Recent reports show that many foreign or joint venture car companies are announcing production cutbacks in China, while the domestic Chinese car industry is facing serious internal challenges with widespread losses in new car sales. Experts point out that the overcapacity in new energy vehicles has led to a vicious cycle, and the Chinese automotive industry is now facing a double blow.
Official data released recently by the Chinese government indicates that China’s economic growth has slowed down faster than expected, and the tense situation in foreign trade will further intensify. Data from September shows that industrial output and retail sales growth have slowed down, while stock market and real estate investments have plunged significantly. At the same time, the unemployment rate is rising, and inflation remains a pressing issue.
Under government subsidies, Chinese manufacturing investment has grown by 9% year-on-year since January. According to Chinese customs data, China’s global exports in August increased for the fifth consecutive month, with a growth rate of over 8%.
Due to dumping issues, Chinese electric car exports have faced significant increases in import tariffs from the United States and the European Union.
Against this backdrop, the U.S. Department of Commerce announced on September 23 a proposed rule to ban the use of Chinese software and hardware devices in connected and autonomous vehicles on American roads. Commerce Secretary Gina Raimondo mentioned in a briefing that foreign competitors are developing car software that can be used for surveillance and remote control, posing a threat to the “privacy and security” of American drivers.
Reuters reported that under the new regulations, General Motors and Ford Motor will be required to halt car exports from China to the United States. Models like the Buick Envision from General Motors and the Lincoln Nautilus from Ford Motor that are sold in the U.S. are assembled in China.
According to Bloomberg, German automaker Volkswagen and its Chinese partner SAIC are planning to close a factory in China, and more closures may follow to address the slowdown in demand for fuel-powered cars.
In addition, Reuters reported earlier this year that SAIC Group in China is planning to lay off thousands of employees in its joint ventures like SAIC Volkswagen, SAIC General Motors, and the electric vehicle division.
Furthermore, on September 16, BYD announced the acquisition of Mercedes-Benz’s 10% stake in Denza, making Denza a wholly-owned subsidiary of BYD. Mercedes-Benz quietly divested its entire stake in “Shenzhen Denza New Energy Automobile,” completely withdrawing from the partnership.
Professor Xie Tian from the University of South Carolina’s Aiken School of Business stated to the media that Western car companies are withdrawing or downsizing in China due to the country’s economic downturn, leading to decreased incomes and wealth, thus naturally resulting in reduced luxury car sales.
Regarding the U.S. restrictions on Chinese car imports citing security reasons, Xie Tian mentioned that electric vehicles themselves are significant data collection machines, falling within the scope of the new U.S. restrictions.
“The tariff barrier was due to dumping issues, while this ban is due to national security reasons. With these dual pressures, it will be very difficult for Chinese cars to enter the U.S.”
Taiwanese financial expert Huang Shicong stated that the automotive industry in China is facing challenging times with immense pressure from overcapacity. For foreign companies in China, as their electric vehicles are not developing as rapidly as Chinese enterprises, they have no choice but to reduce production in China and expand to other global markets.
Reports from April highlighted the ongoing rapid expansion of China’s electric vehicle production capacity, with an estimated surplus capacity of nearly 20 million vehicles next year.
Huang Shicong emphasized that China’s surplus capacity exports are posing a severe blow to global industries. Currently, these excess capacities within China are significantly impacting foreign enterprises. “Foreign companies can only lower prices. So far this year, Mercedes-Benz, BMW, Audi, and even Tesla have consistently lowered prices in China, but this is not a sustainable solution in the long run.”
From January to August this year, the “price wars” among Chinese car manufacturers have accumulated losses of 138 billion yuan in total retail sales, leading to problems of fund chain breaks for car dealerships. Recently, the China Automobile Dealers Association submitted an urgent report to the Chinese government.
The report highlighted significant losses in new car sales among current car dealers, with widespread cash flow deficits and intensified risks of fund chain breaks, making it increasingly difficult for them to survive.
On August 28, China’s largest automobile dealership, Grand Autos, was delisted from the Shanghai Stock Exchange as its stock price remained below 1 yuan for 20 consecutive trading days, with a market value of only 6.471 billion yuan at the time of delisting. Grand Autos has repeatedly mentioned in its financial reports the profound impact of the “price wars” on the automotive dealership industry, facing renewed pressures.
On September 10, data released by the China Association of Automobile Manufacturers showed that both production and sales of cars in China declined year-on-year in August. This marks the third consecutive month of decline in car production and sales. In August, 1.942 million vehicles were sold in the Chinese market, a 10.7% decrease compared to the same period last year.
Huang Shicong noted that China’s domestic car market lacks significant absorption capacity, leading to exports that are disruptive due to their low prices. As a result, taxes on these imports are increasing not only in Europe and America but also potentially in Japan, Korea, and even Southeast Asian countries. Canada has already adopted such measures, and it is likely that other countries will follow suit, creating more trade barriers against Chinese electric vehicles.
Driven by China’s nationwide policy push, the reckless growth of new energy vehicles has led to overcapacity. In April this year, both U.S. Secretary of the Treasury Janet Yellen and German Chancellor Angela Merkel raised concerns about China’s overcapacity issues, including in the automotive industry. However, the Chinese government has denied these claims.
On April 26, a report from the Jiangsu Intelligent Connected Vehicle Innovation Center highlighted the current status and causes of China’s automotive overcapacity, pointing out that the top 20 Chinese passenger car companies have a combined production capacity of around 35 million vehicles, accounting for about 70% of the total, but their overall average capacity utilization rate is less than 50%.
A capacity utilization rate between 80% and 85% is considered healthy and sustainable, with over 60% ensuring basic operational capability. When the capacity utilization rate is below 60%, it signifies severe overcapacity issues.
Huang Shicong mentioned that foreign skepticism over the quality of Chinese cars, coupled with unresolved issues of excess production, has created a vicious cycle.
“At that time, China’s goal was to become the world’s number one in the electric vehicle industry, so they just kept subsidizing. Many Chinese car manufacturers have already gone bankrupt, but local governments are unwilling to let them fail, providing support, and then they can launch new cars into the market. This is an inefficient operation relying heavily on state subsidies. Why would foreign enterprises hand over a market they have worked hard to cultivate for so long? It is because they fear the ‘apple’ might turn into ‘poison.'”
Xie Tian believes that the entire new energy sector has been inflated into a false frenzy. Electric vehicles themselves are not yet mature, with issues such as battery life, safety, battery repair, and charging stations remaining unresolved.
“Many people are beginning to rethink these electric vehicles. Electric vehicles in China have become a burning coffin, with massive instances of fire-related deaths being covered up by the Chinese media, deceiving the people.”