Are there just too many Chinese car brands? Despite being the world’s largest car market, their appetite isn’t insatiable. As a result, the state of their automotive industry might not be as rosy as outsiders think.
According to a Bloomberg report (via Automotive News), there are some 846 registered auto manufacturers in China. Yet, their average production capacity utilization rate stands at just 53 percent.
This has led automakers there, particularly Chinese brands, to look elsewhere to sell off their excess inventory. If you ever wondered why Chinese-made cars are so cheap in the Philippines, this might be your answer.
But their industry’s problems got worse.
Lured into existence by provincial governments dangling cash and other incentives to make China’s dream to become an EV powerhouse a reality, local authorities helped manufacturers setup factories. But when regulators asked them to review and report back on the scale of their support for the auto industry, the picture they got was less than rosy.
Last year alone, these companies added new production capacity of around 5 million vehicles, or about four times the actual number of EVs sold in China.
Something has to give, and that give ended up being bankrupt carmakers and deserted factories. Last year alone, at least a dozen EVs are known to have gone under, or have had to be restructured to avoid insolvency.
With that, China may have had enough. The government says they are looking to encourage mergers and acquisitions to make the automotive market more concentrated. They will then funnel their support into these few select EV hubs. Moreover, provincial governments will be unable to green light new projects until surplus capacity comes online, and production limits might soon be in place.
What’s happening in their automotive industry is playing out to one of the most basic rules of business: the law of supply and demand. As subsidies dry up and surplus production kept in control, it will likely result in a stronger, more robust Chinese automotive landscape with far fewer players. It will also mean the end of cheap Chinese cars for the Philippine market.
common problem in capitalism.
ReplyDeleteAnother factor why Chinese cars are cheaper is the country have the most effecient and robust supply chain. That goes to other products not just cars. The country can produce anything locally lowering the costs of their manufacturers. Excellent port facilities adds to the logistical advantages for exporters. Excess supplies are actually the lesser worries for the competition.
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