Capacity utilization for passenger cars in China has fallen from 66.55 percent in 2017 to 48.45 percent in 2020, with severe overcapacity leading to widespread losses for new automakers, China Securities Journal said on Tuesday, citing a report released by the China Automobile Dealers Association.

Between 2015 and 2017, when new automakers emerged, the planned capacity was as high as 20 million vehicles per year, but many smaller carmakers, except for leading players such as Nio, had zero sales in 2020, the report noted.

Jiangsu province, where Li Auto's plant is located, said local auto capacity utilization in 2020 is 33.03 percent, 20 percentage points below the average in China.

The report cited analysts as saying that in addition to traditional carmakers adding capacity, the commissioning of new automakers is a major reason for the sharp decline in auto capacity utilization.

Nio, Li Auto, and Xpeng Motors have gone public and entered a positive cycle; however, many other new automakers have fallen into production suspensions, unpaid salaries, and bankruptcies, the report said.

Yan Yan, a partner at Softbank Asia Infrastructure Fund, was quoted in the report as saying, "New automakers will soon be going out of business one after another."

Nonetheless, new registrations of new energy vehicle-related companies topped 73,000 in the first half of the year, up 183.4 percent year-over-year, according to data provider Tianyancha. Local technology giants including Baidu, Foxconn, Didi Chuxing and Xiaomi have also announced car-making plans.

The report quoted a source from a car company as saying, "because the new energy vehicle industry is developing fast, there is a lot of space. The industry revolution of electrification and intelligence has lowered the threshold. In addition, the soaring share prices of Tesla and Nio have attracted a large influx of capital."

"The current dilemma is essentially outdated overcapacity," the source said, adding "most new automakers lack technology, management, and marketing capabilities. Production capacity is built but mass production is a problem, not to mention sales."

Zhu Huarong, chairman of Changan Automobile, said in 2018, "You can't make cars with money alone, and capital will not change the laws of industrial competition and development. For speculators, the auto industry will be Waterloo."

The report said Nio, Li Auto, and Xpeng Motors have instead become more rational in terms of new production capacity after going public.

Li Auto recently opened a job opening that included a position for a "manufacturing site manager" based in Beijing, the report said. The company said in May that it would invest RMB 6 billion ($928 million) in a smart manufacturing plant based on Beijing Hyundai's plant and land resources.

Li Auto currently has only one plant in Changzhou, with an annual capacity of 100,000 vehicles.

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