The Global Auto Industry Is Drowning in Overcapacity

With more than 100 brands producing electric vehicles in China, it's fair to say that the country is serious about battery power. But its outpouring of cars is now way more than the country's domestic market can handle. And that's a problem that the whole world will soon be up against.

Welcome back to Critical Materials, your daily roundup for all things electric and tech in the automotive space. On today's docket: Chinese giant Geely warns that the global auto industry is facing "serious overcapacity," analysts are casting doubt on Tesla's Musk 2.0 era and Xiaomi's SU7 Ultra is coming to a video game near you. Let's jump in.

30%: Global Auto Industry Faces 'Serious Overcapacity'

Photo by: Volvo

China has some serious competition in the EV space right now. There's no denying that, and all of the smaller brands going belly-up amid a gigantic price war should be enough of a sign. However, Li Shufu—whose auto empire includes Volvo, Geely, Zeekr, Lotus and more—notes that this is the sign of an even bigger problem than a price war.

According to Reuters, Shufu issued a warning that the global automotive industry isn't safe. In fact, it's reaching critical mass as it approaches "serious overcapacity," according to Shufu, something that experts have been cautioning the industry about for more than a year.

Here are the specifics from Reuters:

Geely's chairman and founder Li Shufu said on Saturday that the global automotive industry was facing "serious overcapacity" and that the Chinese automaker had decided not to build new manufacturing plants or expand production in existing facilities.

Li made the comments at an auto forum in the central city of Chongqing, according to the company. Geely Holding owns multiple automotive brands including Geely Auto, Zeekr, and Volvo.

His comments come as the Chinese auto industry, the world's largest, has been locked in a brutal price war that is forcing many players to look to markets abroad and has prompted Chinese regulators to call for a halt.

This might shock a few people, especially since Chinese OEMs have long denied the idea of overcapacity as multiple automakers built out vast domains of so-called New Energy Vehicles (which include BEVs, PHEVs, FCEVs and mild hybrids) that appeared to easily eclipse the needs of the domestic market.

Opponents of China's rapid growth began waving a red flag of an impending "overcapacity" problem and criticized Beijing for "unfairly subsidizing" its cars to achieve cheap prices.

Parker Shi, who leads international operations for Great Wall Motors, called overcapacity a "fake concept" during an interview with the Financial Times in May 2024:

“It is a fake concept,” Shi said on the allegations of overcapacity. “I don’t like that kind of judgment from the third party—they don’t know what is happening in my house.”

According to Goldman Sachs, the capacity utilisation rate for plants producing ICE cars in China will decline from 54 per cent of a factory’s capacity being used this year to 48 per cent in 2030. For EVs, capacity utilisation will improve from 58 per cent this year to about 80 per cent by the end of the decade.

[...]

Shi, who previously led Great Wall’s operations in India, argued that car companies often designed factories with production capacity beyond their immediate requirements in case of “good business”.

Some factories [have] 70 to 80 per cent utilisation, some factories 60 per cent, some factories 100 per cent,” he said, adding that in “a lot of countries, official statistics are all wrong”. Great Wall plans to increase manufacturing of its cars overseas, closer to their foreign markets, he added.

Here's the problem: the Western world is increasingly wary of China's cars. Not necessarily because consumers don't want them (they do), but because Chinese automakers can produce their vehicles at such a low cost that it would cause an apocalyptic event for the U.S. and European auto manufacturers that simply can't meet the cost and remain profitable long-term, even at scale. The U.S. has tariffs that keep China's EVs out for now, and even the Europeans are trying to set rules around pricing. 

This has led China's automakers to aim for lower volume markets in Asia, Eastern Europe, and Latin America to make up for the volume that could otherwise be sold in the U.S. and Europe—though Chinese cars breaking into both of those are seen as an eventuality.

Too many companies have built too many cars with nowhere for them to go.

60%: Analysts Have Had It With The Uncertainty Of Tesla’s Musk 2.0 Era (Already)

Photo by: InsideEVs

When it comes to predicting stock prices, wealth funds sink tons of time and money into algorithms and insider information. But when it comes to Tesla, they're almost better off reading tea leaves (and Elon Musk's X account) to predict the stock price.

Analysts have had it. Even top-tier research firms have admitted that the brand is trading on "non-fundamentals events"—meaning influences that aren't necessarily indicative of a company's financial health or performance. Reading between the lines when looking at Tesla and you'll quickly come to realize that the biggest factor they're focused on is Tesla's growing liability behind the keyboard.

