The production of new-energy vehicles in mainland China tripled in the first 10 months of this year from the same period a year ago, Ministry of Industry and Information Technology figures show.
Among them, the output of pure electric commercial vehicles soared nine times, surpassing market estimates.
The capital market has shown strong interest in the industry, leading to notable increases in the share prices of related firms.
However, as the size of the market for such vehicles is limited at present, investors should be cautious while seeking opportunities in this sector.
During the 10-month period, sales of new-energy vehicles reached about 250,000, accounting for just 1.3 percent of the total vehicle production of 19.28 million units.
If the growth in output of such vehicles maintains the present pace, they will soon account for 10 percent of total vehicle production.
The environmental protection sectors mostly rely on government subsidies, and new-energy vehicles are no exception.
The explosive increase of the sector’s output this year is also tightly linked to the policies.
With more subsidies offered for new-energy buses, companies are encouraged to upgrade to them.
For passenger vehicles, the subsidies are mainly for mid-market and high-end vehicles.
New-energy cars are more attractive in cities with incentives for them and plate restrictions on traditional cars.
The overall subsidies for new-energy cars from the central and local authorities are expected to shrink from next year to 2020, as provided in the national plan.
So the increase of sales we have seen is partly due to early purchases before the subsidies diminish.
The competition in the passenger vehicle market is very intense.
On one side, the new-energy car producers are rushing to launch new models.
On the other, traditional carmakers are putting much effort into finding new growth points amid slowing growth in demand.
The battery industry is a link in the industry chain that cannot be ignored.
Batteries are a major part of the cost when making new-energy vehicles.
The battery industry also has high thresholds of technology and industry standards, posing barriers for market entry.
Overall, the size of the market for new-energy vehicles is limited while the competition is fierce.
Ideal investment targets are in short supply.
By contrast, the battery industry, thanks to its entry barriers, will provide more opportunities.
This article appeared in the Hong Kong Economic Journal on Nov. 30.
Translation by Myssie You
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