Driven by investment fervor, expectations of a reshuffling of the industry are looming large. How to avoid the pitfalls of a "rush to invest" has once again become a focus of industry attention.
From "overheated investment" to "overcapacity"
"Capital is always quick to sense opportunities, but the term 'overinvestment' is not necessarily accurate. In a market environment, a large-scale influx of capital is inevitable in the early stages of any 'sunrise industry.' In the long run, the influx of capital will also drive the industry's positive development. Although investment will not be 'excessive,' it will exhibit 'overheating' behavior," said Wang Qian, an industry analyst at iResearch Consulting.
"In fact, the lithium battery industry most closely related to new energy vehicles is the power battery industry, and power batteries are no longer an infancy in the development matrix," Wang Qian pointed out. According to data from the Ministry of Industry and Information Technology, in 2018, the installed capacity of power batteries in my country's new energy vehicle industry was 56.89 GWh, a leapfrog growth compared to less than 1 GWh in 2012. China has developed into the world's largest new energy vehicle market.
Currently, power battery companies such as CATL and BYD have demonstrated a certain level of international competitiveness. However, it is undeniable that "overcapacity," where shipments far exceed installed capacity, persists. For example, in 2018, my country's power battery industry shipped over 65 GWh, facing pressure to reduce inventory. Wang Qian added.
In addition, capacity utilization is also a significant reason for "overcapacity." Data shows that since 2015, the capacity utilization rate of my country's power lithium battery industry has been declining continuously. In 2017, the industry's capacity utilization rate was only 31.3%, and in 2018 it was approximately 29.5%, highlighting the industry's prominent overcapacity problem.
According to data, by 2020, the power battery production capacity of 15 large and medium-sized power battery manufacturers, including CATL, BYD, and Guoxuan High-tech, will approach 300 GWh, which is more than three times the demand for power batteries for new energy vehicles in 2020.
The analysis points out: "On the one hand, government intervention, higher entry barriers, and huge subsidies have attracted a large amount of investment. The lithium battery industry is greatly affected by policies. In November 2016, the Ministry of Industry and Information Technology issued the 'Automotive Power Battery Industry Standard Conditions (2017)' (draft for comments), requiring lithium-ion power battery cell manufacturers to have an annual production capacity of no less than 8GWh, forcing most lithium battery companies to expand their production capacity. On the other hand, as a national strategic emerging industry, the new energy vehicle industry has a series of subsidies and preferential policies from the central to local governments, attracting a large amount of funds to the new energy vehicle supporting field. Power batteries, as the core of the new energy vehicle industry, are no exception."
"Furthermore, competition is intensifying, leading to increased production in pursuit of economies of scale," Jiang Wangyue stated, noting the fierce competition in my country's power battery industry. On one hand, my country is gradually relaxing restrictions on equity ratios in joint venture automakers, exacerbating market competition; on the other hand, with the gradual phasing out of policy subsidies, the power battery market is shifting from a "policy-driven" to a "market-driven" model.
For power battery companies to stand out among numerous competitors, one crucial approach is to expand production capacity. Sufficient production capacity allows battery companies to reduce production costs, increase their bargaining power with vehicle manufacturers, and gain greater profit margins. Expanding capacity is also a quick way for companies to seize market share, Jiang Wangyue stated.
Wang Qian pointed out that the direct cause of "overcapacity" is the confidence of various types of capital in the "electrification" trend of the automotive and mobility industry. The investment from capital sources has led to "overcapacity" and "overheated investment" from the upstream. Although the market share of new energy vehicles is constantly expanding, the limitations of new energy vehicles themselves at this stage still make it difficult for them to "directly compete" with internal combustion engine vehicles in the short term, and their limited market size is insufficient to absorb a large amount of power battery production capacity.
"Favorable policies have also been extremely attractive to capital," Wang Qian said, adding that the combination of multiple factors has led to a continuous increase in investment from various parties in the power battery industry.
What will be the impact?
The "overcapacity" in the lithium battery industry will have a certain impact on the future development of the industry.
First, it will delay technological innovation and increase the industry's burden. Jiang Wangyue pointed out that lithium batteries are a capital- and technology-intensive industry, and technological innovation cannot be separated from the support of three major elements: capital, R&D, and talent. At present, my country's lithium battery industry suffers from severe overcapacity, presenting an overall situation of "numerous, scattered, and chaotic." Leading enterprises rarely reach international leading levels in product technology, cost control, and production management systems. Small and medium-sized enterprises are trapped in the dilemma of scale, and blind expansion has led to overcapacity, resulting in capital waste, insufficient R&D accumulation, and a lack of talent, which is detrimental to lithium battery technological innovation.
