Is idle capacity "loose" or "blocked"?
The debate over overcapacity in the automotive industry has a long history, and it has been raised many times with the rapid developmentof the automotive industry over the past decade. In fact, the view in favor of overcapacity comes more from the frequent outbreaks ofunfinished or near-end car projects, such as Min'an, Qiantu, Boshire, Byton, etc. On the one hand, unfinished projects are still beingdisposed of, and on the other hand, new or expansion projects such as Xiaomi and BYD are in full swing.
According to data released by the National Passenger Vehicle Market Information Association, as of 2021, the total productioncapacity of passenger cars in China was 40.89 million units, and the capacity utilization rate was only 52.47%. Among them, 36 automakershave a capacity utilization rate of less than 20%, and 29 automakers with annual sales of less than 10,000 vehicles. Many "bigwigs" inthe circle are constantly issuing overcapacity warnings, reminding the automotive industry to pay attention to the problem of
overcapacity and avoid waste caused by duplicate construction of production capacity.
However, from another perspective, the conclusion of overcapacity is very different. In 2021, some statistics said that China's newenergy vehicle production capacity reached 10 million, but the output of that year was only more than 3 million, and the capacityutilization rate was only 30%. Is this serious overcapacity? But without this 10 million vehicle production capacity reserve, theproduction and sales of 7 million units in 2022 will not be possible.
The rapid growth of new energy vehicles requires a certain amount of capacity reserves. "At present, there is no problem ofovercapacity in China's new energy vehicle field, the key is how to convert the idle fuel vehicle production capacity into new energyvehicle production capacity and make good use of it." Miao Wei, deputy director of the Economic Committee of the National Committee ofthe Chinese People's Political Consultative Conference, predicted that China's new energy vehicle production is expected to achieve a 30%
increase this year, reaching 9 million units. Based on this, there is no problem of excess capacity of new energy vehicles at present. Atthe same time, capacity construction requires a certain cycle, in order to ensure the rapid development of new energy vehicles, it isnecessary to plan in advance.
However, Miao Wei also pointed out that in the construction of new energy vehicle projects, the excessive enthusiasm of localgovernments has largely caused the end of new energy vehicle projects, and it is necessary to have better control over the investment ofautomobile projects.
The popularity of expanding the car project has not decreased
At present, the enthusiasm for the construction of new energy vehicle projects in various places has been very high, and theconstruction of new energy vehicle projects is still being vigorously promoted in various places, even extending to the upstream anddownstream of the industrial chain such as power batteries and scrap recycling. In line with the principle of "big and fast", allprovinces and cities are vigorously promoting the production capacity planning of new energy vehicles, and the construction of new energyvehicle projects has become the focus of the "14th Five-Year Plan" of most provinces and cities, and even some places that have noautomobile industry foundation before are actively introducing new energy vehicle projects.
As Miao Wei said, China's new energy vehicles are in a stage of rapid development, he judged that the share of new energy vehicles mayreach 50% before 2030, when the production and sales will reach 12 million ~ 13 million units. According to the 80% capacity utilizationrate, it is necessary to have a production capacity of 15 million ~ 16 million vehicles to basically meet the needs of industrydevelopment. Judging from this perspective, the current new energy vehicle capacity is not excessive.
Judging from the feedback from the enterprise side, some leading new energy vehicle companies have the problem of insufficientproduction capacity to a large extent, which has led to the extension of the delivery cycle of some hot-selling models. Of course, thereare many factors that affect the delivery cycle, such as the tight supply of core components such as chips, and they are not all causedby insufficient production capacity.
However, in the past few years, there have been frequent projects for leading new energy vehicle companies to expand productioncapacity, which also shows that there is a gap in the production capacity of these companies.
Cao He, president of All-Union Automobile Investment Management (Beijing) Co., Ltd., said in an interview with China Automotive Newsthat for a long time, new energy vehicle projects will be the focus of local investment attraction, not only because of the broaddevelopment prospects of the new energy automobile industry and the long industrial chain of new energy vehicles to the local economy,the fundamental reason is that new energy vehicles are still high-quality industries compared with other industries, and have a strong
role in promoting the future development of the local area. Therefore, although the problem of automobile overcapacity frequentlyappears, and the government authorities are constantly strengthening the strict management and restrictions of local new energy projects,the enthusiasm of local governments for new energy vehicles has never waned.
