Posts: 2,266
Threads: 26
Joined: Jul 2012
Reputation:
41
The rationale is sound but the scale that China EV companies has built up the capcity is unsound.
Due to the large scale factories and cost of tech, only 2-3 china EV companies are profitable. The rest are trying to grow revenue to outpace cost to become profitable. Europe and South East Asia helped to add scale by becoming export markets, enabling all Chinese EV to lower the unit cost of production. However, tariffs and declining demand overseas is forcing them to cannabalise each other at home. This causes lower average revenue per unit.
Li Auto was supposed to turn profitable, however, due to a price war it has swung to losses. Nio too is not spared, making a few billion losses each year. The way China has created a manufacturing overcapacity is similar to what it has done in other manufacturing sectors. No doubt new EV factories helped to create jobs to fill the massive number of employees entering the workforce each year. However, building factories without real demand creates overcapacity. I have no solution to China's problem, but it really has to consolidate its manufacturing activity. Lots of unemployment is going to happen. Shanghai region will be the worst hit being the EV manufacturing hub.
Posts: 2,266
Threads: 26
Joined: Jul 2012
Reputation:
41
Yesterday, 08:19 PM
(This post was last modified: Yesterday, 08:27 PM by CY09.)
Hi Dreamybear,
Yes it bears resemeblance. In the last 2-3 years, to displace Property and construction from being the No1 contributor to China's economy, China focused on expanding the manufacturing capacity of Solar and EV companies. Firstly, to replace GDP and secondly to ensure job for displaced workers of real estate and the increasing no of graduates joining the workforce. More EV factories were built to meet job needs and partly due to greed from new EV companies to jump on trends.
But this massive oversupply means China companies has to produce many cars to breakeven. The result is that many EV companies are making large amount of losses. Hence, as i said, many EV factories will consolidate and Chinese will lose their jobs. Lots of company wealth is now being lost or is in the process of being lost (Nio (bailed out once by China) is losing US$700 million per quarter, Li Auto US$80 million quarter, Xpeng US$150 million per quarter). In the solar side, many solar companies are losing money as well. Yingli Solar went down and is receiving state aid.
I am not surprised due to the loss being accumulated by many of these EV and solar companies, China has been unoffically subsidizing their operations
I do not know what new sector China will try to focus on to ensure jobs are there for its citizens. Without jobs, it leads to political distability. The social compact the communist party has with its people is that as long as there are jobs, its people will not interefere with the communist politics.
However, what China has frequently done in policies over the last 5 years has been too extreme. It is true it just has too many students entering the workforce each year
Homepage
PR Newswire
