Throughout history, the conclusion of the Federal Reserve's interest rate hiking cycles has taken on two distinct patternsThe first, often referred to as the "Volcker moment," signifies a soft landing for the economy, drawing from the pragmatic economic policies established by former Fed Chair Paul Volcker during the inflation crisis of the late 1970s and early 1980sThe second pattern is the "Minsky moment," characterized by a hard landing, which brings to mind significant economic downturns like the bursting of the dot-com bubble in 2001 and the global financial crisis in 2008. As developed economies consistently raise interest rates, emerging market economies are subjected to external monetary policy spillover effectsThis phenomenon poses particularly serious challenges to countries with high external debts and weaker economic foundationsFor developing nations, grappling with the future dynamics of international trade and emerging trends is essential

How can these nations sustain their globalization efforts and continue industrial development? With uncertainties surrounding the export landscape of key sectors such as new energy vehicles, photovoltaics, and lithium batteries in 2023, this discussion takes on heightened significance.

Let's first analyze the state of international tradeIn 2022, the trade performance of developed economies slightly outperformed that of emerging and developing nations, partly due to relatively stronger import growth in developed regionsFor instance, developed economies experienced import growth of 5.8%, while emerging economies saw a mere 2.0% increaseConversely, emerging economies managed an export growth rate of 4.0%, looking respectable compared to developed economies, whose exports increased by only 2.7%. In this context, the Eurozone and the United States stood out as the best-performing players among developed economies, showcasing export growth rates of 3.5% and 4.8%, and import growth rates of 6.7% and 7.0% respectively.

China’s performance during this period outshined many others

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According to customs statistics, in 2022 China’s total trade value reached 42.07 trillion yuan, marking a 7.7% increase compared to 2021. Specifically, exports amounted to 23.97 trillion yuan, a growth of 10.5%, while imports totaled 18.1 trillion yuan, growing by 4.3%. In the first four months of 2023, China's total trade value reached 13.32 trillion yuan, reflecting a year-on-year growth of 5.8%, noticeably up from a 4.8% rate in the first quarterExports during this period reached 7.67 trillion yuan, growing by 10.6%. In April alone, trade reached an impressive 3.43 trillion yuan with a growth rate of 8.9%.

Examining the trade structure reveals that during the first four months, China's exports of electromechanical products amounted to 4.44 trillion yuan, accounting for 57.9% of total exports and showcasing a year-on-year growth of 10.5%. The remarkable surge in the export of new energy vehicles, which skyrocketed by 120.3%, is particularly noteworthy.

Industry serves as the backbone of development, the lifeblood of the economy

A thriving industry leads to a robust economy, while a strong industrial foundation translates into national powerOver the past few years, China’s industrial chain has made consistent progress, although the persistent challenges labeled as "large but not strong" remain significant in some sectorsThe advanced nature of technology, alongside stability and reliability, continues to lag behind the world’s leading levelsNevertheless, some sectors like photovoltaics, power equipment, new energy vehicles, lithium batteries, and telecommunications equipment boast considerable advantagesThe question lingers regarding how to maintain momentum in these sectors by mastering core technologies, enhancing control, and fortifying the international competitiveness and influence of these key industries through more advanced open cooperation.

Capitalizing on Strengths and Addressing Weaknesses

The International Trade Research Institute of the Chinese Academy of Social Sciences reported that global economic data for 2022 was underwhelming, with the actual growth rate for world trade falling to 3.9%, a decline compared to the previous year's rebound of 9.7%, the highest since the 2008 financial crisis

This downward trend in global economic growth is expected to continue into 2023. Various factors—including cost dynamics, product structures, and trading partners—contribute to differing trade outcomesHowever, the overall weakening of economic growth worldwide is likely to lead to ongoing softness in external demand.

When examining industry growth, it becomes evident that both leveraging strengths and addressing weaknesses are vital strategiesIt is particularly important to focus on areas of strength while innovating around the industrial chain, particularly in areas such as photovoltaics, power equipment, new energy vehicles, lithium batteries, and telecommunication equipmentIn terms of energy consumption shift, the electrification of energy demand corresponds mainly to new energy vehicles, while the clean energy supply is primarily driven by solar, wind, hydro, and nuclear energies, with a strong emphasis on photovoltaics.

In recent years, the photovoltaic industry in China has flourished

As reported by the National Energy Administration, the global focus of the new energy sector has increasingly shifted towards China, with Chinese-manufactured photovoltaic components and wind turbines capturing approximately 70% of the global marketThis impressive market share is largely attributable to ongoing innovation within the industry and the continuous upgrading of technologyIndustry players strive to achieve precise alignment between innovation chains and industrial chains, aiming to facilitate the transformation of critical technological achievements into practical applicationsThe establishment of the photovoltaic industry intellectual property operation center in China in 2023 exemplifies the efforts aimed at addressing the weaknesses in the sector's intellectual property landscape.

