Overcapacity (Light Vehicle) – Thematic Research
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There are some 600 light vehicle manufacturing plants in the world, spread through 44 countries. Together the plants have the capacity to manufacture over 130 million vehicles a year. Given that 88.8 million vehicles were manufactured in 2019, utilization of just 67% was achieved, with vast discrepancies between company and geographic performance. Moving into 2020, it’s estimated that between 72 and 74 million light vehicles will be manufactured dragging utilization down disastrously. The industry’s rule of thumb is that utilization needs to be sustained at the 75-80% level to achieve profitability due to the high fixed capital costs and variable costs associated with manufacture. Excess capacity is a two-way drag on profitability – from the cost perspective as outlined previously – and because, as basic microeconomics teaches us, excess supply brings downward pressure on prices.
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