U.S. assembly plants will be underutilized through EV transition, GlobalData says

DETROIT — Automakers' utilization of U.S. assembly plants could worsen over the next few years as they expand electric vehicle production, according to GlobalData.

At a 66 percent average, automakers' utilization rate is far below the optimal levels of 80 to 85 percent, the research firm said Thursday at its GlobalData Automotive Outlook Conference here. It could fall lower if the UAW strike escalates. Utilization measures the percentage of a plant's vehicle production capacity in use.

Automakers need sufficient capacity to build both EVs and gasoline-powered vehicles as EV demand matures, Jeff Schuster, global head and executive vice president of automotive, said on the sidelines of the conference.

"With that hedge, you're going to have an inefficient manufacturing utilization level probably for the next five years, which contributes to the cost structure and adds a layer of challenge to the industry," he said.

The pandemic and microchip shortage hurt utilization during the past few years, but when production was stable in 2018, utilization reached 81 percent, said Bill Rinna,GlobalData's director of automotive production forecasts for the Americas.

Automakers want to strike a balance between building lucrative internal combustion models and their emerging EV lineups. EV sales made up 7.9 percent of the U.S. light-vehicle market in the third quarter, up from 7.2 percent in the second quarter, according to Cox Automotive. EVs are becoming more widely available and affordable, in part because of Tesla's price cuts this year.

In some cases, EV supply is outpacing demand. U.S. Mercedes-Benz dealers in September took an average of 82 days to sell EQ line electric vehicles — more than double BMW's overall turn rate for EVs, according to Edmunds. And General Motors delayed EV pickup production at a plant near Detroit by a year to better manage its capital and align with evolving EV demand.

EV startups could begin consolidating to better use production capacity before demand swells. It will take time for that demand to catch up, Rinna said.

EV maker consolidation is beginning in China, which is a decade ahead of the U.S. in electrification, said John Zeng: In China, where EV production is a decade ahead of the United States, EV maker consolidation has begun., director of GlobalData's China forecasts.

BYD and Tesla dominate nearly half of China's EV market, making the space unappealing to new entrants and even legacy automakers. Those groups are cutting prices to compete, he said.

But brands that have been selling vehicles in China won't want to give up, he added. Volkswagen signed an agreement with Xpeng to jointly develop EVs, and Audi signed a similar agreement with SAIC.