German study reveals China’s true automotive welterweight

China’s automotive sector overcapacity is the root of its current trade tensions with the West. Though Beijing denies beefing up its production stock, a new German study has sized the capacity, highlighting the souped-up growth. And contrary to what one might think, the leading brand in production isn’t BYD.

China’s automotive industry has rapidly expanded its production capacities, creating a situation where domestic demand may not be enough to sustain its enormous manufacturing output.

According to a recent analysis by ANP Management Consulting, China’s 169 car plants have the potential to produce nearly 30 million vehicles annually, yet in 2023, only 26.1 million vehicles were manufactured.

This overcapacity of almost 4 million vehicles and a competitive domestic market drive Chinese automakers to focus increasingly on international exports. The country’s production is more than twice that of its neighbor, Japan, which has been a long-time frontrunner in automotive capacity.

Surpassing Japan

The fear that Chinese brands regard Europe as a dumping ground for cheap EVs that can’t be sold domestically has caused the European Union to impose punitive tariffs as high as 36.7%.

Though few Chinese carmakers sell in the US, the Biden Administration took even more drastic measures, blocking the domestic market to imports from China by imposing a 100% tariff. Beijing, which has filed to the World Treaty Organisation for both cases, calling them “discriminatory,” has always denied the overcapacity problem.

But the bells keep ringing. The domestic market for new cars slips by 5% each month this year, boosting exports. China seized Japan’s crown as the world’s largest car exporter last year, a watershed moment for the nation’s still nascent car industry. It beat the traditional stronghold by half a million cars, roughly the size of two average manufacturing plants.

Geely manufactures more than BYD

Zooming in on the brands, it’s not BYD, the world’s biggest EV maker, that stands out with the largest production capacity, but the Geely group, owner of Volvo, next to Lotus and Zeekr.

Geely, which registered a record profit during the first six months of 2024, operates 13 plants capable of producing up to 2.7 million vehicles annually. Great Wall Motors and BYD follow, with capacities of two million and 1.8 million vehicles, respectively.

These manufacturers are central players in the Chinese automotive landscape, each with the ability to significantly impact global markets if they continue to expand their export activities. To put the numbers in perspective, Toyota and Volkswagen can manufacture 10 million units annually.

Interestingly, the analysis excludes joint ventures between Chinese and European manufacturers, such as the Volkswagen-SAIC partnership, the new Audi FAW plant, and the Tesla Gigafactory in Shanghai.

This suggests that China’s potential production capacity could be even higher when considering these collaborations. Chinese workers can also work seven times more hours every month than their Western counterparts.

Leveraging excess capacity

Peter Nagel, Managing Partner at ANP Management Consulting, commented to German Automobilwoche: “We are observing that Chinese manufacturers are increasingly using these capacities to expand their presence on international markets and invest in future technologies. The coming years will be decisive for reorganizing the global automotive industry, and China will play a key role in this.”

The analysis from ANP reveals that China’s 15 largest original equipment manufacturers (OEMs) dominate the country’s automotive production, which is concentrated in the Guangdong province in Eastern China.

These companies operate most of the 169 plants, while the remaining 67 facilities are scattered among 46 smaller manufacturers. Smaller players have only one factory, limiting their domestic and international impact. Experts predict that only one in seven OEMs will be profitable by the decade’s end.