On the outskirts of Chongqing, western China’s largest city, sits a huge symbol of the country’s glut of car factories. It is a complex of gray buildings, almost one square mile in size. Thousands of employees who once worked there have left. Its crimson loading dock is closed.
The facility, a former assembly and engine factory, was a joint venture between a Chinese company and South Korean giant Hyundai. The complex opened in 2017 and is equipped with robots and other equipment to manufacture gasoline-powered cars. Hyundai sold the campus late last year for part of the $1.1 billion it cost to build and equip. The uncut grass on the property has already grown to knee height.
“Everything used to be highly automated, but now it’s in disrepair,” said Zhou Zehui, 24, who works for rival Chinese automaker Changan and whose apartment overlooks the former Hyundai Motor complex.
China has more than 100 factories with the capacity to manufacture nearly 40 million internal combustion engine vehicles annually. This is roughly twice as many as people in China want to buy, and sales of these cars are declining rapidly as electric cars become more popular.
Last month, for the first time in China’s 35 largest cities, sales of battery electric vehicles and plug-in gasoline-electric hybrid vehicles together exceeded sales of gasoline-powered vehicles.
Dozens of gasoline-powered car factories are barely operating or have already been idled.
The country’s auto industry is nearing the beginning of its EV transition, which is expected to last several years and eventually occupy many of its factories. The auto sector is so large and has the potential to transform its workforce that how China deals with this long-term change will influence its future economic growth.
There are also significant risks for the rest of the world.
China, the world’s largest car market, overtook Japan and Germany to become the largest exporter last year. China’s overseas car sales are growing explosively.
Bill Russo, an electric car consultant in Shanghai, said three-quarters of China’s exported cars are gas-powered cars that are no longer needed in the domestic market. These exports threaten to flatten producers in other regions.
At the same time, Chinese electric car companies are still investing heavily in new factories. BYD and other automakers are expected to unveil more electric models when the Beijing auto show opens on Thursday.
Electric vehicle sales in China continue to grow. However, in China, consumer spending has slumped due to the housing market crisis, and the pace of growth has halved since last summer.
“Pure electric vehicles in particular are on the decline,” said Cui Dongxiu, secretary general of the China Passenger Vehicle Association.
China also has excess manufacturing capacity for electric cars, but not as much as gasoline-powered cars. Price reductions for electric cars are common. Fast-growing Chinese manufacturer Lee Auto cut its prices on Monday. Tesla made a similar report a day earlier, and on Tuesday reported a sharp decline in profits for the first three months of the year. BYD, China’s industry leader, cut prices in February. Volkswagen and General Motors also lowered EV prices in China this year.
Automakers with factories near the Chinese coast export gasoline-powered vehicles. But many of the endangered factories are located in cities deep within the country, such as Chongqing, and the high cost of transporting them to the coast makes them too expensive to export.
Almost all electric cars in China are assembled in new factories that qualify for subsidies from local governments and state-owned banks. It is cheaper for automakers to build a new factory than to retrofit an existing one. The result was massive overcapacity.
“China’s auto industry is undergoing a revolution,” said John Zeng, director of Asia forecasts at GlobalData Automotive. “The old internal combustion capability is dying.”
Sales of gasoline-powered vehicles plummeted from 28.3 million in 2017, when Hyundai Motors opened its Chongqing plant, to 17.7 million last year. This decline is equivalent to the entire European Union car market last year, or all of the annual production of passenger cars and light trucks in the United States.
Hyundai’s sales in China have fallen 69% since 2017. The company put the factory up for sale last summer, but other automakers didn’t want that. Hyundai ultimately sold much of the land, buildings and equipment to Chongqing’s urban development company for just $224 million, or 20 cents on the dollar.
The municipal corporation said it is seeking insurance on the premises this year, but there are no new tenants.
Other multinational automakers are also cutting production in China. Ford Motor Co. has three plants in Chongqing, but they have been operating at a fraction of their capacity for the past five years.
Hyundai is one of the few automakers that has completely halted production at some locations, most of them foreign-owned, although it still has three factories in China.
“There doesn’t seem to be a concerted effort to shut down excess capacity, but there does seem to be a shift from foreign to Chinese ownership,” said Michael Dunn, former president of General Motors Indonesia. Ta.
A long-standing benchmark is that auto factories need to operate at more than 80 percent of their production capacity to be efficient and profitable. But as new electric vehicle factories opened and old ones mostly closed, industry-wide capacity utilization rose to 65% in the first three months of this year, up from 75% last year and more than 80% before the COVID-19 pandemic. %. National Bureau of Statistics of China.
Without last year’s large-scale exports, the industry would have been operating even further below full capacity.
Many of China’s manufacturing industries are partially or fully owned by city governments, which are reluctant to cut production or layoffs. State-owned automaker Changan has a factory just a 20-minute walk down a lane lined with pink bougainvillea from the former Hyundai Motor Complex. The factory’s acres of parking lots were completely filled with unsold cars on Sunday.
Cities that are particularly dependent on the production of gasoline-powered vehicles, such as Chongqing, are facing an employment dilemma. Because EVs have far fewer parts, assembling an electric vehicle requires significantly fewer workers than building a gas-powered vehicle.
Auto workers in Chongqing said in interviews that workers with strong technical backgrounds, especially in the field of robotics, can easily and quickly find jobs even if they are laid off. However, semi-skilled workers (including those who are older and have not taken training courses to develop their skills) are now finding it more difficult to get a job.
Zhou said that when he applied for the job at Chang’an University, “there was fierce competition.”
Still, it is currently very difficult to find unemployed former Hyundai employees in Chongqing, even near the former factory.
Most factory workers in China are migrant workers who grew up in rural areas and have little connection to the communities where their gas-powered cars are manufactured. So if you lose your job, you can easily move to another city or industry.
But a dark cloud hangs over Chongqing’s auto industry as demand slumps and less-skilled workers have fewer opportunities to earn overtime. Hyundai signs can still be seen in many parts of the former factory, but a large shadow on the main gate marks where the optimistic slogan “New Thinking, New Possibilities” once stood. .
Li Yu Contributed to research.
