The rapid growth of China's new energy vehicle industry has recently come under scrutiny, with some observers claiming that the sector is facing so-called “overcapacity”. However, a closer examination of the facts reveals a completely different scenario.
Throughout the history of industrialization and economic globalization, advanced production capacity has always aimed to meet global demand, not just domestic market needs.
Supply and demand transcend national borders. Countries specialize in producing goods and services based on what they are best at, and they trade with other nations to meet their needs. Over the past three decades, many European, American, Japanese, and South Korean automobile brands have entered and captured a substantial share of the Chinese market. Yet, China has not suggested that these foreign brands are creating excess production capacity.
In 2023, China exported 1.2 million NEVs, accounting for only 12.5 percent of its total production. This small percentage of exports demonstrates that China is not producing too many NEVs, especially considering the huge global demand for these vehicles.
As the new energy industry evolves, it experiences technological advancements and rapid changes, resulting in the simultaneous presence of both efficient and outdated production capacity, which should not be simply added together when assessing the industry's overall capacity.
New technologies often bring higher production efficiency and stronger market competitiveness, providing strong incentives for enterprises to deploy them to grow advanced production capacity.
Inefficient or outdated production capacity using older technologies will naturally exit the market over time. Concluding that there is "overcapacity" by simply combining the outdated capacity with the efficient, advanced production capacity is a misunderstanding of the actual situation.
Fierce market competition often leads to the survival of the fittest among enterprises and dynamic capacity adjustments. In a market economy, it's normal for different companies to compete, with well-performing ones thriving and poorly run ones being eliminated. It's a process that involves continuous capacity adjustments and aligns with the general rules of industrial development. Focusing solely on a specific moment in this dynamic process makes it impossible to draw accurate conclusions.
The U.S. automobile industry serves as a prime example of this phenomenon. After the U.S. became a major manufacturer of automobiles in the early 20th century, hundreds of automakers emerged. However, as competition escalated, most of these automakers went bankrupt. Only a handful of traditional automakers like General Motors, Ford, and Chrysler survive, and they currently face challenges from emerging automakers like Tesla.
Emerging industries all experience a rapid rise and fall of companies, along with continuous dynamic adjustments in production capacity.
Industries typically pass through four stages: introduction, growth, maturity, and decline stages. During the growth period, demand often grows rapidly, which prompts enterprises to increase investment to meet expected future demand. This inevitably leads to a surge in investment and production capacity expansion in the short run.
The new energy industry is experiencing rapid growth, with capacity expansion mainly aimed at matching anticipated future demand.
According to estimates by the International Energy Agency, global demand for NEVs is set to soar over the next decade, projected to reach 45 million units by 2030 — over four times the 2022 figure. Similarly, global demand for newly installed photovoltaic capacity is expected to hit 820 gigawatts by 2030, also about four times the level in 2022.
Such robust future demand inevitably attracts substantial investment and drives rapid production capacity growth. Without proactive capacity building, the increasing market demand cannot be met.
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