It's important to note that the photovoltaic industry chain comprises several segments, with upstream, midstream, and downstream components all requiring ample innovation and competitive advantages to propel the overall advancement of the industry chain.

For example, within the upstream silicon material market, previous supply shortages have driven prices significantly higher, resulting in this segment becoming the most profitable in the photovoltaic industry

Leading producers like Tongwei Co., GCL-Poly Energy, Daqo New Energy, and Xinte Energy have significantly increased their production and salesIn 2022, the output of domestic polysilicon reached 505,000 tonsThis production level indicates that these companies are poised to produce more than 40,000 tons of crystalline silicon.

Despite these gains, market demand exceeds supplyData from the China Photovoltaic Industry Association predicts that by 2025, the global photovoltaic installed capacity is expected to reach 330GW, corresponding to a polysilicon demand of around 1.11 million tons, with further increases projected by 2030. Given the current growth trend in global photovoltaic generation, the demand for polysilicon—a fundamental raw material in the photovoltaic industry—is poised for exponential growth, ushering in rapid development opportunities over the next decade for leading manufacturers that can maintain cutting-edge technology.

In addition to polysilicon, the industry is increasingly moving towards producing larger silicon wafers

Manufacturers are investing in research and development of different technologies for this purpose, leading to increasingly refined processes and distinct differentiation in productsPresently, the two main technological routes for large-size silicon wafers are "182" and "210." The shift towards larger wafers necessitates new manufacturing equipment, raising more demanding standards for equipment manufacturersThe forthcoming advancements in technology will likely center around the optimization and upgrading of crystal pulling and processing equipment.

Manufacturing silicon wafers encompasses several technologies, including pulling crystals, cutting, testing, and sortingThe crystal pulling and slicing processes represent the core manufacturing stages, with the mainstream single-crystal furnace's inner diameter reaching 270mmHowever, M12 silicon wafers’ outer diameter measures 295mm, and current crystal pulling equipment fails to meet the new demands for larger sizes

This predicament raises the question: How can the construction of large-size crystal pulling equipment be increased?

The shift toward larger wafer dimensions also elevates the rate of fragmentation for the thin wafers producedThis development necessitates increasingly sophisticated slicing machinesIn the photovoltaic cell production equipment sector, processes such as diffusion and deposition must occur within sealed pipelines, meaning equipment sizes must accommodate increased volumeAdditionally, uniformity across processes like texturing and coating needs to improve, prompting the upgrade and replacement of some production machineryIn the area of component manufacturing equipment, laminators and stringers will also need to undergo length and width increases, indicating the necessity for similar upgrades.

The midstream segment of the photovoltaic industry chain also comprises various types of cells, including TOPCon, PERC, HJT, and perovskite technologies

Each technological direction features several manufacturers engaged in research and developmentThe advancements in cell technology stem from technological iterations, with current mainstream PERC cells achieving an efficiency rate of over 23%, nearing a bottleneck with slow progress in increasing efficiencyConversely, N-type batteries present significant potential for efficiency heightening and reduced investment costs, with current conversion efficiency surpassing an impressive 24%. For example, the HJT technology developed by LONGi Green Energy achieved a conversion efficiency of 26.81% at the end of 2022, breaking a five-year stalemate in silico solar cell efficiency recordsAnother example, the perovskite cell, showcased the shining achievement of 31.8% conversion efficiency with commercial-grade textured CZ silicon wafers, marking another milestone for the industry.

As for downstream photovoltaic devices, inverter manufacturing has also made significant strides—global shipments of photovoltaic inverters reached 210.4GW in 2021, with Chinese inverter companies accounting for an impressive 170GW

Major domestic players like Huawei and Sungrow Power Supply topped the charts with 52GW and 47GW respectively; they were accompanied by other notable entrants like Growatt (14.7GW), Jinlang Technology (14.4GW), GoodWe (12GW), and Sungrow Electric (7.4GW), all claiming spots in the global top ten rankings.

Insights from SMM reveal that global shipments of photovoltaic inverters in 2022 surged to nearly 290GW, marking a 37.36% increase from 2021. Solidify this growth, domestic inverter manufacturers have turned into the backbone of inverter shipments, reaching approximately 235GW with a remarkable year-on-year growth of 38%. Leading firms remaining at the forefront of shipment volumes are still Sungrow and Huawei, exhibiting growth rates of roughly 60% and 23% respectively.

