July 21, 2025 - Pressing the Brakes on Growth in China

This is the Telemetry Transportation Daily for July 21, 2025 and I'm Sam Abuelsamid, vice president of market research for Telemetry.

Over the past three decades China has seen unprecedented rates of sustained economic growth, particularly in the auto industry. Since the mid-90s China has gone from a largely inconsequential auto industry that primarily focused on producing vehicles for government agencies with almost no individual ownership to by far the largest market in the world. Today, light duty vehicle sales are closing in on 30 million units a year. The problem is there is estimated to be production capacity for between 40 and 50 million units annually. 

Over the past decade as the Chinese government has pushed the adoption of new energy vehicles which are plug-in hybrid or battery electric, hundreds of startups have popped, many with funding or subsidies from various levels of local or provincial governments. These regional levels of government have hoped to cash in the growth of the automotive market in general and NEVs in particular. However the result has been extreme levels of underutilization of factories with the national average at about 50% and most manufacturers losing money and everyone slashing prices to move product. 

The recent Central Urban Work Conference in Beijing, president Xi Jinping questioned whether all provinces need to be developing automotive and AI industries. Xi highlighted the amount of debt being accumulated and raised concerns about overinvestment. Xi's comments were published on the front page of the People's Daily, the official communist party newspaper. While Xi has not made any official moves to slow the excessive capacity growth yet, this sends a clear message about the direction he wants to lower levels of government to move. Without support from government, the number of new entrants is likely to slow and many of the weaker players will get acquired or go out of business to bring production more in line with sales. 

Thanks for listening.