NEV makers require very large capital to fund them,” Ng said at a media round table in Hong Kong. “Currently, the capital market itself has become cautious on very large scale investment. There will be a mismatch between the capital available and the capital spent by the NEVs.”

Last month, the Chinese government moved to slash subsidies on NEVs by as much as 60% in hopes of encouraging the industry to boost its technology standards. Beijing, which has subsidized electric vehicle purchases since 2009, is expected to fully eliminate the subsidies next year. Ng offered his insights as part of KPMG’s 2018 Leading Autotech 50 in China report, which was released last week. The report identified innovative, young companies in the electric vehicle, autonomous driving, vehicle technology and ride-sharing segments.

One challenge for EV makers will be moving from their first deliveries to “true mass production”. KPMG said many of the new entrants have a “long way to go” to achieve mass production consistency on scale with traditional carmakers. “They need to ensure the quality. They need to have the end customer community set up. They need to build the branding and the recognition,” Ng said. As the industry consolidates, some of the second-tier and third-tier producers may “go out of the market”, Ng added.

Another issue for electric vehicles will be the development of the power grid in China, according to KPMG. In the short term, EV makers will need to ensure that high-quality charging stations and effective operators of those stations are available. The consultant said that in the long-term, a smart, seamless power grid that can handle shifting loads and has large-scale power storage systems, and operates efficiently and safely will become critical to the development of the industry, the South China Morning Post reports.

Meanwhile, Chinese electric vehicle maker Xpeng unveiled its P7 four-door coupe at Auto Shanghai 2019. It will start deliveries from the second quarter of 2020 and will announce a price later. “With P7, we are targeting the new generation of China. Xpeng Motors’ unique differentiation is its vision and corporate DNA,” company Founder and Chairman He Xiaopeng said.