Miao Wei: Production capacity utilization rate should not be used to control access; Ouyang Minggao: The price balance point for lithium carbonate is 200,000 RMB/ton.

Author: Qiu Kaijun

“There will be no new car companies in the future.”

Recently, news about the strict control of car production projects by the state regulatory authorities has been widely circulated, and well-known companies like Xiaomi have also found it difficult to obtain approval. The main reason is that some regulatory authorities believe that China’s automobile production capacity utilization rate is too low and there is an overheated investment in new energy vehicles.

“Overall, the production capacity of new energy vehicles is not excessive, especially since we are in a stage of high-speed growth. If we do not prepare for production capacity in advance, it is inevitable that supply will not meet demand later on,” said Miao Wei, vice chairman of the National Committee of the Chinese People’s Political Consultative Conference and former Minister of Industry and Information Technology. “Using excess production capacity to control access is actually counterproductive.”

On February 17, Miao Wei expressed these views at the China Electric Vehicle 100 People Forum (2023) Expert and Media Communication Meeting.

At the same event, Ouyang Minggao, academician of the Chinese Academy of Sciences, professor at Tsinghua University, and vice chairman of the 100 People Forum, estimated that the price of lithium carbonate may drop to RMB 350,000 to 400,000 per ton in the second half of this year and the reasonable price equilibrium point in the future may be around RMB 200,000 per ton.

Experts at the event also expressed their views on the prospects of plug-in hybrids, extended-range electric vehicles, and the new energy vehicle market in 2023.

No Overcapacity in New Energy Vehicle Production

A reporter asked at the communication meeting: Is there overcapacity in new energy vehicle production? What is your opinion on qualification and production capacity management?

“I remember that in 2021, a media report said that the production capacity of new energy vehicles had reached 10 million units. But our output that same year was only over 3 million units. Wasn’t production capacity seriously overcapacity? However, we produced 7 million new energy vehicles last year. If we did not have the production capacity of 10 million units at the end of 2021, how could we have produced 7 million new energy vehicles?” Miao Wei said.

Miao Wei estimates that the penetration rate of new energy vehicles this year may exceed 30%, which is 9 million units. Assuming that the utilization rate of new energy vehicle production capacity reaches 80%, there should be a production capacity of 11.2 million units.

Therefore, Miao Wei believes that the real issue to control is the overcapacity of fuel vehicles, which is an indisputable fact. As new energy vehicles are in a stage of rapid growth, and the construction of production capacity requires a certain cycle, future development must be taken into account for the next year and beyond. Thus, there is currently no overcapacity problem for new energy vehicle production in China.

However, he also provided suggestions for local governments in developing new energy vehicles.

“There are some local governments that have indeed crossed the boundaries of their jurisdictions and are eager to attract investment, especially new energy vehicle projects. Some have successfully done so, while others have learned painful lessons from failed projects, such as those of 2016, including Suzhou Qiantu, Huai’an Minan, and others. Their capacity utilization rates are less than 5%, and projects such as SITECH, Byton, Borgward and Hanteng have almost stalled.”

Miao Wei believes that using government funds to attract social capital is a good way to invest in risk, but it is not suitable to be the largest shareholder.

“Because you don’t understand the automobile, and you don’t know how to manage automobile companies, you are only holding some money. It is difficult for you to make accurate forecasts. You cannot be the largest shareholder. If you want to invest in risk, you should not lead, but should follow to avoid risks.”

Currently, some companies hope to enter the new energy vehicle industry, and local governments also have a strong desire to develop new energy vehicles. How should new energy vehicle new construction projects be managed?

Miao Wei believed that “using excess capacity to control access is counterproductive.”

Miao Wei believed that for companies that have already obtained new energy vehicle qualifications, the new capacity can be evaluated based on its capacity utilization rate. If it is only a few percent or less than ten percent, there is no need to expand.

As for new entrants who have never built a car, how to grasp the threshold? Miao Wei believed that it should be checked by local governments, and the central government only examines the local government. Local governments should not act as investors or builders; investment funds should not become the largest shareholder. Local governments should do a good job of review.

