EGN NEWS DESK
On the outskirts of Chongqing, western China’s largest metropolis, sits an enormous image of the nation’s glut of automotive factories. It’s a posh of grey buildings, almost a sq. mile in measurement. The hundreds of workers who used to work there have moved on. Its crimson loading docks are closed.
The facility, a former meeting plant and engine manufacturing unit, had been a three way partnership of a Chinese firm and Hyundai, the South Korean large. The advanced opened in 2017 with robots and different gear to make gasoline-powered automobiles. Hyundai bought the campus late final yr for a fraction of the $1.1 billion it took to construct and equip it. Unmown grass on the web site has already grown knee excessive.
“It was all extremely automated, however now, it’s desolate,” mentioned Zhou Zhehui, 24, who works for a rival Chinese automaker, Chang’an, and whose condominium appears to be like down on the previous Hyundai advanced.
China has greater than 100 factories with the capability to construct near 40 million inside combustion engine automobiles a yr. That is roughly twice as many as folks in China need to purchase, and gross sales of those automobiles are dropping quick as electrical automobiles develop into extra fashionable.
Last month, for the primary time, gross sales of battery-electric and plug-in gasoline-electric hybrid automobiles collectively surpassed these of gasoline-powered automobiles in China’s 35 largest cities.
Dozens of gasoline-powered automobile factories are barely working or have already been mothballed.
The nation’s auto trade is close to the beginning of an E.V. transition that’s anticipated to final years and ultimately declare a lot of these factories. How China manages that lengthy change will affect its future financial progress, for the reason that auto sector is so huge and will remodel its work power.
The stakes are nice for the remainder of the world, too.
China, the world’s largest automotive market, turned the biggest exporter final yr, having handed Japan and Germany. China’s auto gross sales overseas are exploding.
Three-quarters of China’s exported automobiles are gasoline-powered fashions that the home market not wants, mentioned Bill Russo, an electrical automotive marketing consultant in Shanghai. Those exports threaten to flatten producers elsewhere.
At the identical time, China’s electrical automobile firms are nonetheless investing closely in new factories. BYD and different automakers are anticipated to introduce extra electrical fashions on the opening of the Beijing auto present on Thursday.
Electric automotive gross sales in China are nonetheless rising. But the tempo of progress has halved since final summer season, as shopper spending has faltered in China due to a housing market disaster.
“There is a slowdown development, particularly for pure electrical automobiles,” mentioned Cui Dongshu, secretary normal of the China Passenger Car Association.
China additionally has overcapacity in electrical automobile manufacturing, though lower than for gasoline-powered automobiles. Price slicing for electrical automobiles is frequent. Li Auto, a fast-growing Chinese producer, lowered its costs on Monday. Tesla did the identical a day earlier. BYD, the trade chief in China, made cuts in February. Volkswagen and General Motors have additionally lowered E.V. costs in China this yr.
Automakers with factories near China’s coast are exporting gasoline-powered automobiles. But most of the endangered factories are in cities deep contained in the nation, like Chongqing, the place excessive transport prices to the coast make it too costly to export.
Almost all of China’s electrical automobiles are assembled at newly constructed factories, which qualify for subsidies from municipal governments and state-directed banks. It’s cheaper for automakers to construct new factories than to transform present ones. The end result has been monumental overcapacity.
“The Chinese auto trade is experiencing a revolution,” mentioned John Zeng, the director of Asia forecasting at GlobalData Automotive. “The previous inside combustion capability is dying.”
Sales of gasoline-powered automobiles plummeted to 17.7 million final yr from 28.3 million in 2017, the yr that Hyundai opened its Chongqing advanced. That drop is equal to the complete European Union automotive market final yr, or the entire United States’ annual automotive and light-weight truck manufacturing.
Hyundai’s gross sales in China have plunged 69 % since 2017. The firm put the manufacturing unit up on the market final summer season, however no different automaker wished it. Hyundai ended up promoting the land, the buildings and far of the gear again to a municipal improvement firm in Chongqing for simply $224 million, or 20 cents on the greenback.
The municipal firm mentioned this yr, whereas in search of insurance coverage on the location, that it didn’t have a brand new tenant.
Other multinational automakers have lowered output in China. Ford Motor has three factories in Chongqing which have been working at a tiny fraction of their capability for the previous 5 years.
Hyundai is likely one of the only a few automakers, largely international, which have halted manufacturing totally at some places, though the corporate nonetheless has three factories in China.
“There doesn’t appear to be a concerted effort to close down extra capability, however extra of a shift from international owned to Chinese owned,” mentioned Michael Dunne, a former president of General Motors Indonesia.
The longstanding benchmark is that automotive factories ought to run at 80 % of capability, or extra, to be environment friendly and earn a living. But with new electrical automotive factories opening and few older factories closing, capability utilization throughout the complete trade fell to 65 % within the first three months of this yr from 75 % final yr and 80 % or extra earlier than the Covid-19 pandemic, in accordance with China’s National Bureau of Statistics.
Without an enormous burst of exports final yr, the trade would have operated even additional beneath full capability.
Chinese producers, a lot of them partly or totally owned by metropolis governments, have been reluctant to cut back output and lower jobs. Chang’an, a state-owned carmaker, has a manufacturing unit only a 20-minute stroll down pink-bougainvillea-lined lanes from the previous Hyundai advanced. The manufacturing unit’s many acres of parking had been utterly stuffed with unsold automobiles on Sunday.
Cities which can be significantly depending on gasoline-powered automotive manufacturing, like Chongqing, face a jobs dilemma. Assembling electrical automobiles requires significantly fewer staff than making gasoline-powered automobiles, as a result of E.V.s have a lot fewer parts.
Workers with sturdy technical backgrounds, significantly in robotics, can simply and shortly discover jobs in the event that they’re laid off, autoworkers in Chongqing mentioned in interviews. But semiskilled staff — together with those that are older and haven’t taken coaching programs to develop their skills — at the moment are discovering it harder to acquire work.
Mr. Zhou mentioned that when he utilized for his job at Chang’an, “it was a fierce competitors.”
Still, this can be very exhausting to search out unemployed former Hyundai staff in Chongqing today, even within the neighborhood of the previous manufacturing unit.
Most manufacturing unit staff in China are migrants who grew up in rural areas and have few connections to the communities the place gasoline-powered automobiles have been constructed. So they will simply transfer to different cities or industries after they lose jobs.
Yet a tinge of gloom hangs over the automotive trade in Chongqing, as demand slows and fewer expert staff have fewer alternatives to earn extra time pay. Hyundai’s signage continues to be seen in lots of locations at its former manufacturing unit, however a big shadow on the entrance gate exhibits the place an optimistic slogan used to hold: “New Thinking, New Possibilities.”
Li You contributed analysis.
