There is a growing concern about excess capacity in vehicle production.
Excess capacity has been the bane of the industry for decades as every vehicle manufacturer has competed to stay ahead of its rivals. With a focus on too many plants, manufacturers in Europe, North America and Japan levelled off in the early 2000s by maintaining an adequate production/ sales balance to keep profits high. Additional competitors, first from South Korea and later China, have boosted global production capacity and put pressure on profits around the world.
Hyundai-Kia has developed into a global powerhouse and reached a level where production remains in the profitable range. The bigger problem came from China, where dozens of new manufacturers attempted to take their share of the quickly growing local market. Once local production volume satiated the Chinese market, exports would continue the growth. Larger manufacturers grew quickly, filled huge plants and are now looking at exports while many smaller manufacturers have disappeared.
This story is an extract from the February 2023 issue of AutoForecast Solutions' monthly report. Click here to download the full report, or to catch up on previous months
Traditionally, targeting capacity utilisation of more than 80% is the norm for profitable operation. Established plants in mature markets usually operate about that level except during model changeovers or labor issues. Rating a Ford or Volkswagen factory in the 70% range is rare. But this has changed in recent years with new plants by EV startups and expansion of the more successful Chinese manufacturers.
Now the market is shifting to EVs and manufacturers are finding it more efficient to build dedicated EV plants. Converting a plant designed to produce ICE vehicles misses the efficiencies gained from building a factory around the EV assembly processes. With this in mind, manufacturers are opening plants across the world to add EV production capacity.
These new plants are, for the most part, not replacing existing plants. And this list does not include planned expansions of existing plants such as the doubling of Stellantis’s Kenitra plant in Morocco and expansion announced for Tesla plants around the world. Millions of units of added capacity can quickly be included if those plants were counted here.
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