“As long as you are willing to invest real money in my area and create a good business and investment environment with high efficiency, I welcome and support your efforts.”

Miao Wei said that it is necessary to study better entry conditions for new car makers.

Miao Wei said that controlling new projects and new companies using capacity utilization rates is counterproductive. Referring to the example of companies going public, because the threshold for newcomers is too high, many companies spend money to purchase shells to go public. “Since the implementation of the registration system, as long as you meet the set threshold, are allowed to enter, and if you cannot operate, I will cancel your qualifications at any time, so last year was the year when the most companies were delisted from the stock exchange in history. This creates a mechanism of natural selection and survival of the fittest in the market.”

Miao Wei believed that only in this way will it be possible to avoid situations where the company is dead, but the shell can still be sold for millions or even billions. Failed companies will quickly exit and will not struggle to survive just to sell shells.The chairman of the China EV 100, Chen Qingtai, said: “New investors are flocking in, what should the government do? I think they should let it go. Because this stage is a process of trial and error, with so many innovators and investors willing to put their real money in to participate in trial and error, the result is to shorten the process of trial and error, which is greatly beneficial to the development of the industry.”

“The first stage is a rush in, and the next is a big sorting out. Most companies will collapse…This process is a market process and should not be a process of government intervention. As long as the government does not invest and controls several external indicators such as product safety, I think there will be no major problems. This is not only true for cars, but also for any emerging industry that may have this rule.”

Lithium price equilibrium point may be at 300,000 yuan/ton

From 2021 to 2022, the price of power batteries has risen rapidly, and the price of lithium carbonate, the main material, has also skyrocketed to 570,000 yuan/ton.

By the end of 2022, the price of lithium carbonate began to fall back, and the trend of declining prices for power batteries gradually became clear. What will be the trend in the future?

Ouyang Minggao, academician of the Chinese Academy of Sciences, professor at Tsinghua University, and vice chairman of the China EV 100, believes that in the past, the main reason for the rise in lithium prices was strong demand and insufficient supply.

Looking ahead to 2023, the growth rate will drop sharply because the total volume of electric vehicles and power batteries has become considerable. For example, the growth rate of electric vehicles will decrease from nearly 100% to 30%-40%, and the total production and sales volume will be close to 10 million. The growth rate of power batteries will also drop by half from 150%. The growth rate of China’s lithium-ion batteries (including non-power batteries) will also decrease from nearly 100% in 2022 to around 50%, with total shipments close to 1,000 GWh. The tight demand situation will be greatly relieved.

From the supply side, the mining capacity of lithium ores represented by Australia has accelerated. In the long term, the lithium resource reserves are sufficient and the recoverable amount continues to increase, reaching 22 million tons in economic recoverable resources in 2020, which is a 400% increase from 2005. It can produce 227 TWh of power batteries. Taking NCM811 batteries as an example, each with an average of 100 kWh, it can fit more than 2.2 billion pure electric vehicles. (In the long run, the total amount of lithium in seawater is nearly 25 billion tons, and relevant extraction technologies are under development.) In addition, the price increase has brought opportunities for the battery material recycling industry: China will need to recycle and use a total of 125 GWh of batteries by 2025. It is expected that after 2030, battery materials will enter a stage of large-scale recycling; by around 2050, the supply of primary mineral resources and recycled resources will reach a considerable level; in the longer term, recycled resources will gradually completely replace the demand for primary resources.According to the supply and demand comparison, Ouyang Minggao said, “Recently, we have seen that the price of lithium has returned to around RMB 450,000. I estimate that it will further return in the second half of this year. Now it is between RMB 400,000 and 450,000, and it may be between RMB 350,000 and 400,000 in the second half of this year. The overall supply and demand will be balanced throughout the year. There may be an overall surplus next year. Therefore, the price of lithium will return in the next few years, but it cannot be like before.”

