Three news items have drawn attention in China's new energy vehicle (NEV) industry since 2023. First, the official cancellation of national subsidies for NEVs in China. Second, a significant decline in sales of the country's domestic NEV giants such as BYD, accompanied by factory shutdowns and price reductions to stimulate the market. Established players like BAIC Motor and SAIC Roewe have also experienced varying degrees of increased inventory and declining performance. However, foreign brands like Tesla and emerging players like NIO have shown strong competitiveness in the market. Tesla, leveraging its brand influence and technological advantage, has captured a dominant position in the high-end market in China. Third, in the first quarter of this year, the total sales of NEVs reached 1.586 million units, accounting for approximately 26.1% of total vehicle sales. In particular, domestic brands achieved a penetration rate exceeding 50% in March. These three news items are significant for the future development of the country's automotive industry, especially the NEV sector.
Per capita energy consumption is widely recognized as a key indicator of a country's level of modernization. Since the early 21st century, China's per capita primary energy consumption has been growing at an average annual rate of 7.35%, considerably surpassing the global average of 1.19% during the same period. This energy consumption is primarily reliant on fossil fuels. However, as the international financial crisis enters its fifteenth year, there is the rapid emergence of NEVs. The reason behind this lies in the fact that the global financial crisis of 2008 was a structural crisis originating from the financial industry, but its resolution required measures in the manufacturing industry. Countries and regions such as the United States, the European Union, and Japan, which were global economic leaders at the time, needed to pursue new industrial breakthroughs to address employment and economic structural imbalances.
Promoting and developing emerging industries necessitates technological innovation and industrial reorganization. However, the pace of technological advancement at a global level was not sufficient to rapidly address the financial crisis. Therefore, considering the challenges posed by the financial crisis and the urgency of addressing global climate change, the reorganization and redistribution of global industries present a promising avenue to pursue structural reforms, and tackling climate change can serve as an excellent entry point of it.
Since the Second Industrial Revolution in 1870, the foundation of the world economy has consistently been petroleum. While new energy sources, such as photovoltaic and solar energy, are important in addressing global climate change, their total quantity and structural issues remain pressing concerns for most developed countries and present even more challenging demands for emerging industrialized nations. If the new energy industry cannot expand downstream, it will fail to address the unemployment problems arising from the financial crisis. This lesson was learned from the 1929 financial crisis: resolving unemployment must precede resolving fiscal imbalances. The integration of new energy and automobiles can effectively construct such an industrial chain and contribute to solving the employment issue. Additionally, compared to other transportation modes like high-speed trains and airplanes, the automotive industry has not witnessed disruptive technological innovations over the past century. Various technologies have merely supplemented the existing industry without causing fundamental transformations. Therefore, the NEV industry holds the potential for this purpose.
Currently, China has also developed corresponding plans to foster the development of NEVs as one of its strategic emerging industries. However, it is worth mentioning that China still operates at the downstream of the new energy sector. Specifically, in the new industrial division, the global automotive industry is witnessing a revolutionary transformation with the advancement of electric, interconnected, and autonomous technologies.
According to researchers at ANBOUND, China's automotive industry is currently facing obstacles in the market under the context of international monopolies. Relying solely on the capabilities of companies like BYD is insufficient for the country to achieve an upstream breakthrough in the well-established international automotive industry division. Therefore, China's automotive industry requires a certain window of opportunity. As things stand, three policy intents are worth mentioning in the NEV industry planning: technological breakthroughs, enterprise cultivation, and the path to new urbanization.
In terms of technology, one of the key distinctions between NEVs and conventional fuel-powered vehicles is the absence of engines in the former. This feature of the NEVs, can be described as of "creative destruction" using the concept of Joseph Schumpeter's concept, and has the potential to reshape the existing industry landscape. By bypassing the engine in the development of the automotive industry, NEVs can leverage fiscal subsidies to stimulate both demand and supply. This, in turn, drives technological advancements, particularly in battery energy storage, empowering NEV companies to achieve a competitive edge in the industry. At the next level, breakthroughs by major technological enterprises, whether in engine technology or semiconductor chips, have the potential to foster the growth of companies capable of rivaling the Fortune Global 500. The third level involves the integration of new urbanization. When industrialization aligns with urbanization, the automotive industry can harmoniously integrate with the urbanization process, steering China's urban development towards a resource-efficient and environmentally friendly trajectory. This approach can mitigate challenges such as urban congestion, air pollution, and inadequate parking facilities. By addressing these three levels of challenges, China's economic and social development will experience a significant transformation. To facilitate this transformation, China has made substantial fiscal investments, with a cumulative subsidy amount exceeding RMB 150 billion since the initiation of relevant policies in 2010, extending until 2022.
Yet, despite China's substantial investment of resources and policy support in the NEV industry, the expected results have not been achieved so far. Technologically, Chinese NEV companies have not made significant breakthroughs in critical areas like battery energy storage, resulting in a considerable gap compared to international standards. In terms of vehicle manufacturing and research and development capabilities, there is a noticeable disparity of it with developed countries such as the United States and Japan. Additionally, industry standards are predominantly controlled by American companies, led by Tesla, indicating China's relatively low competitiveness in the international industry. Moreover, issues related to urbanization, such as traffic congestion, air pollution, and inadequate parking infrastructure, continue to hinder the development of the industry.
The development of NEV is an essential path for China. Some of its successes and achievements can already be seen in real-life scenarios, with an increasing number of new energy products, improving sales performance, extended range capabilities, and advancements in intelligent features. However, these are necessary reflections of technological breakthroughs, and short-term accomplishments do not guarantee long-term success. In the global automotive industry, it is crucial to first establish a presence, then expand internationally, and ultimately strive for sustained progress.
Final analysis conclusion:
As China is still a developing country with limited fiscal resources, the limited fiscal subsidies should prioritize a systematic approach to driving the development of the new energy vehicle industry, focusing on both the supply and demand aspects, rather than addressing localized issues and pursuing short-term results. It is crucial for China to combine appropriate financial and industrial policies, leverage market mechanisms, and promote its vehicles to gain a more advantageous development space in the global industrial division.
