China has grabbed a dominant slice of market share in many sectors. The latest is electric car batteries, an industry still in its early stages. To see where this might end, consider solar cells. Here, China has an unassailable lead and dominates the entire supply chain.
Chinese manufacturers have garnered economies of scale thanks to a burgeoning captive domestic market. Installed solar capacity increased nearly two-thirds to a record 87 gigawatts in 2022.
The largest solar-panel makers slashed prices by about a third at the end of last year. In the first four months of this year installed capacity nearly tripled year on year. Exports more than doubled in 2022 despite claims concerning forced labour.
In the mid-2000s, Europe had a chance of winning dominant share. Germany alone claimed a fifth of global photovoltaic cell manufacturing, outpacing China. In the past five years, China has garnered more than 80 per cent of the market.
There is a revealing disconnect between go-go production stats and the muted performance of Chinese solar cell manufacturers. Longi Green Energy Technology, JA Solar Technology and Trina Solar are down more than a fifth in the past year. Longi, the largest business, trades at 13 times forward earnings — about half the valuation of smaller US peers.
These businesses have chased sales at the expense of profitability. Installation growth threatens to exceed energy demand and storage capacity by a wide margin.
President Xi Jinping is serious about setting China on course to net zero by 2060. The government provides generous subsidies to industries pivotal to energy transition.
Cars are less of a commodity than solar cells. Even so, the effectiveness of Chinese policy in solar cells should send a chill through western electric vehicle companies, particularly battery specialists. A vast domestic market, low labour costs and tolerance of weak margins add up to a formidable pricing advantage for EV makers as well as PV specialists.
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