◆Planned production capacity has far exceeded expectations, and the risk of overcapacity is accumulating daily.
◆ Various types of capital are pouring into the new energy vehicle sector, rapidly generating a large amount of production capacity.
◆The rapid development of the supporting industries for new energy vehicles has led to a severe overcapacity in the power battery sector.
The new energy vehicle industry is one of my country's key strategic emerging industries and is listed as one of the ten key development areas in "Made in China 2025". Accelerating the development of the new energy vehicle industry can alleviate current energy and environmental pressures, cultivate new economic growth points, and promote my country's transformation from a traditional automobile powerhouse to a modern automobile superpower.
With strong support from national policies, various domestic investment entities have flocked to the new energy vehicle manufacturing sector, driving the rapid development of the new energy vehicle industry. Statistics show that in 2017, the production and sales of new energy vehicles reached 794,000 and 777,000 units respectively, representing year-on-year increases of 53.8% and 53.3%. These figures are 63.3 times and 60.7 times those of 2012, respectively. For three consecutive years, China has ranked first in global production and sales, accounting for more than half of the global new energy vehicle market share.
However, along with the rapid development of the new energy vehicle industry, the risk of overcapacity is accumulating. Currently, proactive measures should be taken to mitigate this risk in the new energy vehicle market.
Be wary of the escalating risk of overcapacity.
First, the planned production capacity has far exceeded expectations, and the risk of overcapacity is gradually accumulating.
In June 2012, the State Council issued the "Development Plan for Energy-Saving and New Energy Vehicle Industry (2012-2020)," which set a development target of 2 million pure electric vehicles and plug-in hybrid electric vehicles by 2020. However, according to data released by the China Automobile Dealers Association, from 2015 to the end of June 2017, more than 200 new energy vehicle projects had been launched in China, with related investments exceeding 1 trillion yuan. Various automakers had publicly announced new energy vehicle production capacity plans exceeding 20 million vehicles, ten times the target set in the "Development Plan for Energy-Saving and New Energy Vehicle Industry (2012-2020)." These data indicate that overcapacity in the domestic new energy vehicle market is already emerging.
Second, various types of capital have flocked to the new energy vehicle sector, rapidly generating a large amount of production capacity.
In recent years, with strong government support for the new energy vehicle industry, various types of capital have flooded into the sector, sparking a nationwide "car-making frenzy." On the one hand, traditional automakers have announced exponential growth plans for production and sales. For example, BAIC New Energy plans to achieve annual production and sales of 500,000 vehicles by 2020, and BYD plans to invest 15 billion yuan to achieve a production capacity of 600,000 vehicles by 2020. On the other hand, a number of emerging internet companies have entered the new energy vehicle market, such as LeEco Auto, NIO, and CHJ Automotive. Internet giants like JD.com and Tencent have also invested in these automakers.
In addition, leading companies from other industries have also begun to venture into the new energy vehicle sector. For example, Gree Group, Wuliangye Group, CITIC Group, and Hanergy Group have all invested in the new energy vehicle industry through various means. In particular, the influx of investors without prior car manufacturing experience has rapidly created a large amount of production capacity in a short period, thus sowing the seeds of overcapacity.
Third, the rapid development of supporting industries for new energy vehicles has led to a serious overcapacity in power batteries.
The rapid growth in the production and sales of new energy vehicles in China has driven the development of related supporting industries, especially the power battery industry, which has experienced exceptionally rapid growth. Data shows that my country currently accounts for over 70% of the global power battery market share. From 2014 to 2016, the average annual growth rate of China's power battery industry reached 368%, 324%, and 78.6% respectively, with investment in the power battery sector exceeding 100 billion yuan in 2016.
It is estimated that if the current production capacity is fully released, it will form a huge capacity of 170 GWh/year, which is more than 7 times the current actual market demand. This can meet the total demand of 5 million electric passenger vehicles and 500,000 electric buses per year. According to relevant plans, my country will not be able to reach such a huge market demand by 2025.
[Three Major Causes of Excess Risk]
First, excessive subsidies and other industrial policies have increased the risk of overcapacity.
Since the beginning of the new century, the government has introduced a series of policies to support the development of new energy vehicles, including subsidies for enterprises and consumers, support for technological research and development, and tax incentives. In particular, government subsidies have been the biggest driving force behind the consumption of new energy vehicles. In addition to central government subsidies, many local governments provide matching subsidies on a 1:1 basis, with the total subsidies from both levels of government reaching 60,000 to 100,000 yuan. This has rendered some small electric vehicles virtually cost-free or even negative-cost. Lured by these high subsidies, many enterprises have overproduced beyond actual market demand, and some have even resorted to fraudulent practices to obtain subsidies, thus creating the potential for overcapacity.
According to Wilson Consulting's "2016 China New Energy Vehicle Market Report," if government subsidies are excluded, the average market transaction price of domestic independent brand new energy vehicles is twice that of joint venture brands. This means that the price advantage of independent brand vehicles is mainly maintained by government subsidies. In the future, with the implementation of the subsidy reduction system or even its complete elimination, facing the strong technological and market competitive advantages of joint venture brands, a large number of domestic car companies that have been established through policy incentives will inevitably face market cleansing, and my country's new energy vehicle market will experience a serious overcapacity crisis.
Secondly, the single-minded focus on GDP performance and local protectionism have exacerbated the risk of overcapacity.
