Chinese new-car sales have risen steadily over the last few years, reaching 30 million last year, but that number is falling as the Chinese economy goes through tough times.
According to BloombergNEF, around 85 million new cars will be sold worldwide this year, a number that looks a little optimistic and a number that looks more than a little worrying.
Bloomberg’s Liam Denning notes that globally, car manufacturers’ capacity is estimated at 142 million cars, meaning that, treating the industry worldwide as an integrated whole, it is only operating at 60 percent capacity, far below the 80 percent rule of thumb required to break even (automaking is a capital-intensive industry).
The industry should not, however, be seen as a single whole. Much of the reason for the excess capacity is to be found, surprise, surprise, in China, which is responsible for around 80 percent of the new capacity (28 million vehicles) put into operation over the last decade, a time when global auto sales increased by only around 5 million, a figure that will decline if car sales in China turn down.
Denning describes them as having plateaued, but, again, that may be too optimistic. Chinese new-car sales have risen steadily over the last few years, reaching 30 million last year, but that number is falling as the Chinese economy goes through tough times. According to the China Passenger Car Association, new-car sales in China in September slumped by 28 percent, the twelfth consecutive month of decline. Exports, however, have risen by 76 percent over the past nine months, as Chinese manufacturers attempt to dump their excess production somewhere, a shift that is creating panic in, perhaps above all, Europe.
The EU has now succeeded in agreeing to a “shared understanding” with China on exports of hybrid cars somewhat reminiscent of the “voluntary” export restraint agreements between Japan and the U.S. in the 1980s. According to Denning, in 2025 European automakers operated at 57 percent of capacity (a number roughly in line with other estimates, and one that is unsustainable) compared with 73 percent in the five years before the pandemic. Part of that will be due to Chinese competition, but broader economic weakness, as well, I suspect, as the direct and indirect effect of the “green transition” should take good portions of the blame. It’s hard to see how a major crunch can now be avoided at, to put mildly, a politically tricky time.
As a reminder, the auto sector accounts for about 7 percent of Europe’s GDP and supports some 14 million jobs.
In the U.S. meanwhile, automakers were, Denning notes, working at around 68 percent of capacity, down from 86 percent pre-pandemic. Other sources differ somewhat but show the same (uncomfortable) trend.