Australian scholar: Is China’s new energy vehicle “overcapacity”? "Insufficient production capacity" is pretty much the same

In recent years, China has become the leader of the global new energy vehicle industry, but it has triggered accusations from European and American politicians about China's "overcapacity." In fact, China's cheap and high-quality new energy vehicle products have promoted the continued growth of the international new energy vehicle market, changed the past situation where new energy vehicles were difficult to popularize due to high prices, and contributed to the transformation of the global green industry. The real problem facing the world today is precisely the lack of emerging production capacity. The accusations made by European and American politicians against China are unfair and pure political manipulation.

Adjunct Professor at Queensland University of Technology Senior Researcher at Taihe Think Tank

China has established itself as a global leader in the design and manufacturing of new energy vehicles, including electric vehicles. Over the past four years, China's new energy vehicle manufacturers have taken the world by storm - production has surged from 350,000 vehicles in 2020 to 9.6 million vehicles in 2023. Auto brands such as BYD, which were previously only known to Chinese people, are rapidly becoming internationally renowned brands. In addition, the transition to electric vehicles has become a key part of promoting low-carbon development of the global economy and is crucial to achieving the global emission reduction targets set in the Paris Agreement.

So it stands to reason that China's ability to provide electric vehicles to the world market at a lower cost should have been welcomed globally. However, in recent months, American and European politicians have successively expressed concerns about China's "overcapacity" of new energy vehicles, condemned China's "low-price dumping of exports", and threatened to implement bans and impose high tariffs.

We have every reason to prove that these accusations from Europe and the United States are nonsense, and we have every reason to prove that China's production capacity and technology can benefit the world.

Chinese new energy vehicle manufacturers are mainly focused on meeting growing domestic market demand. Over the past four years, as China's new energy vehicle production has grown steadily, the domestic market has absorbed 75% to 85% of production capacity. Taking 2023 as an example, China's total output of new energy vehicles will be approximately 9.6 million vehicles, and domestic sales will be approximately 8.3 million vehicles, almost all of which are domestically produced models. This market trend is consistent with the overall development trend of China's manufacturing industry over the past 30 years: in 1995, 11% of China's manufacturing output was exported. This proportion reached a high of 18% in 2004, and then gradually declined. It is currently stable at about 13%.

Picture China's new energy vehicles undoubtedly lead the world in terms of production and price. Global market demand for electric vehicles continues to be strong. The International Energy Agency's "Global Electric Vehicle Outlook 2024" report states: "Electric vehicle sales in 2023 will increase by 3.5 million units compared with 2022, a year-on-year increase of 35%, and more than 6 times higher than in 2018." The current demand for electric vehicles is mainly concentrated Demand for electric vehicles is also growing strongly in China, Europe and the United States, while from a lower base in emerging markets, especially Southeast Asia and Brazil.

The International Energy Agency pointed out: "Whether at the national or global level, the key to the transition to electric transportation lies in the successful launch of affordable new energy vehicles." Because of this, the "catalyst" role of China's low-cost electric vehicles is particularly important. They not only promote the continued growth of mature electric vehicle markets, but also expand the popularity of electric vehicles in some markets where the price threshold was previously too high.

According to estimates by the International Energy Agency, the annual demand for new energy vehicles will increase from the current approximately 14 million vehicles to more than 55 million vehicles by 2035. Some even estimate that the demand at that time may be as high as 60.4 million. But no matter which estimate it is, one thing is certain, that is, the current production capacity is obviously far from meeting demand.

In other words, the real problem at present is not "excess" production capacity of new energy vehicles at all, but insufficient production capacity.

Picture To meet the expected market demand, we urgently need to increase the production capacity of new energy vehicles. Fortunately, manufacturers in China and some other countries have expanded production capacity globally through direct investment in new factories and the formation of joint ventures.

Chinese companies are actively deploying overseas and building or planning to build production lines in Thailand, Malaysia, Brazil, Vietnam, Hungary, Mexico, Spain and Italy. This globalized production layout is reasonable because logistics costs also need to be considered. Keeping factories close to the market can not only shorten the product delivery cycle, but also improve the operational efficiency of the entire supply chain.

In fact, this has become a distinctive feature of China's new energy vehicle industry. China's new energy vehicle manufacturers are committed to streamlining inventories, supported by high productivity. Therefore, they require less working capital than traditional manufacturing. The pre-sale model with an advance deposit ensures the certainty of future demand, and can also obtain additional working capital, effectively shortening the entire cycle from design, manufacturing to delivery, and significantly improving the efficiency of capital operations. This gives producers and their investors more flexibility to respond to short-term market fluctuations due to working capital lock-in and less inventory.

Automated production technology has further reduced the unit cost of China's new energy vehicles. According to reports, on the Xiaomi SU7 production line, a new car rolls off the assembly line every 76 seconds. Due to the strong demand for pre-orders, customers may have to wait for months to pick up their products, and there is almost no inventory - how does this look like "overcapacity"?

There is no doubt that one of the real reasons why American politicians are anxious is that the United States lacks the ability to compete with China in the field of new energy vehicles. Michigan is the center of the traditional fuel vehicle industry and an important "swing state" in previous U.S. presidential elections. This year coincides with an election year, and who votes in the state may have a decisive impact on the outcome of the election. This fact strongly suggests that some recent remarks by the United States are more to cater to its domestic political needs. After the financial crisis broke out in 2008, the U.S. auto industry was bailed out by the government, but it was still constrained by old fuels and old technologies. Given the United States' status as the world's largest producer and consumer of crude oil, energy policy and the future direction of the auto industry are likely to be one of the most concerning issues for voters at that time.

Developing countries will benefit from low-cost electric transportation, and many countries will also benefit from China's investment in localized manufacturing capabilities. U.S. and European politicians complain about the low prices of new energy vehicles in China, which is actually preventing developing countries from enjoying affordable new technologies.

In addition to the impact of cyclical political activities such as elections, we sincerely hope that the reason why American politicians take various actions is not because they are worried that developing countries will have the opportunity to leapfrog traditional technologies and follow the path of low-carbon development.

Picture This article was originally published in China Daily International Edition, with the original title "Powering the future, today"