China has ranked first in the world in both production and sales of new energy vehicles for three consecutive years. Data released by the Ministry of Public Security shows that as of the end of June 2018, the number of new energy vehicles in China had reached 1.99 million.
However, behind the industry's booming development, structural overcapacity problems are becoming increasingly prominent. Song Qiuling, deputy director of the Economic Construction Department of the Ministry of Finance, recently stated publicly that the risk of structural overcapacity in the new energy vehicle industry is intensifying, with overcapacity in low-end products and insufficient capacity in high-end products. The industry is showing signs of blind expansion, and investment is also showing signs of overheating.
Industry insiders have stated that with the massive influx of capital, the risk of structural overcapacity in the new energy vehicle industry is accumulating, and this risk has already begun to spread to the power battery industry. Huang Shilin, Vice Chairman of CATL, recently stated at a public event that the structural overcapacity in the domestic power battery industry is expected to continue until 2023.
In recent years, China's promotion of new energy vehicles has yielded remarkable results. In 2009, both production and sales of new energy vehicles were less than 500 units. By 2017, production and sales had increased to 794,000 and 777,000 units respectively. Data released by the China Association of Automobile Manufacturers shows that in the first seven months of this year, China's production and sales of new energy vehicles reached 504,000 and 496,000 units respectively, representing year-on-year increases of 85% and 97.1%. Recently, the Ministry of Finance predicted that sales of new energy vehicles will reach 1.5 million units in 2018.
In fact, in April 2017, the Ministry of Industry and Information Technology, the Ministry of Science and Technology, and the National Development and Reform Commission jointly issued the "Medium and Long-Term Development Plan for the Automobile Industry," which proposed that by 2020, the annual production and sales of new energy vehicles in China would reach 2 million units.
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 have publicly announced new energy vehicle production capacity plans exceeding 20 million vehicles, which is 10 times the target production capacity in the "Medium and Long-Term Development Plan for the Automobile Industry".
"The planned production capacity of enterprises is relatively unrealistic. A plan of 100,000 vehicles may not result in the production of a single vehicle, and it is unknown how many vehicles can be produced in the future," said Cui Dongshu, Secretary-General of the China Passenger Car Association. He added that the new energy vehicle industry is currently in a stage of rapid expansion, with risks of overspending on land resources and local policies. Even for companies that have already established operations, most of their products are low-end production capacity aimed at obtaining subsidies.
While the planned production capacity of the new energy vehicle industry is surging, the power battery industry, which is upstream of the new energy vehicle industry chain, is also experiencing rapid investment and capacity expansion.
According to Outlook Weekly, 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. If all current power battery production capacity were released, it would create an annual capacity of 170 GWh, more than seven times the current market demand. According to relevant plans, China's total power battery production capacity will reach 285 GWh by 2020, but the demand for power batteries during the same period will only be 97 GWh.
"In fact, the problem of power battery production capacity emerged as early as 2017," Yu Xiao, a new energy vehicle analyst at Huachuang Securities, told China News Service. "If we calculate based on the current total demand and total supply, the production capacity of power batteries is excessive."
Coincidentally, Huang Shilin mentioned in a recent speech that the domestic power battery industry is currently experiencing a significant structural overcapacity. Leading companies' high-quality capacity is highly sought after, leading to insufficient production capacity; while small and medium-sized manufacturers and those lagging behind are struggling to absorb their excess capacity, and their survival space is being continuously squeezed. "This phenomenon is expected to continue until 2023."
Yu Xiao believes that future market share will concentrate on leading companies, while second- and third-tier or even substandard power battery companies will be eliminated. Currently, leading companies are still planning their production capacity, while smaller companies are already operating at full capacity and will not expand further.
To address the structural overcapacity problem in the new energy vehicle industry, Song Qiuling stated that the Ministry of Finance will adhere to the policy orientation of supporting the best and strongest enterprises, continue to raise the subsidy threshold, and support advantageous products and enterprises.
"As for new energy passenger vehicles, the government has very strict approval requirements for the production qualifications of enterprises," Cui Dongshu said. This move is intended to promote the development of high-end products by strictly controlling production capacity; at the same time, the new subsidy policy has also blocked low-end production capacity.
According to a review by China News Service, BAIC New Energy's EC series, positioned in the A00 segment with a range of less than 200 kilometers, sold 39,906 units in the first half of this year, but only 3 units were sold in June, the month the new subsidy policy was implemented. "In the future, higher-level models such as SUVs with long range and high energy efficiency, and A0-class family sedans will become the mainstream trend in the market," Cui Dongshu added.
"Relying on short-term subsidies for development is risky. Enterprises should establish a sustainable development concept and enhance their competitiveness by improving product technology," said Cui Dongshu. He added that learning from advanced international experience and achieving integrated development is beneficial not only to individual enterprises but also to the overall development of the new energy vehicle industry.
