By Chen Song

A cardinal principle in business is that slow-selling products do not necessitate tariff barriers for protection. No nation would impose a staggering 102.5% tariff on goods that lack market demand.

Yet, this is the very scenario Chinese new energy vehicles (NEVs) are confronting today.

The United States has slapped combined tariffs of up to 102.5% on Chinese electric vehicles (EVs), while the European Union (EU) has introduced anti-subsidy tariffs of up to 35.3% on Chinese-made pure EVs and is contemplating the establishment of a price floor mechanism. Concurrently, the narrative of '20 million units of Chinese overcapacity' is being perpetuated by Western think tanks and media outlets.

However, the '15th Five-Year Plan for the Development of the Intelligent Connected New Energy Vehicle Industry,' unveiled on September 11, does not advocate for unbridled expansion. Instead, it emphasizes upgrading production capacity to high-end levels and fostering new demand through innovative supply.

Tariffs represent actions; 'overcapacity' is merely rhetoric. To ascertain whether overcapacity truly exists, let's scrutinize three aspects that the opposing side prefers to overlook: market behavior, industrial history, and national systems.

1. Actions Speak Louder Than Words

If Chinese EVs were indeed unwanted products, the market would naturally reject them—why then the political uproar?

The reality is that as barriers rise, market share defies expectations and surges.

Despite anti-subsidy tariffs, Chinese brands' market share in Europe continues to ascend; in the first eight months of this year, their share in the UK's new car market more than tripled compared to previous years. The UK's Secretary of State for Business openly opposed tariff restrictions, stating candidly that trade protectionism ultimately burdens domestic consumers.

Now, let's examine the frequently cited 'overcapacity' figures. A European think tank report alleges that China's overcapacity could reach '20 million units by the end of 2025,' a figure derived by simply summing up the nominal planned capacities of various companies without deducting unproduced or phased-out capacities or considering annual demand growth.

Authoritative data tells a different tale.

Bloomberg surveys reveal that China's top automotive exporters operate within internationally recognized normal capacity utilization ranges; China's auto export volume as a proportion of total production remains significantly lower than that of Germany, Japan, or South Korea.

Over the past three years, China's automotive manufacturing industry has maintained an average capacity utilization rate of 73.3%, while the US automotive and parts sector remained below 70% during the same period. The same range is termed a 'cyclical adjustment' in the US but 'overcapacity' in China—the yardstick shifts depending on the target.

2. Yesterday's Photovoltaic Industry, Today's Automotive Industry

Accusations of 'overcapacity' are not novel. In 2012, a similar scenario unfolded in China's photovoltaic (PV) industry: the US imposed tariffs of 34-47% on Chinese solar products, the EU followed with 'anti-dumping and countervailing' measures, Chinese solar exports plummeted by over 40%, and global leading module manufacturer Suntech Power collapsed.

Yet, over the following decade, the global levelized cost of electricity from PVs dropped by over 80%, transforming solar power from an expensive environmental novelty into the cheapest power source in many regions.

China now accounts for over 80% of global production capacity in polysilicon, wafers, cells, and modules, with PV exports surpassing $180 billion during the '14th Five-Year Plan' period.

The moment when 'overcapacity' was shouted the loudest coincided with the eve of a globally dominant industry's emergence.

A crucial distinction must be made here.

Advanced capacity in emerging industries manifests in two forms: one is the inefficient duplication of outdated technologies, destined to be eliminated through competition—a normal state of market economies. The other is 'productive advancement,' where fierce competition rapidly reduces technology cost curves and creates demand that previously did not exist.

Since 2018, China's power battery energy density has increased by over 50% while production costs have dropped by over 60%. Each cost reduction has converted a family that couldn't previously afford an EV into a new user.

An automotive production line takes 3-5 years from construction to operation—today's capacity is prepared for the market five years from now. Judging a long-cycle industry by this year's production and sales figures is akin to condemning high-speed rail based on its occupancy rates during construction.

3. The Other Side of the Capacity Ledger

The accounts for NEVs cannot be calculated solely based on automakers' profit statements—but these statements cannot be disregarded either.

Let's first acknowledge the liabilities: over the past two years, the price war has resulted in widespread losses in vehicle manufacturing, extended payment terms for suppliers, and low utilization rates for some production lines built under local government leadership.

These are real issues—the 'overcapacity' narrative gains traction precisely because it latches onto these genuine pain points.

However, what capacity utilization rates fail to reveal are several system-level benefits.

The most tangible is the energy security account.

By 2025, China's oil import dependency will still reach 72.7%, with automobiles being the largest end-user of refined oil products. Nationwide, NEVs will replace approximately 38 million tons of gasoline by 2025, with refined oil consumption already peaking and declining.

What EVs accomplish is replacing transportation energy dependent on oil passing through the Strait of Hormuz with domestically diversified electricity supplies. This benefit doesn't appear on any capacity report but materializes annually.

Then there's the technology spillover account.

Power battery technology spills over into energy storage; the perception and decision-making technologies of intelligent driving share origins with robotics. An intelligent EV production line hones full-stack capabilities in chips, operating systems, AI algorithms, and precision manufacturing.

Morgan Stanley recently judged that the competitive focus of China's EV industry has shifted from price advantages to technological advantages.

As for consumer benefits, they seem to flow naturally: intelligent cockpits and combined driving assistance have evolved from novelties to standard features, with configurations previously found only in $70,000 vehicles now available in $22,000 family cars. The plan also specifically addresses reducing maintenance costs and deploying high-power charging infrastructure.

Safer, smarter, and more worry-free vehicles are the most visible byproducts of this system.

When combined with green supply in the global carbon neutrality process, this constitutes the complete balance sheet of this production capacity.

Of course, acknowledging the value of 'productive advancement' doesn't mean denying the existence of supply-demand mismatches.

In fact, industry-internal consolidation is already underway: idle capacity at the tail end, accelerated mergers and acquisitions, and a noticeable convergence of new local government projects. The '15th Five-Year Plan' doesn't advocate for unchecked expansion but rather upgrading production capacity to high-end levels, regulating competition through law enforcement and antitrust measures, strengthening top-level internationalization design, and creating new demand through innovative supply.

Neither being intimidated by the 'overcapacity' narrative nor protecting outdated capacity through administrative means—letting market competition and government regulation jointly drive structural upgrades—provides a more practical answer than debating labels.

4. Conclusion

Looking back at industrial history, warnings of 'overcapacity' have practically served as a recurring soundtrack whenever Chinese industries approach global leadership: steel, photovoltaics, and telecommunications equipment were no exceptions. Each time, the warning-givers stood on the wrong side of history.

Slow-selling products need no walls; outdated capacity needs no warnings. What requires 102% tariffs to block has never been overcapacity—but the arrival of a new era.