Secondly, the industry is facing accelerated淘汰 (elimination/weeding out). Jiang Wangyue pointed out that due to overcapacity in low-end products within the industry, most small and medium-sized enterprises (SMEs) suffer from severe homogenization and are unable to meet high-end demand. This has led to a sharp decline in power battery orders, significant market pressure, and a continuous decrease in corporate economic benefits. In particular, with the gradual release of lithium battery production capacity from 2018 to 2020, the divergence in capacity utilization will intensify, resulting in a comprehensive divergence in the profitability of lithium battery companies. SMEs with poor profitability or even losses will be forced out of the market more quickly.
"It must be reiterated that increased investment is not necessarily a bad thing for the industry as a whole," said Wang Qian. He explained that natural selection is an inevitable path for the industry to mature. While "overheated investment" may lead to negative consequences such as blindly following investment trends and the emergence of some power battery manufacturers producing solely for subsidies, these effects will be a thing of the past in the short term. Currently, market share in the power battery sector is continuously concentrating on leading companies. Industry integration, standardized development, and the improvement of the power battery supply chain from production to recycling will all be achieved with the dual support of capital and policy.
Turning the tide and promoting healthy development
How can we reverse the common problem of "rushing into investment" leading to "overcapacity" and promote the healthy development of the industry?
First, capacity warnings should be strengthened, and safety supervision should be reinforced. Jiang Wangyue pointed out that effective and accurate capacity information helps investors and enterprises make rational decisions. A capacity release and early warning mechanism should be established, with government departments or third-party non-profit organizations verifying and promptly releasing information to prevent unfinished projects and "land grabbing" of land. Emphasis should be placed on monitoring capacity utilization and changes in capacity. From the perspective of protecting consumer interests, the supervision of non-compliant battery products should be strengthened, and companies with battery quality and safety issues should be investigated and effectively punished.
Secondly, market-oriented mergers and acquisitions should be encouraged. Jiang Wangyue stated that the market will play a crucial role in eliminating low-end production capacity. Enterprises with outdated technology, small scale, and fragmented operations lack competitiveness and will naturally be eliminated under the market's survival-of-the-fittest mechanism. As market mechanisms play their role, mergers and acquisitions among enterprises will accelerate, further increasing enterprise concentration and competitiveness. The leading and exemplary role of key enterprises should continue to be leveraged.
Furthermore, the focus of development has shifted from expanding production capacity to improving quality, reducing costs, and achieving technological breakthroughs. Currently, the development strategy of mainstream power battery companies is no longer focused on capacity expansion, but rather on optimizing production capacity and improving product quality and reducing costs through core technological innovation and enhanced intelligence, thereby fundamentally improving competitiveness. New energy vehicle manufacturers are now placing higher demands on the energy density, cycle life, and safety of power lithium batteries, and technological breakthroughs are urgently needed to improve battery performance. Therefore, companies should increase support for basic research, accelerate the transformation of research results, emphasize talent cultivation, strengthen collaborative development between industry, academia, and research, and leverage technological innovation to concentrate on high-end fields, creating a competitive advantage.
"Improving the level of intelligent manufacturing plays a crucial role in enhancing the quality, reducing costs, and optimizing production capacity of power batteries," Jiang Wangyue pointed out. Firstly, my country's power battery industry as a whole still relies on quantity, with large production scale but lower quality compared to Japan and South Korea, especially in terms of consistency. Secondly, the power battery industry falls under the manufacturing sector, and intelligent manufacturing can help with precise quality control and reduce production costs. Improving the level of intelligence, informatization, and automation is a systematic project that still requires continued and substantial investment from enterprises and the government.
In short, "promoting the healthy development of the industry requires reliance on 'market forces,' but the positive role of policy cannot be ignored." Wang Qian analyzed that standardizing industry practices, setting high standards for subsidy acquisition, and providing correct guidance for investment remain indispensable during the rapid growth period of the power battery industry. In particular, it is necessary to continue supporting a group of technologically advanced, well-developed, and high-quality power battery companies, while also setting requirements for these companies' "feedback capabilities" to ensure my country's leading position in the power battery and new energy vehicle sectors as the world's largest new energy vehicle market.
