The chairman of a major automotive firm has raised an urgent red flag regarding the risk of severe overcapacity in the global car industry, as automakers, particularly those based in China, continue to ramp up production at an aggressive pace. According to the executive, the current trajectory of manufacturing expansion is unsustainable, particularly as demand begins to flatten in major markets.
This warning is timely given the substantial increase in electric vehicle production and exports, not just within China but also globally. Many automakers have invested heavily in building new factories, scaling up assembly lines, and expanding distribution networks, expecting demand for EVs and advanced mobility solutions to skyrocket. However, growth in sales has not matched the pace of production, especially in developed economies where EV adoption is stabilizing.
Companies now face the reality of saturated inventories, intense price competition, and tightening margins. In China, where dozens of EV startups and legacy automakers compete for market share, government authorities have already begun urging companies to slow down their expansion plans to avoid destabilizing the industry. Exporting excess vehicles to overseas markets, including Europe and Southeast Asia, has also created diplomatic tensions, with some nations considering trade barriers to protect their domestic industries.
The situation is not exclusive to EVs. Traditional internal combustion vehicle manufacturers are also dealing with a similar problem, particularly in regions like North America, where consumer preferences are shifting but not uniformly. High interest rates and inflation have curbed new vehicle purchases, contributing further to the demand-supply imbalance.
The financial risk of overcapacity extends beyond manufacturers. Auto parts suppliers, logistics providers, and even tech companies working on vehicle software and automation are vulnerable to cascading effects. A slowdown in production adjustments could lead to layoffs, investment pullbacks, and a delay in the industry’s innovation cycle.
Overcapacity in the automotive sector represents a structural challenge that requires immediate attention. Stakeholders need to recalibrate production targets, enhance demand forecasting, and align with realistic market growth projections. Without intervention, the excess could damage global supply chains and weaken industry profitability. Governments also have a role to play, not in dictating industrial activity, but in guiding sustainable development that avoids wasteful competition and prioritizes long-term resilience.