Domestics take lead in adding new plant capacity

Yang Jian

Automotive News | 2018-1-12

SHANGHAI -- Since the mid-1980s when Beijing opened the domestic auto sector to foreign investment, global brands have been the driving force behind the increase in China¡¯s light-vehicle output.

But the landscape is changing. With the majority of global automakers nearing the completion of assembly plants in China, domestic automakers are emerging as the driver of new production capacity.

This shift is poised to grow as Chinese companies from other industries and electric vehicle startups backed with capital raised from domestic sources begin to build assembly plants across the country.

In the past two years, Geely Automobile Holdings has added three plants in China, increasing its annual production capacity to 1.3 million vehicles. 

With annual sales jumping 27 percent year on year to 1.25 million vehicles in 2017, the largest private Chinese carmaker plans to hike annual capacity to 2 million vehicles in 2020 by expanding existing factories and adding more plants. 

The new year has just begun and two other major state-owned automakers have joined Geely with plans to substantially increase domestic output. 

On Jan. 2, four months after it opened an assembly plant in the north China city of Zhengzhou for its Roewe and MG brands, SAIC Motor Corp. started the second phase of construction at the factory.

SAIC also operates assembly plants in Shanghai and Nanjing in east China. 

Upon completion of the project at its Zhengzhou factory in 2020, SAIC will be capable of producing up to 600,000 vehicles a year there, while expanding the annual output of SAIC¡¯s proprietary brands in China to 1.2 million vehicles.

On Jan. 9, two weeks after launching production in the east China city of Hangzhou, Guangzhou Automobile Group Co. started renovating a decommissioned assembly plant it acquired from privately owned ZX Auto Co. in the central China city of Yichang. 

The Yichang plant, which is slated to start production in June, can build up to 200,000 vehicles a year. By then, along with GAC¡¯s plants in Hangzhou and the south China city of Guangzhou, it will expand GAC¡¯s annual output of the Trumpchi brand to 1 million vehicles.

Why are SAIC and GAC rushing to build plants? Robust sales in recent years have led them to believe they can sustain growth by rolling out a slew of new products. 

Behind demand for new models, especially crossovers, each of the two companies has seen annual sales triple to more than half a million in the past three years. 

Granted, not every major Chinese automaker is expanding capacity. Chery Automobile Co., for example, has sold majority stakes in Qoros Automoible Co. -- its joint venture with Singaporean investment company Kenon Holdings -- and its light-vehicle subsidiary Cowin Automobile Co. in the past few weeks. 

Yet, what Chery offloaded has created opportunities for two major Chinese companies to diversify into the domestic auto industry. 

In December, Baoneng Investment Group, a conglomerate with businesses in real estate, insurance, health care and logistic services, acquired a 51 percent stake in Qoros Auto from Chery and Kenon. 
This month, a machinery maker affiliated with leading Chinese liquor supplier Wuliangye Group Co. purchased a similar stake in Cowin Auto. 

The deals will enable Baonneng and Wuliangye, which are both cash rich, to quick establish a presence in the auto industry. 

Baoneng has signed agreements with three Chinese cities to construct assembly plants with total annual capacity of more than 1 million vehicles. 

Beijing¡¯s push to encourage EV production is also behind the latest blitz of plant construction. In 2017 alone, 14 startups in China were granted EV production licenses and most of the companies have started building factories.

China now has more than 70 automakers. Until recently, industry observers from outside China believed the Chinese auto industry was so fragmented that consolidation would take place. 

But what is happening now suggests the opposite. The wave of new plants on the drawing table by Chinese companies from in and outside the auto industry is likely to lead the country into an era few would have imagined before.

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