North American auto factories are in crisis: capacity utilization will be less than two-thirds
2024-08-15
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Capacity utilization at U.S. auto factories will fall sharply over the next decade due to the uneven transition of automakers to electric vehicles, uncertainty about demand for all-electric vehicles and the new contract of the United Auto Workers (UAW), which makes it difficult for automakers to close underutilized factories.
North American auto factories may be operating at less than two-thirds of capacity by 2030
S&P Global Mobility expects capacity utilization at North American auto assembly plants to fall from about 72% in 2024 to about 63% in 2030. "I'm very concerned that by 2035, auto plant capacity utilization could drop significantly," said Michael Robinet, executive director of the research firm's global automotive practice.
Michael Robinet said that automakers had previously made production plans for electric and fuel-powered models in each factory, but the current sales growth of electric vehicles is lower than expected, and temporary strategic adjustments are very difficult. Michael Robinet explained: "Some factories plan to produce only pure electric vehicles, some factories plan to produce only internal combustion engine-powered vehicles, and some factories plan to produce both models at the same time. This is why the factory capacity utilization rate will decline as the demand for electric vehicles decreases."
According to GlobalData, so far this year, the average capacity utilization rate of North American auto factories (the ratio of actual factory productivity to potential productivity) is 70%, 10 percentage points lower than the target pursued by most automakers, but it is still an improvement over the past four years, when the average capacity utilization rate of auto factories dropped to 61% due to the epidemic and chip shortages.
According to GlobalData's forecast, starting next year, the average capacity utilization rate of North American auto factories will fall again, falling to 65% by 2030 and 63% by 2035. At the same time, GlobalData expects global light vehicle sales to increase to 17 million from 15.6 million last year and then stabilize. GlobalData said that by 2035, electric vehicles could account for more than 50% of the market share in North America. As of May this year, electric vehicles accounted for only about 7% of the North American market.
Jeff Schuster, global vice president of automotive research at GlobalData, said that automakers' capacity utilization rate of less than two-thirds is inefficient. In the next few years, the average capacity utilization rate of North American auto factories may not be able to maintain at least 70%. Jeff Schuster said: "The slowdown in the transition to electric vehicles has hindered the improvement of auto factory capacity utilization. Automakers need to maintain flexibility to produce both internal combustion engine-powered vehicles and pure electric vehicles, as well as everything in between, which leads to inefficiency."
Toyota, Honda and Volkswagen will have higher capacity utilization than GM, Ford and BMW
Currently, weak demand for electric vehicles has made automakers uneasy, forcing them to postpone the launch of new cars and the construction of electric vehicle factories. Many foreign automakers have adjusted their electrification strategies.
GM plans to "introduce plug-in hybrid technology in some models in the North American market" and has also adjusted the production plan of existing models. Ford Motor plans to postpone the release of some electric models and will also transfer some of the production capacity originally planned for electric vehicles to other models. Volvo Cars is facing delays in electric vehicle production plans and plans to continue investing in its hybrid vehicle product line. Volkswagen Group plans to expand its product lineup of plug-in hybrid models and invest in internal combustion engine technology, and has also postponed the launch of Volkswagen ID. Buzz in the United States. Jaguar Land Rover has postponed some electric models for several months to adjust software and delayed the discontinuation of a gasoline model to cope with market changes. Bentley plans to continue to launch gasoline models until 2033, and will also launch hybrid versions of its super luxury sedans.
According to data from S&P Global Mobility, new electric vehicle registrations in the United States increased by about 10% in May compared with the same period last year, mainly due to discounts of more than $9,000 offered by automakers on popular models. However, the 10% increase is insignificant compared with the 52% increase in new electric vehicle registrations in the same period last year.
Product planning becomes more difficult as demand for electric vehicles fluctuates and regulations tighten. "It's really hard for automakers to make production plans without knowing the market benefits or the market composition, because that has a knock-on effect on a lot of things," Schuster said. For example, it could lead to a mismatch between the type of powertrains consumers demand and the type of products the factory produces. "That mismatch could be even more destructive than overcapacity," Schuster added.
