Nissan to double capacity in China by 2012

Nissan Motor Co.’s main Chinese manufacturing and sales joint venture on Monday opened a new plant in Zhengzhou, Henan province, its fourth primary vehicle-assembly factory in China, despite worries among some Chinese government officials about possible excess capacity developing in the world’s biggest auto market.

Nissan’s joint venture with Dongfeng Motor Group Co. said the new plant, which recently began pilot production of Nissan’s X-trail and Qashqai sport-utility crossovers, is designed eventually to be able to produce 180,000 vehicles a year.

Along with an existing commercial vehicle plant in Zhengzhou, Dongfeng-Nissan, known as Dongfeng Motor Co., will soon be able to produce a total of 240,000 vehicles a year in the central China city. The company said it has invested one billion yuan ($149 million) in the new plant that will generate 1,400 jobs by the end of this year.

With the two major plants in operation here, along with one plant each in the south China province of Guangdong and the central China province of Hubei, plus other smaller units, which are also scheduled to boost capacity incrementally, Nissan’s China operations will have an annual production capacity of 1.2 million vehicles by 2012, including passenger cars and commercial vehicles, nearly doubling the company’s current capacity of 670,000 vehicles a year.

“China is now the second-largest economy in the world, and our ambitions and actions are aligned with the current reality,” Carlos Ghosn, president and chief executive of the Yokohama-based Nissan, said at a ceremony here to commemorate the official start of production at the new plant.

Nissan is also adding a second plant in Guangdong that is expected to begin production in 2012.

Nissan’s sales in China surged 38% in 2009 to 756,000 vehicles, accounting for 23% of Nissan’s global sales, as China’s overall vehicles sales rose nearly 50% to displace the U.S. as the world’s biggest auto market, Mr. Ghosn said. China’s auto sales this year continue to expand, though they have slowed since the second quarter.

In the January-August period this year, Nissan’s China operations sold a total of 660,000 vehicles, up 41% from a year earlier. The company is producing more than its capacity, which is based on two eight-hour shifts, by adding a third shift in some cases and doing overtime.

While Nissan executives maintain the Nissan China unit’s planned expansion is being made to help meet real demand, some Chinese government officials have sounded the alarm that China’s auto industry might face excess capacity soon.

Earlier this month, a senior official at China’s National Development and Reform Commission, Chen Bin, warned at an auto industry conference in Tianjin that China’s top 30 auto groups are expected to have combined capacity to build 31.24 million vehicles a year by the end of 2015, up from 13.95 million at the end of 2009, according to media accounts.

Blindly expanding manufacturing capacity will not only harm the health of China’s auto industry but will also affect the country’s economy as a whole,Mr. Chen warned.

Still, Nissan appears bullish about the medium-term outlook for China’s auto market. “With the support of the city and province, with the motivation and engagement of all our employees, suppliers, dealers and logistics partners, and with Nissan’s commitment to develop cars and technologies for this market, there is no limit to what we can do in China,” Mr. Ghosn said.

Some analysts agree with Mr. Ghosn.

Despite the warning of possible overcapacity from the government, Yale Zhang, an independent auto market analyst based in Shanghai, said that major auto makers, like Nissan and other foreign and domestic Chinese auto makers, actually “need more capacity to meet surging demand” for cars.

“China has overcapacity if you count a host of small incompetent auto makers, but that capacity needs to be disposed of or consolidated into bigger makers. Minus those small insignificant makers, China in fact has no excess capacity problem at all at least over the medium term,” Mr. Zhang said.

Indeed, top auto maker executives expect the current surge in demand for autos to continue in China for some time.

“We think the Chinese market has another 15 years of strategic opportunities,” Wang Dazong, president of state-owned Beijing Automotive Industry Holding Co., said in an interview earlier this month. “In 10 years, I believe the market will sell 40 million vehicles a year, and many people think I am overly conservative.”

China’s overall demand for vehicles is likely to total 17 million vehicles this year, Mr. Wang said.
Source: WSJ