China’s carmakers are seeing their average factory utilization rate being pushed down amid slowing sales growth and rising stock of unsold vehicles.
Chinese automakers may use as little as 70 percent of capacity this year, compared with 82 percent in 2014, according to Bloomberg Intelligence analysis.
Chery, BYD and other Chinese car brands probably face the greatest risk to profitability because their factories’ average utilization rates this year are forecast to be in the 65 percent to 70 percent range, the lowest in the industry.
Automakers may cut production as well as offer more sales incentives to reduce their inventory of unsold vehicles. Lower production rates reduce economies of scale and increase the unit costs.
The facilities of Sino-foreign ventures are more efficient and operating near designed capacities, with the exception of Japanese ventures.
European automakers operating in China are increasing production capacity by about 23 percent this year to service increased demand.
Japanese automakers may operate vehicle assembly plants at a 77 percent utilization rate this year, the lowest of the foreign producers in China.
Lack of new models and lingering tensions following the territorial dispute in the East China Sea have led to stagnant China sales for Japanese carmakers in the past two years.
The opinions are of Steve Man, senior auto sector analyst at Bloomberg Intelligence.
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