However, the domestic industry faces its challenges, particularly concerning IGBT shortages

IGBT technology is predominantly held by foreign enterprises, resulting in a low self-sufficiency rate and dependence on importsThis predicament has resulted in significant delivery delays for both ground-mounted systems and high-capacity commercial models, with some deliveries facing postponements of one to two monthsFurthermore, the volatility in IGBT pricing poses substantial challenges for inverter manufacturers; some companies have experienced decreases in shipment volumes due to severe shortages in chips.

Overcoming the obstacles related to IGBT technology is crucialIn 2021, China's self-sufficiency rate for IGBTs stood at 19.5%. With the gradual release of domestic IGBT production capacity throughout 2022 and 2023, this figure is projected to exceed 25%, possibly even reaching 30%. The present domestic demand for IGBTs has reached 180 million units annually, while production hovers at merely over 40 million, indicating a severe supply deficit

Looking ahead, as photovoltaic installation ramps up, the demand for IGBT modules will soar, presenting a vital area that domestic manufacturers must focus on addressing.

Emphasizing the Importance of Innovation

Exploring the landscape of the new energy vehicle market reveals that every aspect of the industrial chain is reliant on technology, which acts as a critical support for enhancing foundational capabilities within the industry and upgrading the value chainEnhancing foundational industry capabilities necessitates advancements in technological levels and process quality at the upstream segments; such progress directly benefits downstream processing and manufacturing sectors, allowing for improved product offerings and quality assuranceIndustrial chain upgrades serve as the motivational force pushing sectors to higher tiers of value.

Within the niche markets associated with new energy vehicles, numerous supporting industries exist—ranging from upstream raw materials production and processing to midstream component production and recycling, which encompasses areas like batteries, motors, electronic controls, and automotive interiors

The downstream segment focuses directly on complete vehicle manufacturing.

Taking the battery sector as a focal point, we find companies like Contemporary Amperex Technology Co., Limited (CATL) at the forefront of the battery supply chain evolutionPreviously, CATL benefited from the initial rise of the battery supply chain, capitalizing on trends favoring pouch cells and rectangular shapes, resulting in remarkable market presence for lithium iron phosphate, high-voltage ternary, and CTP products, while making strides abroadOver a decade ago, CATL introduced rectangular cells to BMW’s supply chain, making notable technological breakthroughs based on existing VDA dimensionsThe evolution continued, iterating from NCM523 to NCM622 and then to NCM811. Structural innovations in battery cells aimed at tripling thickness alongside the release of CTP battery packs further propelled their market standing.

Driving success has not only been reliant on domestic traction fueled by companies like Tesla but also by models like the Volvo C40/XC40, Kia Niro, and MG-4, which have allowed CATL's overseas market share to expand impressively from just 0.2% in 2019 to more than 24% in the first quarter of 2023.

According to CATL's strategies, the leading products in manganese lithium phosphate, M3P, and Kirin batteries will soon reach the industrialization phase

The upcoming Kirin battery (third-generation CTP) aims for system energy densities of 160Wh/kg for the lithium iron phosphate system, while the ternary system may reach as high as 255Wh/kg with adjusted chemical systems, enabling rapid chargingPlans are in place for a highly integrated fourth-generation CTC battery system around 2025, progressing towards a fifth-generation intelligent CTC electric chassis system by around 2028. This trajectory positions CATL to leverage battery pack integration and structural innovation to enhance authority within the supply chain.

In addition to CATL, other producers are also expediting technological developments in battery designs, including BYD’s blade battery combined with GCTP, and Hive Energy’s long and thin blade battery with LCTPMoreover, automotive giants like Volkswagen have debuted standardized UC battery cells

Yet, CATL faces competitive challenges; new structures (like the 46-series cylindrical cells) and material systems (high-nickel, manganese iron phosphate, M3P) comprise the new competitive landscapeNotably, the 46-series cylindrical cells still present technical challenges linked to welding and sealing, necessitating optimizations for yield and cost control as production scalesCATL, EVE Energy, and Panasonic are strategically investing in the 46-series cylindrical cells.

Looking Ahead to the Long-term

Regardless of the industry, the development of foundational capabilities or upgrades heavily relies on technological advancementsEffectively managing every component of the industrial chain is inextricably linked to the innovation chainPresently, many industries experience a disconnect between industrial and innovation chains, often resulting in a lagging response or reliance on foreign technologies, particularly pronounced in high-tech sectors like semiconductors and chips; these industries significantly depend on overseas innovation chains for supply chain upgrades.