“We estimate that the reasonable price equilibrium point in the future may be around RMB 200,000. Battery recycling with too low lithium prices is not profitable. Therefore, if we want to develop battery recycling, the price of lithium cannot be too low.”

Plug-in Hybrid and Extended Range Will Not Affect the Position of Pure Electric Vehicles

The new energy vehicle market will soar in 2021 and 2022. Among them, the range-extending technology route dominated by Ideal Automobile and the plug-in hybrid technology route dominated by BYD have both achieved growth rates comparable to and even faster than that of pure electric vehicles.

However, on February 13th, the European Parliament passed a ban on gasoline and diesel vehicles including plug-in hybrids and extended-range vehicles.

What is the current situation and future of plug-in hybrids and extended-range vehicles in China?

Ouyang Minggao said that plug-in hybrids and extended-range electric vehicles are technically the same system. “The extended-range electric vehicle is generally a pure electric vehicle. The fuel generator unit generates electricity to increase the mileage when the battery is in a low state. The plug-in hybrid vehicles sold in the domestic market are basically powered by both electricity and gasoline.”

Compared with the two, the plug-in hybrid has more operating modes, is more adaptable to working conditions and has lower fuel consumption. The technical requirements for plug-in hybrid vehicles are higher and the entry threshold is higher. When the extended-range electric vehicle is in a low state on the highway, the fuel consumption is relatively high.

“Both are competitive and serve different customer groups.” Ouyang Minggao said, “We are currently in a stage where the price of electric vehicles is high, the cost of batteries is high, and subsidies are decreasing or stopping. The plug-in hybrid and extended-range electric vehicles are definitely on the rise.” “There will be more mainstream models in the price range of RMB 100,000 to 200,000, especially plug-in hybrids. In the high-end market, 300,000 to 400,000 large SUVs with too many batteries will also be an important market. It is possible for new energy vehicles to account for 30%-35% in total.”

However, in the medium and long term, **Ouyang Minggao believes that there is still plenty of room for innovation in the battery commercial model and technology. The comprehensive cost of battery purchasing and usage will continue to decline; with the popularization of slow charging piles and the deployment of super-fast charging on highways, charging will be more convenient than refueling in the future; at the same time, pure electric vehicles are better for running in urban areas than plug-in hybrids and extended-range electric vehicles; the development of new energy electricity and the implementation of vehicle-network interaction technology allows electric vehicle batteries to serve as energy storage devices to obtain benefits, and with the tightening of fuel consumption, emissions and carbon tax, *the advantages of pure electric vehicles will become more and more apparent in the medium and long term.*Miao Wei also expressed that the ultimate direction is definitely like the European Union, which cannot include plug-in hybrid or range-extended electric vehicles, but this is a natural evolutionary process. When our charging facilities have not been so abundant, users still need more options, at least to solve worries about range anxiety and inability to charge.

“In short, pure electric is the ultimate direction. During this process, plug-in hybrid and range-extended electric vehicles still have great potential and space, and the two will not be mutually exclusive, but rather a choice for users.” Miao Wei said.

Subsidy withdrawal, how about the market?

2023 will be the first year since China developed new energy vehicles without national subsidy policy. Can the new energy vehicle market continue to grow?

Miao Wei believes that the withdrawal of subsidies will have some adverse effects on the sales of new energy vehicles in January and even a considerable period in the first half of this year, but the impact is controllable.

The trend of the increasing penetration rate of the new energy vehicle market will not change.

Miao Wei also emphasized that although the subsidies are completely withdrawn, policies such as the dual credit policy and the tax exemption policy for new energy vehicles are still continuing.

Miao Wei said that the tax exemption policy for new energy vehicles was originally scheduled to be implemented until the end of this year, “Considering the economic situation in our country this year and the need for us to stimulate consumption more vigorously, I personally advocate extending it for some time if possible.”

The China Electric Vehicle 100 People’s Congress plans to hold the 2023 Forum from March 31 to April 2, focusing on the theme of “Promoting the Modernization of China’s Automobile Industry”.

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.