Production and capacity utilization expectations for auto plants are likely to change over the next decade as automakers respond to market fluctuations, regulation and consumer demand. However, each automaker's plans and capacity utilization will be different. Overall, North American auto assembly plants will be less than two-thirds full capacity from 2028 to 2035, GlobalData said.
According to GlobalData, Honda Motor, Hyundai Motor America, Mercedes-Benz, Toyota Motor and Volkswagen Group will have capacity utilization rates of at least 70% by 2030. General Motors, Ford Motor, BMW Group and Renault-Nissan-Mitsubishi Group are expected to have capacity utilization rates below 66%.
Electric vehicle capacity utilization will increase, while internal combustion engine capacity utilization will decrease
GlobalData said that by 2035, the capacity utilization rate of factories dedicated to the production of pure electric vehicles is expected to increase from 52% in 2028 to 67%. By contrast, the capacity utilization rate of internal combustion engine-powered vehicles and hybrid vehicles is expected to fall from 74% in 2028 to 58%.
According to GlobalData, by 2028, GM's electric vehicle factories will be operating at just 37% of capacity, compared with 87% for internal combustion engine vehicles. Honda will be in a similar situation, with electric vehicle capacity utilization at 55% in 2028, compared with 96% for internal combustion engine vehicles.
Michael Robinet also said that on the one hand, factories that only produce electric vehicles or internal combustion engine-powered vehicles are generally more efficient than factories that produce vehicles with multiple powertrains. On the other hand, factories that only produce vehicles with a single power type may limit the production plans of automakers.
"It used to be much easier to move car production back and forth between factories, but when you move from internal combustion engines to pure electric vehicles, that flexibility becomes very difficult because the production of the two types of vehicles is completely different," said Michael Robinet.
It is predicted that some plants producing gasoline-powered vehicles will maintain high utilization rates until 2031. Jeff Schuster said that as the production of gasoline-powered vehicles decreases year by year, most of the remaining internal combustion engine-powered vehicle plants will produce pickup trucks.
As automakers build more plants to produce multiple types of vehicles, the isolation of electric and internal combustion engine vehicles will gradually disappear. In July, a report from the Federal Reserve Bank of Chicago analyzed data from S&P Global Mobility and found that by 2029, the number of plants in North America that produce all three powertrains - internal combustion engine vehicles, hybrid vehicles and electric vehicles - will nearly double from 11 last year to 21.
Jeff Schuster said: "Automakers are trying to have enough production capacity and enough capabilities to adapt to changes in consumer preferences and the regulatory environment. This may not be the most efficient production strategy, but in these uncertain times, it may be the best way to gain flexibility."
The decline in automobile production capacity utilization may pose huge challenges to parts suppliers
In the coming years, the decline in capacity utilization of North American auto factories may also hurt parts suppliers. Michael Robinet said that suppliers supplying factories with insufficient capacity utilization will face great risks. "If a supplier is involved in a pure electric vehicle project, but the sales volume of the project products does not meet expectations, then it will face difficulties."
Joe McCabe, CEO of AutoForecast Solutions, said auto parts suppliers need to be more careful in choosing who to supply and what projects to supply. It is expected that by 2031, car sales will still be lower than before the COVID-19 pandemic, but there may be 27 automakers operating in North America, compared with 25 currently and only 14 in 2016. This means that in the next few years, more automakers will compete for this smaller market "cake" and launch dozens of new electric models at the same time.
Joe McCabe said: "As a supplier, it is a very difficult time now. It is difficult for us to judge which technology to bet on." However, despite the many challenges, suppliers cannot ignore electric vehicles. Joe McCabe added: "The scale of electrification is too large, and the trend of electrification will not change, but we must achieve it in stages." (Gasgoo Auto Yanqi)
Source: Gasgoo
