China's electric vehicle (EV) industry is experiencing explosive growth, with production capacity surging at a pace exceeding domestic demand, the NIKKEI Asia reported on Sunday. This raises concerns about a potential price war in export markets and a shakeout among domestic manufacturers. Despite a break-even point for factory utilisation typically around 80 per cent in the auto industry, China's new energy vehicle (NEV) sector operates at just 50 per cent. Several emerging EV makers have succumbed to this overcapacity. The trend was evident at Auto China, a major auto show in Beijing. Smartphone giant Xiaomi's booth, showcasing its competitively priced EVs, drew a stark contrast to the less crowded stand of neighboring Nissan Motor. Xiaomi's CEO's announcement of 75,723 pre-orders for its debut vehicle sent ripples through the industry. China's EV makers benefit from a concentrated domestic battery supply chain. Six of the top 10 global battery manufacturers in 2023 were Chinese, according to SNE Research. Additionally, China produces roughly 80 per cent of the cathode materials, a crucial battery component. The International Energy Agency (IEA) reports that battery prices in China are around 80 per cent of those in Europe and the US. This, coupled with readily available low-cost steel and other components, contributes to China's EV cost advantage. Generous government subsidies for research and development further fuel the industry's expansion, according to the statement. The auto industry association reports a 78 per cent rise in China's 2023 NEV exports to 1.2 million units, with projections reaching 3.5 million in 2025. This aggressive expansion poses a threat to established players, particularly in Southeast Asia, where Chinese firms like BYD are challenging the dominance of Japanese automakers. China's EV boom, while impressive, faces challenges. Addressing overcapacity, potential trade disputes, and domestic industry consolidation will be crucial to ensure its long-term sustainability.
