New York Times article by Keith Brachet on April 23, 2024
On the outskirts of Chongqing, the largest city in western China, there is a huge landmark that symbolizes China's surplus car factories. It is a gray complex of buildings that covers an area of almost a square mile. Thousands of employees who used to work here have moved out. The crimson loading dock has been closed.
Formerly an assembly plant and engine plant, the plant was a joint venture between a Chinese company and South Korea's Hyundai Motor giant. The plant, which opened in 2017, is equipped with robots and other equipment for the production of gasoline-powered cars. At the end of last year, Hyundai sold the park for $1.1 billion. The grass in the park has grown to knee height.
Zhou Zhehui, 24, said: "It used to be highly automated, but now, it's desolate."
There are more than 100 factories in China, which can produce nearly 40 million internal combustion engine vehicles per year. With the popularity of electric vehicles, sales of internal combustion engine vehicles are rapidly declining.
Last month, for the first time in China's 35 largest cities, sales of battery electric vehicles and plug-in hybrid electric vehicles surpassed gasoline-powered vehicles.
Dozens of gasoline vehicle factories are barely functioning or have stopped production.
China's auto industry is approaching the starting point of the electric vehicle transition, which is expected to last for years and eventually take away many of its factories. How China responds to this lengthy transition will affect its future economic growth, as the automotive industry is so big that it can transform its workforce.
For the rest of the world, the stakes are also significant.
China is the world's largest auto market, surpassing Japan and Germany as the largest exporter last year. Overseas sales of Chinese cars are exploding.
Bill Russo, an electric vehicle consultant in Shanghai, said three-quarters of China's exports were gasoline-powered models that were no longer needed in the domestic market. These exports have the potential to put producers elsewhere in a difficult position.
At the same time, Chinese EV companies are still investing heavily in new factories. BYD and other automakers are expected to introduce more electric models at the Beijing Auto Show, which opens on Thursday.
Electric vehicle sales in China are still growing. But growth has halved since last summer as consumer spending in China has wavered over the housing market crisis.
Cui Dongshu, secretary general of the China Passenger Car Association, said: "There is a trend of slowdown, especially for pure electric vehicles."
China also has overcapacity in EV manufacturing, albeit to a lesser extent than gasoline vehicles. Price reductions for electric vehicles are common. Li Shufu, China's fast-growing automaker, cut prices on Monday. A day earlier, Tesla had done the same. BYD, a leader in China's electric vehicle industry, also cut prices in February. Volkswagen and General Motors have also lowered the price of electric vehicles in China this year.
Automakers with factories close to China's coast are exporting gasoline vehicles. But many of the factories on the verge of closure are in Chinese mainland cities, such as Chongqing, where transportation costs to coastal areas are high and export costs are too high.
Nearly all of China's electric vehicles are being assembled in new factories, which are eligible for subsidies from municipal governments and state-owned banks. It is cheaper for automakers to build a new plant than to retrofit an existing one. The result is a huge overcapacity.
John Zeng, Asia Forecast Director, Global Automotive Data, said: "China's automotive industry is experiencing a revolution. The old internal combustion engine capacity is dying".
Last year, sales of gasoline-powered vehicles plummeted to 17.7 million from 28.3 million in 2017, and Hyundai's Chongqing plant opened in 2017. The decline is equivalent to last year's sales in the entire EU car market, or the combined production of cars and light trucks in the United States for the whole year.
Since 2017, Hyundai's sales in China have plummeted by 69 percent. Last summer, the company sold the plant, but no other automaker wanted to. Hyundai eventually sold the land, plant and most of its equipment back to a municipal development company in Chongqing for just $224 million, or a fifth of its value.
The municipal corporation, seeking insurance for the site this year, said it had no new tenants.
Other multinational automakers have also reduced production in China. Ford Motor Company has three plants in Chongqing, which have been operating at a fraction of their capacity for the past five years.
Hyundai is one of the few automakers that has ceased production altogether in some places, most of which are foreign automakers, although the company still has three factories in China.
Michael Dunn, former president of General Motors Indonesia, said: "There does not seem to be a concerted effort to close excess capacity, but more of a shift from foreign to Chinese".
The long-standing benchmark is that auto factories should run at 80% or more capacity in order to be more efficient and profitable. But with the opening of new EV factories and the closure of a handful of older factories, the industry's capacity utilization rate fell to 65% in the first three months of this year from 75% last year, according to China's National Bureau of Statistics. Before the pandemic, capacity utilization was 80% or higher.
Without last year's large-scale exports, the industry's operations would have fallen further below full load levels.
Manufacturers in China, many of which are partially or wholly owned by municipal governments, have been reluctant to reduce production and lay off workers. Changan Automobile is a state-owned automaker, and its factory is only a 20-minute walk from the former Hyundai Motor Factory. On Sunday, the plant's multi-acre parking lot was filled with unsold cars.
Cities like Chongqing, which is particularly dependent on gasoline vehicle production, are facing employment difficulties. The number of workers required to assemble an electric car is far less than that required to produce a gasoline car because there are far fewer parts and components for an electric car.
Auto workers in Chongqing said in interviews that workers with strong technical backgrounds, especially robotics, could easily and quickly find work if they were laid off. However, it is becoming increasingly difficult for semi-skilled workers, including those who are older and have not attended training courses to improve their abilities, to find work.
Mr. Zhou said that when he applied for a job in Chang'an, "the competition was very fierce."
Today, however, in Chongqing, it is difficult to find unemployed ex-modern workers, even near the original factory.
Most of China's factory workers are immigrants who grew up in the countryside and have little contact with the communities that make gasoline cars. Therefore, once unemployed, they can easily move to other cities or industries.
However, as demand slows and less skilled workers have fewer opportunities to earn overtime pay, Chongqing's auto industry is clouded. Hyundai signboards can still be seen in many places in Hyundai's old factory, but a huge shadow on the gate shows that there was once an optimistic slogan: "New thinking, new possibilities".