Just from this sample group of new plants, planned capacity for light vehicle production is increasing by nearly three million units. Existing plants produced as many as 96 million units as recently as 2017 and the global market is not expected to top that output before 2028. What happens with all of this excess capacity? Obviously, plants will need to close.
During the current transition to EVs, manufacturers see their new products as adding incremental volume. Early adopters of these EVs are not necessarily displacing a sale of an ICE vehicle. Many early buyers of vehicles like the Tesla Model S or Lucid Air just want to be the first and have the money to add another vehicle to their personal fleet.
Similar arguments can be made for vehicles like the Ford Mustang Mach-E and General Motors’ GMC Hummer. As these models generate higher volumes of sales and more affordable offerings come to market, this incremental volume diminishes and new purchases will take away sales of legacy models, lowering the demand and, ultimately, reducing the need for legacy plants.
In North America, more than two million units of production will be added with new EV-only plants. GM is repurposing legacy plants for EV production and other manufacturers are expected to add EV production to existing plants in the short term, which should squeeze some volume capacity from ICE vehicle production, but there will be millions of units of additional capacity placing pressure on existing plants. If the startups – including Lucid, Faraday Future, Rivian and contract manufacturers Foxconn – are successful, Ford, GM, Stellantis, Toyota and Honda, as the largest manufacturers in the region, could need to take older plants offline in the next five to 10 years. This could displace tens of thousands of workers.
The simpler nature of the assembly of EVs will also reduce the workforce needed to build vehicles over the next 20 years, but much of that reduction will come from the closure of existing plants. Transitioning to EVs will progress slower than many in the industry believe, but there will be a transition. This will require plants to be closed and workers to be relocated to other plants or other industries. Yes, there is a growing concern for over-capacity in the industry. It will be addressed gradually and it will be divided between older ICE plants becoming redundant and EV startups failing to find a foothold in the market. This will, ultimately, be the biggest shake-up in the industry since the Great Depression, leaving only the best and luckiest to survive.
Sample of the new plants’ production capacities
Sam Fiorani