In 2019, the global auto market plunged into a “deep slump,” with China’s market suffering particularly severe damage. More and more automakers are facing worsening conditions and falling into dire straits. As the storm approaches and the winds gather, a dramatic reshuffle of the automotive industry is about to erupt.

Bankruptcy rumors are rampant.

Recently, rumors have been circulating widely that Chery Automobile, Zotye Automobile, Hanteng Automobile, and Lifan Automobile—four automakers—will enter bankruptcy proceedings by year-end. Although these four automakers have promptly issued denials one after another, it has proven difficult to dispel the public’s doubts and speculations about their potential bankruptcy.

Recently, as major automakers were fiercely competing at the 2019 Guangzhou Auto Show, more than ten established and emerging brands were absent—including these four automakers that have been mired in “bankruptcy” rumors. In terms of performance, Zotye Auto reported a third-quarter loss of 470 million yuan, a staggering drop of 524.50%. Moreover, news has surfaced again that Zotye’s equity is being used as collateral for loans. Lifan Motors suffered a loss of 2.633 billion yuan in the first three quarters, representing a dramatic plunge of 2,064.5%. Additionally, Lifan is facing litigation disputes involving amounts as high as 1.432 billion yuan. Changan Automobile had a difficult start to the year, recalling 140,000 CS10 vehicles due to weak braking performance, after which its sales plummeted sharply. Recently, internal documents from Changan revealed that, given severe losses in production and operations leading to significantly reduced utilization of its production facilities, the company plans to weather the crisis by cutting costs and reducing salaries.

Huatai Automobile is arguably the most critically endangered. All of its equity holdings in Shuguang Shares have been subject to judicial freezing, and it is mired in numerous debt lawsuits. It owes its employees as much as 30 million yuan in unpaid wages, and its partnership with Evergrande Group has ultimately fallen through. Additionally, reports indicate that all three of Huatai Automobile’s major production bases have been confirmed to have ceased operations. Huatai Automobile is conspicuously listed on the “List of Enterprises with More Than 50 Newly Added Records of Discredited Persons Subject to Enforcement,” published by the National Public Credit Information Center.

In fact, aside from the four automakers mentioned earlier that have been rumored to be heading for bankruptcy, many other automakers are experiencing a “three-consecutive-quarter decline” in sales, revenue, and net profit. Moreover, in the first three quarters, Changan PSA’s total liabilities had already reached 5.999 billion yuan. Recently, Changan Automobile has put up for sale its 50% stake in Changan PSA. Does this mean that the DS brand can no longer hold on and is finally set to withdraw from the Chinese market?

To suffer a quadruple blow

Why has China’s automotive market, which had been steadily surging ahead, come to an abrupt halt since last year, plunging the industry into a dramatic “collapse” that feels like the sky is falling?

First, downward pressure on the macroeconomy has intensified. In the third quarter, GDP grew by 6% year-on-year, marking the lowest quarterly GDP growth rate since records began in 1992, which has inevitably dampened automobile consumption. This is especially true for SUV consumption: due to their significantly higher prices, fuel consumption, and maintenance costs compared to sedans of the same brand and class, SUVs are more sensitive to changes in the economic environment and have been hit hardest by market fluctuations, with sales declining markedly.

Second, due to the sluggish auto consumption market, production capacity has surged rapidly, leading to a severe imbalance between supply and demand. The break-even point for capacity utilization is around 80%; however, currently very few automakers have a capacity utilization rate exceeding 80%. Over 85% of automakers are experiencing overcapacity, with nearly 65% of them even unable to cover their costs and break even. The signs of overcapacity have even begun to spread to the new-energy vehicle sector: the total planned production capacity now approaches 20 million vehicles—ten times the target set forth in the “Mid- to Long-Term Development Plan for the Automotive Industry.”

Third, this year in the second half, subsidies for new-energy vehicles were significantly reduced, causing the previously rapidly growing new-energy vehicle market to come to an abrupt halt. From July to October, new-energy vehicle sales experienced four consecutive months of decline, signaling the industry’s shift from autumn into a harsh winter. Among the two leading players in China’s new-energy vehicle sector—BYD and BAIC New Energy—their sales for the first ten months both fell, with the rate of decline widening month by month. Specifically, BYD’s sales in October plunged by 55% year-on-year, while BAIC New Energy’s October sales plummeted by nearly 70%.

Fourth, the implementation of the Foreign Investment Law and the pressure from U.S.-China trade tensions have sharply increased uncertainties in the automotive market. On the one hand, the Foreign Investment Law further emphasizes equal treatment for both domestic and foreign investors, signaling that competition between domestic brands and foreign-invested enterprises will intensify across the board, and the law of survival of the fittest will play out mercilessly. On the other hand, the twists and turns in U.S.-China trade tensions have widened the volatility of the automotive market, making it even more turbulent and unstable.