(Yicai Global) June 4 -- China is headed for mammoth overcapacity in its new energy vehicles sector, the world's biggest, as the nation's automakers add production lines, according to a new report from a leading industry body. Many may not survive the next few years.
Manufacturers plan new capacity totaling more than 20 million units a year, with most coming online by 2020, the China Automobile Dealers Association's report states. That's 10 times higher than medium and long-term sales targets for the sector.
The document spells out an uncertain future for many of the country's NEV producers because of the explosion in production capacity and the scheduled ending of subsidies for such vehicles in 2020.
"The vast majority of emerging NEV makers are unlikely to survive for more than five years," said Cui Dongshu, secretary-general at the China Passenger Car Association, adding that not all planned projects will come to fruition.
The industry ministry set out a plan in April last year to produce and sell 2 million NEVs annually by 2020, while carmakers unveiled more than 200 new investments between 2015 and last June, exceeding a total of CNY1 trillion (USD155.8 billion). The country will also phase out subsidies for consumers buying green vehicles by 2020, according to Li Zhanchuan, a deputy inspector at the transport ministry's policy research office. That may put a drag on sales.
The sector could have substantial excess capacity if carmakers can't sell vehicles when the incentives are eliminated in 2020 and no alternative policies are introduced, said Huang Yonghe, a senior expert from the China Automotive Technology and Research Center.
China has been the world's top producer and seller of NEVs for the past three years, shipping more than 1.8 million vehicles. Sales more than doubled last year to 777,000, according to the China Association of Automobile Manufacturers.
The market will grow 40 percent to 50 percent this year, with annual sales forecast to surpass 1 million units, said Xu Haidong, assistant to the CAAM's secretary-general. The industry is already suffering excess capacity, given the gap between consumer demand and low-end cars in the market, he added.
Editor: William Clegg