Of course, there's also a recent political feud involving the brand's CEO. His falling out with President Donald Trump led to a more than 20% valuation crash in just a matter of days. And rather than ride out that gust of wind, analysts are warning that this storm could end up different than the number of Elon-induced tornadoes in the past.

Bloomberg has the skinny on how analysts are viewing Tesla's stock since the bromance breakup:

“Looking ahead, we are concerned that the war of words between President Trump and Elon Musk, along with expiration of EV credits, could further weaken demand for new Teslas,” wrote analysts at Argus Research, who downgraded the stock to hold from buy.
 
The feud, they added, is emblematic of how the stock “appears to be currently trading on non-fundamentals events.” This view was echoed by [analysts at] Baird, which cut the stock to neutral from outperform.

“The recent incident between Musk and President Trump exemplifies key-person risk associated with Musk’s political activities,” analyst Ben Kallo wrote. “While we have no indication of how the relationship may change or what either will do, we see the situation as adding uncertainty to TSLA’s outlook. Additionally, we believe this may heighten questions regarding brand damage, which we expect will persist until sustained evidence of volume growth avails itself.”

It's clear that analysts see both Musk and Trump's actions as extremely volatile not just to Tesla's valuation, but the entire American auto industry.

Analysts have also grown a bit skeptical of Musk's claims of how quickly the company can move on new technology. For example, Baird called out Tesla's Robotaxi pilot program, as noted by Bloomberg, mentioning that the success and excitement is already priced into Tesla's exceedingly high price-to-earnings ratio:

Musk’s comments about Tesla’s robotaxi program “are a bit too optimistic, and we believe this excitement has been priced into shares,” Baird said. The service, which focuses on driverless vehicles and artificial intelligence, is scheduled to launch in Austin this week.

Listen—I'm not here to give financial advice. Even if I were, I wouldn't trust myself or anybody else at this point. It seems that even corporate analysts way more schooled in predicting stock prices than me are pretty much throwing up their hands while trying to figure out how valuation will end up in the coming weeks.

90%: Xiaomi SU7 Is The First Chinese-Market Car To Hit Gran Turismo

Photo by: Xiaomi

China's Apple Car is making it big. If it's not absolutely knocking sales figures out of the park or enamoring Ford's CEO, the EV is making itself known to the youth even in markets where it can't be bought. The latest way? Through video games.

It turns out that the developers of the popular Gran Turismo franchise have decided to put the Xiaomi SU7 Ultra front and center in an upcoming update to Gran Turismo 7.

This will make the SU7 the very first Chinese market car to make it into Gran Turismo's digital lineup—a title it definitely deserves considering its mind (and record) blowing lap around the Nurburgring.

 

The announcement comes after Kazunori Yamauchi, the CEO of Gran Turismo's developer, Polyphony Digital, got the privilege of taking the 1,527-horsepower, tri-motor SU7 Ultra for a spin.

Now, Kazunori isn't just your average CEO. He's an absolute menace when it comes to cars—a racer, collector and hardcore enthusiast in his own right. But, hey, what would you expect when your entire company rests its laurels on one of the most notable racing series of all time? Well, it turns out that Kazunori has run in the Nürburgring 24 Hours (and placed first in his class twice). So when Xiaomi gave Kazunori the opportunity to get behind the wheel of the record-setting SU7 Ultra at a racetrack, you better believe he seized the opportunity.

The car must have made quite the impression on the CEO if it managed to slither its way into the game that quickly. Either way, it's an impressive feat for an equally impressive car. Xiaomi should be extremely proud of this achievement—how many other companies can say that their very first car managed to make it into the game?

100%: You Get One Chinese Car To Bring To The U.S. Which Is It?

Photo by: Patrick George

You know, with Musk and Trump feuding, the president has the opportunity to do implement what we at InsideEVs call "the funniest possible outcome." Could you imagine if he decided to issue an executive order to let just one Chinese EV into the U.S. market, tariff-free? Just to undercut Tesla, specifically? 

Don't put it past him.

Let's play a bit of pretend here and say that it's a possibility. My pick would be the Xiaomi SU7, but there's a myriad of other options out there to consider. Maybe you want something affordable and sensible like the $8,000 BYD Seagull. Or maybe a drop-top like the MG Cyberster is more up your alley.

There are almost endless options to choose from, thanks to all that overcapacity. What's yours? Let me know in the comments.