Overcapacity: An Oversimplified Narrative

On August 10, General Motors officially responded to the news of "Chevrolet exiting the Chinese market". It stated that SAIC General Motors will continue to produce Chevrolet domestically and actively explore overseas market opportunities outside the United States.

This official stance indicates that Chevrolet produced by SAIC General Motors has indeed undergone strategic adjustments and will gradually stop sales in the Chinese market in the future, shifting the focus of development to overseas exports. Referencing sales data statistics from relevant platforms, this strategy has actually been in execution for some time.

In 2025, Chevrolet's annual retail sales volume in the domestic market was only 1,978 vehicles. Entering 2026, the statistical scope of Chevrolet sales may have already shown a gap. At this time, comparing with data from the China Passenger Car Association, Chevrolet's export sales reached 17,159 vehicles in 2024 and 15,917 vehicles in 2025, far exceeding domestic sales.

"Sales suspended, but production continues," understood in a positive light, can be interpreted as multinational automakers redefining the role of their Chinese factories.

Behind the shift from "Produced for China" to "Produced in China, Supplied to the World" lies the absolute advantage of China's manufacturing industry. As a country possessing the world's most complete and efficient automotive industry chain and cost advantages, stopping the production lines of Chevrolet's domestic factories will inevitably cause huge resource wastage.

But looking at it from another direction, part of the public opinion regards this as an ultimate microcosm of the current overcapacity dilemma in China's automotive industry.

So back to a topic that the industry has long focused on: Is the capacity of China's automotive industry really "overcapacity"?

First, focus on the overall capacity utilization rate. Here, we must first clarify the question of "How much is the total capacity of China's automotive industry?"

An article sourced from the CPPCC Network mentioned that in 2025, the total capacity of China's automotive industry was about 48.7 million vehicles; in an analysis article by Da Gong International, according to data from the China Association of Automobile Manufacturers, in 2025, China's automobile production volume reached 34.53 million vehicles, with an annual capacity utilization rate of 73.20%—deriving the total capacity to be about 47.17 million vehicles.

Therefore, we can define the total capacity of China's automotive industry in 2025 within the range of 47 million - 49 million vehicles. Combining with the 34.531 million vehicle production that year, it is deduced that the overall capacity utilization rate of China's automotive industry in 2025 is approximately within the range of 70.5%-73.4%.

Some viewpoints expressed that this value has not reached the internationally recognized healthy range of 80%-85%. However, many people did not continue to ask, "Where does this 'internationally recognized' concept come from?"

In an article titled "On the Reasonable Level of China's Industrial Capacity Utilization" published in the Journal of Renmin University of China, it shows: Currently, the so-called "international standard" for capacity utilization, which is relatively popular, takes around 80% as the reasonable level. This viewpoint essentially stems from research on "Non-Accelerating Inflation Capacity Utilization" in the latter half of the 20th century in the United States.

The article also mentioned that because there are differences in statistical methods and development stages of capacity utilization between China and the United States, and the trend of US capacity utilization is downward, the applicability of the "international standard" to the current United States is questionable, let alone serving as a basis for judging the reasonable level of China's industrial capacity utilization.

At the same time, using empirical discovery methods similar to those concluding the "international standard", the article found that the reasonable level of China's industrial capacity utilization is approximately 75.5%-77.2%.

This value differs little from the "70.5%-73.4%" mentioned above, thus a superficial conclusion can be drawn: The capacity of China's automotive industry is not really "overcapacity".

Furthermore, an automotive industry research report released by Huayuan Securities shows: The average capacity utilization rate of China's automotive manufacturing industry in 2025 was 73%. Compared with the same period, the average capacity utilization rates for US automobiles and their parts / US automobiles and light motor vehicles were 66%/61% respectively, while the capacity utilization rate for Thailand's automotive manufacturing was 51% during the same period.

Therefore, defining public opinion in the overall perspective as "China's automotive industry capacity has fallen into the overcapacity dilemma" is purely nonsense.

Secondly, we must focus on whether the average utilization rate hides the truth of capacity showing "ice and fire" extremes, which can immediately throw out a conclusion: There definitely is.

Although no specific statistics related to capacity in different market segments of China's automotive industry have been queried, reference can be made to the remarks of Su Bo, former Vice Minister of the Ministry of Industry and Information Technology, at the China Electric Vehicle 100 People's Forum (2025).