Revitalizing idle production capacity is in a dilemma
However, there is also a problem of overcapacity in some places, such as Jiangxi and Jiangsu provinces, which have been criticized bythe NDRC. In 2020, Jiangxi Province's automobile production was only more than 400,000 units, far lower than the total total automobileproduction capacity of Jiangxi. In 2016~2020, the utilization rate of automobile production capacity in Jiangsu Province decreased yearafter year, 78%, 56.7%, 52.4%, 39.76% and 33.03% respectively. Miao Wei also admitted that there may be a problem of overcapacity in someareas.
As Wang Qing, deputy director of the Institute of Market Economy of the Development Research Center of the State Council, said, whenjudging whether there is excess capacity, we must first clarify the effective production capacity and the invalid production capacity. Infact, there has always been a problem of insufficient superior production capacity and backward overcapacity in the automotive industry,and this problem is particularly prominent in the current field of new energy vehicles.
From the current market development trend, new energy vehicles and traditional fuel vehicles are a mutual replacement relationship,although some traditional fuel vehicle production capacity can be transformed into new energy vehicle production capacity, which is alsowhat the management wants to see, but in fact, for new energy vehicle companies, not all traditional fuel vehicle production lines can beused to produce new energy vehicles, many car companies are more willing to build new energy vehicle factories. The fundamental reason isthat these idle old factories are relatively backward in terms of production equipment and production capacity, otherwise they will notbe idle. The new energy vehicle production line has high requirements for intelligence, energy conservation and carbon reduction, so morecar companies are more inclined to build new energy vehicle factories, and for the entire industry, increasing high-quality productioncapacity is an inevitable trend.
However, there are also some idle fuel vehicle factories that have been reorganized by new energy vehicle companies under the impetusof local governments and other relevant parties, such as Li Auto's acquisition of Beijing Hyundai First Plant, and BYD's acquisition ofJiangxi Fuzhou Dacheng Automobile Plant. There are also some large car companies that have rebuilt/expanded their original fuel vehicleplants into new energy vehicle plants, such as SAIC-GM-Wuling renovated and expanded its Chongqing plant, and BYD reconstructed/expandedits Changsha plant. Audi even announced that by 2029, all of its own production sites worldwide will produce at least one all-electric
model. At the same time, large international car companies such as Audi and Toyota are also cooperating with Chinese partners to activelybuild new energy vehicle plants.
Establish effective regulatory mechanisms
At present, China's new energy vehicle projects are managed according to whether the regional capacity utilization rate meets thestandard. In Miaowei's view, this management method seems to be completely different. He said that there are now more new energy vehiclemanufacturers, and there are constantly new entrants preparing for new production capacity. There are two situations, one is thatenterprises with new energy vehicle production qualifications should examine their current capacity utilization rate when preparing new
production capacity, and make good use of the existing production capacity first; Another situation is that new forces who have not builtcars and want to build cars must grasp the entry threshold. In Miao Wei's view, the key to controlling the investment and construction ofnew energy vehicle projects is to manage state-owned enterprises and local governments.
For a long time, local governments have maintained high enthusiasm in the construction of automobile projects, especially in theconstruction of new energy vehicle projects in the past two years, most of which have the figure of local governments, and some localgovernments even lead the development of new energy vehicle enterprises, not only providing funds, land, taxation and other preferentialpolicy support, but even affecting the development direction of enterprises, which directly causes some new energy vehicle projects to
end up, resulting in overcapacity of new energy vehicles. In the management of new energy vehicle projects, the local government-ledapproach needs to be stopped. Wang Qing also proposed that when managing automobile projects, it is necessary to establish an exitmechanism, change the regulatory concept, establish a standardized capacity access threshold and a modern industrial governance system,promote market-oriented competition in production capacity, and survive the fittest.
It is worth noting that a major obstacle to the market-oriented management of production capacity is the qualification problem, andsome local governments use qualification as a "shell resource" to promote the construction of new energy vehicle projects. Ifqualification is no longer the threshold for enterprises to enter the new energy automobile industry, perhaps the market-orientedoperation of production capacity will usher in a different development situation. With the advancement of market competition in the newenergy automobile industry, the value of qualifications is decreasing, and more enterprises entering the new energy automobile industryare relying on the practical work of "real silver and silver", and the problem of overcapacity is also expected to find a solution in theprocess of marketization.
Originally published on China Automotive News on March 31, 2023