Carmakers out of gas in China
EV shift leaves factories dark
CHONGQING, China — On the outskirts of Chongqing, western China’s largest city, sits a huge symbol of the country’s glut of car factories. It’s a complex of gray buildings, nearly a square mile in size. The thousands of employees who used to work there have moved on. Its crimson loading docks are closed.
The facility, a former assembly plant and engine factory, had been a joint venture of a Chinese company and Hyundai, the South Korean giant. The complex opened in 2017 with robots and other equipment to make gasoline-powered cars. Hyundai sold the campus late last year for a fraction of the $1.1 billion it took to build and equip it. Unmown grass at the site has grown knee high.
“It was all highly automated, but now, it is desolate,” said Zhou Zhehui, 24, who works for a rival Chinese automaker, Chang’an, and whose apartment looks down on the former Hyundai complex.
China has more than 100 factories with the capacity to build close to 40 million internal combustion engine cars a year. That is roughly twice as many as people in China want to buy, and sales of these cars are dropping fast as electric vehicles become more popular.
Last month, for the first time, sales of battery-electric and plug-in gasoline-electric hybrid cars together surpassed those of gasoline-powered cars in China’s 35 largest cities.
Dozens of gasoline-powered vehicle factories are barely running or have been mothballed.
The country’s auto industry is near the start of an EV transition that is expected to last years and eventually claim many of those factories. How China manages that long change will influence its future economic growth, since the auto sector is so big and could transform its workforce.
The stakes are great for the rest of the world, too.
China, the world’s largest car market, became the largest exporter last year, passing Japan and Germany. China’s auto sales abroad are exploding.
Three-quarters of China’s exported cars are gasoline-powered models that the domestic market no longer needs, said Bill Russo, an electric car consultant in Shanghai. Those exports threaten to flatten producers elsewhere.
At the same time, China’s electric vehicle companies are still investing heavily in new factories.
Electric car sales in China are still growing. But the pace of growth has halved since last summer, as consumer spending has faltered in China because of a housing market crisis.
“There is a slowdown trend, especially for pure electric vehicles,” said Cui Dongshu, secretary-general of the China Passenger Car Association.
China also has overcapacity in electric vehicle manufacturing, although less than for gasoline-powered cars. Price cutting for electric vehicles is common.
Li Auto, a fast-growing Chinese manufacturer, reduced its prices Monday. Tesla did the same a day earlier, and on Tuesday reported a large decline in profits during the first three months of the year. BYD, the industry leader in China, made price cuts in February. Volkswagen and General Motors have also lowered EV prices in China this year.
Automakers with factories close to China’s coast are exporting gasoline-powered cars. But many of the endangered factories are in cities deep inside the country, like Chongqing, where high transport costs to the coast make it too expensive to export.
Almost all of China’s electric cars are assembled at newly built factories, which qualify for subsidies from municipal governments and state-directed banks. It’s cheaper for automakers to build new factories than to convert existing ones. The result has been enormous overcapacity.
“The Chinese auto industry is experiencing a revolution,” said John Zeng, director of Asia forecasting at GlobalData Automotive. “The old internal combustion capacity is dying.”
Sales of gasoline-powered cars plummeted to 17.7 million last year from 28.3 million in 2017, the year that Hyundai opened its Chongqing complex. That drop is equivalent to the entire European Union car market last year, or all of the United States’ annual car and light truck production.
Hyundai’s sales in China have plunged 69% since 2017. The company put the factory up for sale last summer, but no other automaker wanted it. Hyundai ended up selling the land, the buildings and much of the equipment back to a municipal development company in Chongqing for just $224 million, or 20 cents on the dollar.
The municipal company said this year, while seeking insurance on the site, that it did not have a new tenant.