China’s long-running car price war is overshadowing a deeper problem for the nation’s automotive industry: persistent overcapacity. Despite a slight uptick in recent years, more than half of production capacity lay idle in 2024.
In an industry capable of making 55.5 million vehicles annually, overall capacity utilisation last year was just 49.5%, data compiled by Shanghai-based Gasgoo Automotive Research Institute shows.
The headline rate was dragged down by some of the smallest manufacturers. Hainan Haima Automobile, a venture that started as a partnership with Japan’s Mazda and later attracted investment from FAW Group, posted a meagre capacity utilisation rate of 1.5% last year, the data shows. From a production line capable of churning out 450 000 vehicles, a mere 6 836 units rolled off its lines.
A similar fate befell Haima, another Hainan-based manufacturer with historical ties to Hainan Haima, which recorded an equally dismal 1.7% utilisation rate.
Even the burgeoning electric vehicle segment isn’t immune to vast capacity underutilisation. Mengshi Automobile Technology, a premium electric off-road brand under Dongfeng Group, used just 1.9% of its planned capacity, highlighting the challenges of scaling niche high-end EV production.
The low capacity utilisation suggests that the price war is set to intensify, pressuring profit margins as manufacturers compete for a slice of the hypercompetitve market. It could also hasten industry consolidation, as smaller, weaker companies go out of business or are swallowed by larger competitors. Government officials are trying to minimise the fallout, earlier this month chiding the sector for “rat-race competition” and summoning heads of major car brands to Beijing.
Aggressive
Market leader BYD ran at 82.1% as it quickly expanded production sites in China and abroad. It has been one of the most aggressive players in the price war, kicking off the latest wave in late May with reductions of as much as 34% on 22 of its electric and plug-in hybrid models until the end of this month.
“As long as you have 50% capacity realisation, you won’t be able to end the price war in a normal market,” said Jochen Siebert, MD at consultancy JSC Automotive. While such a situation in Europe would lead to plant closures, it’s not as simple in China given competing interests of national and local governments, he said.
Read: BYD supercharges its South African expansion plans
At the other end of the scale, stronger, established manufacturers are operating closer to full capacity. Tesla’s Shanghai factory ran at 96.1% last year, supported by both domestic markets and a significant export business.
Xiaomi, whose debut SU7 sedan became an instant hit, quickly ramped up production capacity to 95.5%. — (c) 2025 Bloomberg LP
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