Author: Li Yuanyuan
On the eve of the 2021 Chinese New Year, a document from the Jiangsu Development and Reform Commission broke the calm of the local automobile industry.
The document titled “Notice on Strengthening the Supervision and Management of Investment Projects and Risk Prevention of the Automobile Industry” pointed out the problem of overcapacity in the local new energy vehicle industry and named typical cases such as Byton, NIO, Min’an, Chongqing Changan Nanjing Branch, and BAIC New Energy Changzhou.
On February 27, the Jiangsu Development and Reform Commission released the “Notice on Strengthening the Supervision and Management of Investment Projects and Risk Prevention of the Automobile Industry”.
It is not just Jiangsu that is facing this problem.
The National Development and Reform Commission has also been aware of the problem of overcapacity in the national new energy vehicle industry. In November 2020, the National Development and Reform Commission released the “Notice on Investigating the Production and Project Status of New Energy Vehicle Complete Vehicles”. The notice also explicitly required detailed reports on the local investment and construction status of companies such as Evergrande and Baoneng.
Although the National Development and Reform Commission did not publicly release or respond to this investigation, in the January 2021 Electric Vehicle Hundred People Forum, Lin Nianxiu, Vice Chairman of the National Development and Reform Commission, pointed out that there are problems such as blind investment and disorderly development in the new energy vehicle industry, and blind investment in new energy vehicle projects must be curbed.
As a major province in the production of new energy vehicles, the issue of overcapacity in Jiangsu Province naturally cannot be ignored. However, in addition to Jiangsu, other provinces that have not announced relevant investigation results also have low capacity utilization rates for new energy vehicles.
For example, Henan Senyuan, which has had production qualifications for many years, has not substantially produced electric vehicles on a large scale; Hangzhou Changjiang Automobile, which was also among the first to obtain qualifications, has already declared bankruptcy.
On one hand, enterprises with serious overcapacity have a large amount of unsalable inventory, and on the other hand, Internet giants are increasing their investments, and some are even entering into automobile manufacturing. Meanwhile, established new energy vehicle companies such as Faraday Future have become guests of governments across the country, determined to achieve their goals.
While the problem of stalled old capacity remains unresolved, a new wave of car-making frenzy is already emerging.
Overcapacity, National Development and Reform Commission Intervention
In the new energy vehicle industry, the competent department’s warnings about overcapacity have never ceased.
Whether it was the “Regulations on Automobile Industry Investment Management” issued by the National Development and Reform Commission in December 2018 or the “Intelligent Automobile Innovation Development Strategy” jointly issued by 11 ministries and commissions, including the National Development and Reform Commission, in February 2020, both have put restrictions on the construction or expansion of new energy and intelligent vehicle production capacity.
In particular, in October 2020, the General Office of the State Council issued the “Development Plan for the New Energy Vehicle Industry (2021-2035)”, which clearly stated that it was necessary to “strengthen mid-term and post-event supervision, consolidate the responsibility of local authorities, and curb the chaos of blind investment in new energy vehicle complete vehicle manufacturing projects.”This plan has become one of the most important bases for the management of overcapacity in the new energy vehicle industry.
It was only a month after the release of the “Development Plan for the New Energy Vehicle Industry (2021-2035)” that the National Development and Reform Commission pointed the finger at investigations into new energy vehicle projects such as those by Evergrande and Baoneng. This notice, dated November 13, 2020, has been widely circulated on the internet.
Although Evergrande and Baoneng have not yet responded positively to this document, the widespread circulation of this online investigation has further intensified public doubts about the real estate sector’s entry into the automotive industry.
One of the questions is why a car company that has not yet begun substantial production can disregard its idle production capacity and build factories in Shanghai and Guangzhou, pledging to produce 1 million vehicles per year by 2025. This clearly does not conform to the logic of capacity control by the regulatory department.
Undoubtedly, the doubts of the public are also what the regulatory department hopes to clarify.
In addition, we have not found this investigative notice on the official website of the National Development and Reform Commission, but a member of the local Development and Reform Commission has confirmed the authenticity of this document to the media. Moreover, it can be certain that after a short time of circulating, various provincial Development and Reform Commissions in the issuing institution began to take action.
Jiangsu Report: Several companies named
As a major province for new energy vehicle complete vehicles and parts enterprises, Jiangsu took the lead in acting.
On February 27, the Jiangsu Development and Reform Commission website released a notice entitled “Notice on Strengthening the Supervision, Management and Risk Prevention of Automotive Industry Investment Projects,” which stated that “there were individual new energy vehicle projects that violated construction and production regulations… Some complete vehicle enterprises have low levels of capacity utilization or a large scale of idle production capacity and other prominent problems.”
