Severe overcapacity may prolong the price war in the Chinese automotive industry.

According to Gate News bot, as reported by Bloomberg, China's protracted price war in the automotive sector conceals a deeper issue within the country's automotive industry: ongoing overcapacity. Although production capacity has seen a slight recovery in recent years, over half of the capacity will be idle by 2024.

According to data from the Shanghai Gate Automotive Research Institute, the annual output of the automotive industry reaches 55.5 million vehicles, but the overall capacity utilization rate was only 49.5% last year.

Some smaller automobile manufacturers have dragged down the overall capacity utilization rate. Data shows that Hainan Haima Automobile Co. had a capacity utilization rate of only 1.5% last year. This joint venture was originally established in collaboration with Japan's Mazda Motor Corp. and later attracted investment from FAW Group. A production line with a capacity of 450,000 units produced only 6,836 vehicles.

Another manufacturer based in Hainan, Haima Group, has also encountered a similar fate. The company has historical ties with Hainan Haima, and its capacity utilization rate is similarly low at 1.7%.

Even the booming electric vehicle sector has not been spared from the significant issue of underutilization of production capacity. The production capacity utilization rate of Dongfeng Group's high-end electric off-road vehicle brand, Mengshi Automotive Technology Co., Ltd., is only 1.9% of its planned capacity, highlighting the challenges of scaling up high-end electric vehicle production.

U.S. media reports that low capacity utilization indicates that price wars will intensify, as manufacturers vie for market share in a highly competitive environment, putting pressure on profit margins. This may also accelerate industry consolidation, as smaller, weaker companies will either go bankrupt or be absorbed by larger competitors. Government officials are trying to minimize the impact, and earlier this month, they condemned "malicious competition" in the automotive industry and summoned leaders of major car brands to a meeting in Beijing.

The market leader BYD's stock price rose by 82.1%, due to the company's rapid expansion of its production bases in China and overseas. BYD has been one of the most aggressive participants in the price war, launching the latest round of price cuts at the end of May, with discounts of up to 34% on its 22 electric and plug-in hybrid models by the end of this month.