He mentioned at the time that existing fuel vehicle capacity is at least over 30 million vehicles, while the more than 20 million vehicles capacity for new energy vehicles mostly consists of newly built ones, and the fuel-electric conversion has only absorbed 2 million to 3 million vehicles of fuel vehicle capacity.

"Currently, fuel vehicle production and sales volumes and profit rates have dropped significantly. Capacity is largely idle, facing a major crisis of life and death. Some enterprises have already ceased business and closed down. Automotive industry ecological reconstruction is imminent." What Su Bo said at the time has already manifested in reality.

Then, taking its speech content as a relatively authoritative data source, broadly set the fuel vehicle market segment capacity of China's automotive industry in 2025 at 30 million vehicles, and the new energy vehicle market segment capacity at 20 million vehicles. Further combine with the 2025 production volume where China completed 17.905 million vehicles for fuel vehicles and 16.626 million vehicles for new energy vehicles.

The result is that in 2025, the capacity utilization rate for the fuel vehicle market segment was approximately 59.7%, and the capacity utilization rate for the new energy vehicle market segment was approximately 83.1%.

This indicates that the capacity issue of China's automotive industry is more caused by structural factors, rather than absolute overcapacity in total volume. Structural overcapacity will not necessarily be the key factor to immediately clear idle capacity, because the automotive industry is always a cyclical industry including macro cycles, policy cycles, model cycles, etc. Retaining this portion of idle capacity can be considered a reasonable practice of "fixing the roof while the sky is clear".

However, because part of the public opinion excessively intensified the contradiction of "overcapacity", a period of time ago also made the false news that "MIIT Announcement No. 408 will remove 8 automotive enterprises including FAW Tianjin Xiali, Brilliance Auto, Zotye, Cheetah, Lifan, Huatai, BAIC Yinxiang (Hunsu), and Old Haima from the automotive enterprise list, freezing and permanently invalidating their complete vehicle production qualifications" quickly triggered widespread attention.

So how to dispose of overcapacity? Actually, it can be done like Chevrolet, Nissan, Hyundai, and Kia, making China a base for global exports. And here, we have to introduce a relatively sensitive political topic again, which is the narrative of "China dumping overcapacity onto the world" being repeatedly packaged by Western public opinion.

In response to this, on July 28, the Ministry of Commerce specially issued the document "China's Position on the So-Called 'Overcapacity' Problem", directly pointing out the erroneous conduct of relevant countries politicizing economic and trade issues and adding economic and trade restrictions on China under the pretext of "China's overcapacity".

The document clearly pointed out the fundamental error of the "Overcapacity Theory", which lies in that the standard for "overcapacity" has not yet been defined. It should be measured according to different development stages and development levels to assess the overcapacity situation of different economies and industries.

So returning to China's automotive industry, I sincerely suggest that the commentators who repeatedly emphasize "overcapacity" take a break.

Then let's explore the relationship between overcapacity and profitability.

Currently, there is a common attitude in the industry, which directly links overcapacity to automaker losses. Actually, this logic is inappropriate, equivalent to treating "fever" as the "cause of illness".

What truly determines whether an automaker loses money is three more fundamental capabilities: Product definition capability (whether premium prices can be sold), Supply chain control capability (whether costs can be pressed down), and Technology iteration capability (whether it can be kept up with).

Overcapacity has never been the cause of losses, but rather the "exposure mechanism" of losses. It exposes all the insufficient product power, uncontrolled costs, and strategic mistakes that were covered up in the up cycle during the down cycle.

An automaker that can produce good products and control costs, even if the capacity utilization rate is only 50%, can find space to survive through exports, OEM, customization, etc.; An automaker with mediocre products and uncontrolled costs, even if production lines are fully utilized, will still lose money with every vehicle sold.

Especially at the current time when the domestic capacity deployment of auto manufacturers is expected to have passed the peak period, the core issue at present is not "whether to say goodbye to capacity", but "how to accelerate the clearance of backward capacity while supporting the expansion of advanced capacity".

Finally, let's talk about a relatively emotional topic, which is that people and capacity are most deeply bound.

When old capacity exits, people cannot be scrapped directly like equipment. How to enable this generation of industrial workers to complete skill migration with dignity is a responsibility that every auto manufacturer must shoulder during the process of completing capacity "repair".

Saying goodbye to capacity is not about "dumping" overcapacity out, nor is it forcibly shutting down with administrative orders. It should be an orderly, warm, and institutionally designed structural restructuring.

Let those who should withdraw withdraw, let those who should enter enter, and let the industrial workers who have accompanied the capacity have a dignified destination.