China’s undisputed leadership in electric vehicle sales and renewable energy expansion has come at a cost for numerous companies that have been running a race to the bottom in recent years.
The surge in EVs and solar and wind power installations has resulted in excessive manufacturing capacity in these key clean energy industries, igniting price wars that have hurt most companies in the cleantech sector, including the biggest solar panel manufacturers.
Chinese authorities realized last year that cutthroat competition, overcapacity, and low-quality manufacturing are hurting enterprises.
Overcapacity has been a persistent issue in China’s clean technology industries, undermining the profitability of solar panel and EV manufacturers.
Following months of introducing several measures to try to curb excess cleantech manufacturing capacity, China has now vowed to become more serious in addressing the problem.
At the end of last year, China tightened the investment criteria for solar products manufacturing. The Chinese industry ministry issued final – but not binding – investment guidelines for solar PV manufacturing projects. The local industry has been calling for government intervention to curb the booming solar manufacturing.
The manufacturing boom and the competition for market share have prompted some Chinese manufacturers to sacrifice quality for the sake of higher profits. Companies are looking to survive in the race to the bottom in China’s solar component market, and some are skimping on quality and testing.
The Chinese solar panel market remains oversupplied, and this glut could last up to two more years, one of the top manufacturers, Longi Green Energy Technology, said last year.
Earlier in 2024, the China Photovoltaic Industry Association said that China urgently needs consolidation in the solar manufacturing industry as overcapacity and price wars are leading local companies to a race to the bottom.
In the EV market, “fierce competition among EV and battery manufacturers in China for state-based incentives has led to a sharp decline in EV and battery prices, helping scale deployment, but has led to massive overcapacity in batteries,” research firm Rhodium Group said in a report last month.
Today, China’s battery manufacturing capacity is two times the demand in China and 1.2 times global demand, according to Rhodium Group.
The overcapacity, while helping global EV expansion, is undercutting new entrants.
China now looks to curb that excess capacity in cleantech, and its Ministry of Industry and Information Technology (MIIT) said this week that authorities would crack down on the price-war competition in the EV and solar panel manufacturing sectors.
China vowed to “use upgraded standards to force out outdated production capacity,” a statement from the ministry says, as carried by the South China Morning Post.
The authorities will aim to strengthen the mandatory national standards in the industrial and information technology sectors, the ministry regulating the manufacturing sector said.
Chinese authorities and media have intensified in recent weeks the message that the “disorderly price competition” and overcapacity need to be addressed.
China and its large cleantech companies are also looking to consolidate the sectors through mergers and acquisitions.
After authorities signaled they are now serious in addressing overcapacity, the prices of polysilicon and steel have rallied this month—a sign that investors welcome the crackdown on excess capacity and price wars.
However, it would likely take a couple of years for the Chinese market to overcome the overcapacity problem, analysts reckon.
“In the next three to six months, we are relatively conservative in terms of how much actual capacity shutdown you would be able to see,” Laura Wang, Chief China Equity Strategist for Morgan Stanley, told Reuters last week, adding that companies may have to wait up to two years to see improved profit margins.
By Tsvetana Paraskova for Oilprice.com