The current high risk of overcapacity in the new energy vehicle industry is related to local governments' one-sided pursuit of GDP growth. As an emerging industry, the new energy vehicle sector is characterized by large output value, high profits, and strong driving force. Once the production capacity of new projects is established, it will significantly boost local economic growth. For example, after the completion of a certain automobile group's new energy passenger vehicle project in a certain province, based on an estimated annual production of 600,000 vehicles, the annual output value will reach 60 billion yuan, accounting for 1.5% of the province's GDP.
Driven by profit, local governments across China are showing great enthusiasm for developing new energy vehicles. Of the 15 companies currently holding new energy vehicle production licenses, most have local government backing. This practice of blindly following trends and launching new energy vehicle projects regardless of local development conditions will sow the seeds of future overcapacity.
In addition, local protectionism has hindered the marketization of new energy vehicles, affected the market's survival-of-the-fittest mechanism, prevented leading companies and high-efficiency production capacity from entering the market, and allowed weak and zombie companies to survive, exacerbating the risk of overcapacity in the low-end of the industry.
Furthermore, the low barriers to entry in the industry can easily lead to a large amount of low-end overcapacity.
Compared to the extremely high barriers to entry in the traditional automobile manufacturing industry, the new energy vehicle industry has a lower entry threshold, mainly concentrated in a few major core components such as batteries. It is estimated that the break-even point for traditional gasoline vehicles is 2 million units, while the break-even point for electric vehicles is only 100,000 to 200,000 units. It is precisely this relatively low entry barrier and vast market potential that makes new energy vehicles a highly sought-after investment target.
Currently, some companies that lack the ability to research, develop, produce, and manufacture new energy vehicles, or even lack car manufacturing experience, are taking advantage of the low entry barriers in the new energy vehicle industry to enter the field of new energy vehicle manufacturing through investment methods such as holding controlling stakes, joint ventures, and entering the supply chain. In the short term, this can easily lead to a large amount of low-end excess capacity, which will have an adverse impact on the healthy development of my country's new energy vehicle industry.
First, improve the relevant policy and regulatory system to promote the healthy and orderly development of the industry.
We should continue to optimize and improve relevant laws and regulations, and study and formulate a new version of the medium- and long-term development strategy plan for the new energy vehicle industry based on the latest industry and market development changes. This will further clarify the strategies and goals for the development of the industry at each stage and avoid overcapacity caused by blind development.
Improve the government procurement system for new energy vehicles, strengthen the priority and mandatory procurement of new energy vehicles by government departments at all levels, introduce relevant procurement rules, and promote the orderly development of government procurement activities through technical standard control and proportion control, so as to effectively resolve the overcapacity of new energy vehicles.
Promote the integration of government, industry, academia, research and application, establish partnerships in the new energy vehicle industry, and encourage various market players to cooperate in developing the new energy vehicle industry in order to overcome problems such as low-level duplication of construction and overcapacity caused by information asymmetry between government and enterprises, lagging industrial policies, and low efficiency in policy implementation.
Secondly, optimize government subsidy and support methods and strengthen industry supervision and management.
Further raise the technical threshold for new energy vehicle products to be included in the catalog, and make dynamic adjustments to the relevant products included in the catalog; change the current "universal benefit" system for subsidy distribution to a "rewarding excellence and supporting the strong" system, and improve the efficiency of fiscal subsidies.
To prevent excessive subsidies, it is recommended that local governments shift their subsidy focus from encouraging purchases to supporting usage. Requirements for usage periods could be added, and preferential policies such as parking fee reductions and exemptions from highway tolls could be introduced to further increase subsidies and support for charging infrastructure.
Drawing on international experience, we should implement policies such as "refund of vehicle value" for trade-ins. We should also strengthen the supervision of the new energy vehicle market, and in response to subsidy fraud, we recommend that government departments collaborate with relevant industry associations to conduct joint supervision, while establishing anonymity mechanisms and reward/punishment systems, and utilizing the internet and media for public oversight.
Third, change the performance evaluation standards for local governments and crack down on local protectionism.
To curb local government investment impulses, a diversified performance evaluation system should be established, moving away from the singular focus on GDP. Fiscal policies across regions should be unified, with the central government setting unified standards and vehicle catalogs for new energy vehicles, abolishing local catalogs, and mandating equal treatment for new energy vehicles included in the catalog in areas such as government procurement, market access, and subsidies. Centralized procurement management should be strengthened, promoting greater transparency in bidding procedures for new energy vehicles by governments, state-owned enterprises, and public transportation entities to prevent preferential treatment of local automakers.
Fourth, we should increase promotion and publicity efforts to cultivate and develop the consumer market.
Strengthen demonstration and promotion efforts, and guide consumer behavior. Increase the quantity and quality of new energy vehicle promotion, and create a favorable market environment for the healthy development of new energy vehicles. At the same time, strengthen consumer guidance, enhance collaboration between the government and enterprises, and jointly promote low-carbon travel concepts to consumers.
Strengthening the construction of related infrastructure from both "software" and "hardware" aspects. The "software" aspect includes the introduction of infrastructure construction planning schemes, while the "hardware" aspect includes the construction of supporting facilities such as charging piles, charging stations, and after-sales service stations.
Accelerate the development of the consumer market. This mainly involves continuously innovating business models to advance the marketization of new energy vehicles, striving to expand both domestic and international markets, supporting the export of excess domestic production capacity, and accelerating the development of well-known independent new energy vehicle brands. In terms of business models, this includes exploring and promoting electric vehicle or battery leasing services, vehicle or fixed charging station sharing services, and time-sharing leasing.
