Author: Yang Zhao

Introduction

From lukewarm to booming! Has the spring of new energy vehicles really come? The truth is often not what most people think!

In November 2020, a senior executive in a new energy vehicle company told me that their positive electrode materials had all been sold out, and even the forklift pallets for transporting raw materials had been sold out, while in the middle of the year he was still worrying about the poor sales of the product. And this phenomenon has destined 2021 to be an extraordinary year in the development of China’s new energy vehicles.

Rapid Development of China’s New Energy Vehicles in 2021

In 2021, China’s new energy vehicles have made great strides, from a penetration rate of only about 5% at the beginning of the year to more than 20% in November. As of November 2021, the production and sales of China’s new energy vehicles have exceeded 3 million units, and the total production and sales for the year are expected to exceed 3.3 million units.

From extreme pessimism in 2020 to extreme optimism in 2021, China’s new energy vehicle industry is burning high in the test of ice and fire. According to incomplete statistics, nearly 1.6 TWh of expansion plans for China’s power battery companies can be counted in 2021, and the expansion plans for China’s lithium iron phosphate cathode materials have exceeded 5 million tons, which can support the demand of about 2 TWh of lithium iron phosphate batteries. As for other materials, such as LiPF6, LiFSi, PVDF, DMC, EC, separators, copper foil, aluminum foil, etc., the expansion plans are also booming.

Reasons for the Explosive Growth in China’s New Energy Vehicles

From lukewarm to booming! Has the spring of new energy vehicles really come? As the end of the year approaches, from major industry associations to all new energy vehicle industry chain enterprises, all are vigorously promoting the era of high-speed development of new energy vehicles. For the expectations of 2022, from 5 million units to 6 million units, there are no unrealistic ideas, only those who dare not exaggerate. And the most exaggerated prediction is that the micro EV models will reach a scale of 5 million units in 2025 and more than 10 million units in 2030.

In my opinion, the explosive growth of China’s new energy vehicle industry in 2021 is not a normal phenomenon in the development of the industry, but a microcosm of the results of a series of reasons, such as unlimited QE in the United States during the COVID-19 pandemic, effective epidemic prevention and control in China, and the United States breaking its own dominance and global supply chain system, etc.

Next, I will specifically analyze the reasons for the explosive growth of China’s new energy vehicles.1. The supply and demand mismatch continues to affect China’s automotive industry. Due to the global pandemic, the supply of imported cars in the domestic market has greatly declined, leading to a prolonged surge in prices since the end of 2020. Additionally, the global chip shortage caused by the pandemic has resulted in a production decrease of over 10 million vehicles worldwide in 2021. As a result, China’s automotive industry has experienced a production cut of over 1.5 million vehicles, while new energy vehicles, which accounted for less than 10% of the market in 2020, have had the opportunity to make up for the supply shortage of traditional fuel vehicles.

2. The phenomenon of Hongguang Mini EV has exploded. In May 2020, when the announcement of the Wuling Hongguang Mini EV was first released, it was already clear that this would be the best-selling model of 2020. As expected, the Mini EV has led the entire new energy vehicle industry to rapidly achieve a penetration rate growth of over 99% in 2021, with sales exceeding one million units.

3. The era of affordable hybrid vehicles has arrived. Affordable hybrid technology represented by BYD DMI technology (high-efficiency Atkinson/Miller cycle engines with dual electric motor series-parallel DHT hybrid special transmission) quickly ignited the entire plug-in hybrid market through corresponding subsidies and road policies, achieving industry growth of over 300%.

However, will the Chinese new energy vehicle market achieve rapid growth in 2022, achieving sales of 5 to 6 million vehicles and surpassing a penetration rate of over 25%, providing high enough growth for demand in the power battery industry? I believe it is highly unlikely and, in a more pessimistic scenario, the power battery industry may face a rapid decline in growth.

Why is this so?

1. The supply and demand imbalance of the automotive industry will be greatly alleviated in 2022. After experiencing a shortage of chips lasting more than six months, global chip supply was greatly alleviated after November 2021. In particular, the prices of MCU chips, which had surged sharply, have now begun to fall. According to predictions by some electronic industry research institutions, the chip shortage problem will be resolved after Q2 in 2022, and the production cut caused by the chip shortage in the automotive industry will be greatly alleviated in the coming year, while the phenomenon of new energy vehicles making up for the supply gap will continue to decline.2. Mini electric new energy vehicles are no longer growing rapidly. From scratch, mini electric vehicles quickly became a third of the new energy vehicle market share in the mature Chinese automotive market that has experienced nearly 20 years of development. However, compared with the lowest-priced fuel cars, products that can only maintain the “subsistence level” of basic performance are unlikely to have a large market space. Under the dual pressure of the rapid upgrading of National Standard Low-speed Four-wheel Electric Vehicles and A0-level Pure Electric Passenger Cars, the market share of A00-level Mini Electric Passenger Cars may further shrink.

2. Affordable hybrid cars are booming. Based on the high thermal efficiency Atkinson/Miller cycle engine + dual-motor series-parallel DHT hybrid dedicated transmission power system, dozens of new models from various brands will be launched in the market on a large scale in 2022. On the one hand, it will quickly squeeze the market share of pure electric new energy vehicles priced at 100,000 to 200,000 yuan or even higher under the same policy conditions. At the same time, ultra-low fuel consumption levels below 4L/100km will also occupy part of the market share of fuel cars. As affordable hybrid/plug-in hybrid models are rapidly popularized, the average power battery load of corresponding single vehicles will be significantly reduced.

The surge in downstream demand has led to a surge in demand for power batteries, and the upstream profits have attracted countless capital to participate. The high temperature and persistent new energy vehicle industry chain is desperately expanding production under the drive of interests. If the growth rate remains high in the next two years, the industry may be safe. However, if the growth rate plummets, a large number of enterprises in the industry chain may face operational difficulties. As for the future, let’s wait and see!

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.