We noticed that the document was dated February 9 and the receiving units were the Development and Reform Commissions of various districts and cities in the province. Nearly three months had passed since the notice was issued by the National Development and Reform Commission mentioned above. During this period, various districts and cities in Jiangsu Province completed the statistical reporting on relevant automotive projects.
According to statistics, the production of new energy vehicles in Jiangsu Province was 100,800 in 2020, a year-on-year increase of 15.86%. However, this data is far below the planned production capacity of new energy vehicles in the province.
For example,
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Changan-Nanjing Electric Vehicle Company’s project, with an annual production capacity of 240,000 pure electric passenger cars, has been approved for more than two years but has not yet started construction.
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BYTON’s Phase I project, which was originally planned to be completed and put into production by the end of 2019 and achieve an annual output of 100,000 vehicles, has been idle for a long time.- BACKGROUD
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As early as in 2016, Min’an Automobile, which had obtained production qualification, had planned to produce 80,000 pure electric vehicles annually, but its production capacity utilization rate remains below 5%…
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At the same time, pure electric vehicle companies such as Yancheng Guoxin New Energy Automobile Project, BAIC New Energy Changzhou, Suzhou Qiantu, and Nantong Fengsheng were also named and criticized for their low production capacity utilization rates over the years.
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In addition to new energy vehicle projects, power battery companies in Jiangsu are also facing severe overcapacity issues.
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JIANGSU PROVINCE
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According to the notice issued by the Jiangsu Provincial Development and Reform Commission, the province has built a capacity of about 150 GWh, which has exceeded the national installation demand by 2020. However, there are still a batch of power battery projects under construction or in the planning stage. The overcapacity risk will be further highlighted.
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So far, we have only seen the investigation results of new energy vehicle production capacity in Jiangsu Province from the notice issued by the National Development and Reform Commission. We do not know about the investigation results in other provinces yet.
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OTHER PROVINCES
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But it is certain that the issue of overcapacity exists not only in Jiangsu.
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Tianjin Guoneng New Energy and Henan Suda Electric Vehicle Project, which obtained approval from the National Development and Reform Commission in March 2017, planned to produce 100,000 electric vehicles annually, but so far, the production of the brand’s electric vehicles has been minimal, with only over 1,600 insured cars throughout 2020.
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Another company that obtained production qualification, Hangzhou Changjiang Automobile, declared bankruptcy in November 2020.
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SOLUTIONS
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Jiangsu Provincial Development and Reform Commission suggested intensifying supervision on companies with a production capacity utilization rate lower than the national average by more than 20% and idle passenger vehicle capacity of over 100,000 units or commercial vehicle capacity of over 20,000 units, guiding them to work together from the supply and demand sides to improve production capacity utilization or actively participate in mergers and reorganizations.
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However, how to work together from the supply and demand sides? It is relatively easy for the supply side to increase or lower the production capacity, but how to influence the market’s purchasing behavior from the demand side?
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According to the above document issued by the Jiangsu Provincial Development and Reform Commission, as the competition in the automobile industry intensifies and the infrastructure construction continues, the province’s automobile production capacity utilization rate risks further declining due to the “increase in capacity and decrease in output” and the “squeeze pressure at both ends.”
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More importantly, according to the Regulations on the Administration of Investment in the Automobile Industry, the investment projects of new independent pure electric vehicle companies in the province where they are located should meet the following requirements: the automobile production capacity utilization rate in the previous two years is higher than the industry average for the same product category; and existing new independent pure electric vehicle investment projects of the same product category have been completed and the annual output has reached the construction scale.
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In other words, if the existing surplus production capacity cannot be digested, the investment and production of the companies that have not yet obtained qualifications will be in vain. Some new energy vehicle enterprises, which were once in high demand for investment, have become a burden on the local economy.While the “old and new forces” of the automotive industry face the fate of “unfinished projects” due to overcapacity, a new wave of car-making frenzy is on the rise. Internet giants such as Baidu, Xiaomi, and Huawei are increasingly investing in new energy and smart cars or even producing cars themselves. Faraday Future, a veteran of the capital market, has once again become a guest of governments around the country after several changes of ownership, showing great potential for another round of battle.
Nowadays, with the lessons of the severe overcapacity of old production capacities, can this new round of car-making frenzy avoid repeating the same mistakes under the supervision and attention of the state and relevant regulatory departments such as the National Development and Reform Commission?
This article is a translation by ChatGPT of a Chinese report from 42HOW. If you have any questions about it, please email bd@42how.com.