THE latest earnings season hasn’t been kind to Chinese carmakers.
But spare a thought for their foreign rivals, whose glory days in the world’s largest vehicle market ended during the pandemic.
They’ve had to downsize their footprint and pivot, turning China into a base for exporting to the rest of the world.
So far, the strategy is working. That’s allowed the Detroit Three – General Motors Co (GM), Ford Motor Co and Stellantis NV – to avoid leaving the market entirely, as some have called for.
After hitting a record high of 1.27 million shipments in 2016, Ford’s China sales declined 85% to an estimated 180,000 units last year.
It’s been a similar fall from grace for GM, which counts Chevrolet, Cadillac and Buick among its biggest brands.
Fiat Chrysler, now part of Stellantis, exited its joint venture (JV) making Jeeps three years ago.
But after years of losing ground to homegrown rivals offering cars with more advanced technology at lower prices, there are signs of a turnaround thanks to overseas sales.
GM and Ford recently posted consecutive quarters of expansion for the first time since 2023, according to Bloomberg News.
Stellantis now works with Chinese partners Zhejiang Leapmotor Technology Co and Dongfeng Motor Group Co to export its vehicles.
For the former market leader GM, growth followed a drastic overhaul announced last December that shrank its business and resulted in more than US$5bil of charges and asset writedowns on its investment in a JV with SAIC Motor Corp.
As a result, the carmaker has been profitable every quarter this year, chief financial officer Paul Jacobson said in October.
Ford no longer breaks out its China sales. But after restructuring and turning one of its JVs into an export hub, the automaker made US$900mil in earnings before interest and taxes last year, vice chair John Lawler said in April.
The strength of its overseas sales – at 170,000 units in 2024, up more than 60% from the year before – was the reason behind its ability to report nine consecutive quarters of profit.
Turning to exports has helped the foreign firms survive a tough period.
But they can’t sell abroad without the manufacturing support of their established Chinese partners.
Michael Dunne, an industry consultant and former GM executive, believes it’s a mistake to share the profits 50-50 with the partners, who he predicts will eventually undercut the Western brands – something that has happened before.
With the exception of Tesla Inc and Toyota Motor Corp’s Lexus, all other players in China have historically had to work with local companies.
Although now allowed to set up wholly-owned factories, their pivot to an asset-light approach means this is not an attractive option.
There are legitimate questions about the long-term effectiveness of exporting from a JV model, but I don’t see better options for legacy foreign carmakers, beyond negotiating for a cut higher than 50% to reflect the cachet associated with their brands.
The reality is that Chinese automakers already dominate their home market in both electric vehicles and petrol cars.
By 2030, domestic players are likely to command 76% of the market compared to 2021, when they controlled just 43%, notes Stephen Dyer, managing director at autos consultancy AlixPartners.
Most of the French players have retreated entirely, while South Korean carmakers notch minimal sales.
While another way of operating can involve investing in and learning from technically advanced local partners, as Stellantis is doing, there is no substitute for actively contesting the Chinese auto market, the toughest in the world.
Demand is cooling and the government is likely to reduce subsidies next year.
That means everyone will be trying to find salvation through exports.
Staying the course in China and understanding the dynamics of the market means foreign carmakers have a shot at maintaining their edge when they’re facing their Chinese competitors abroad. — Bloomberg
Juliana Liu is a columnist for Bloomberg Opinion’s Asia team, covering corporate strategy and management in the region. The views expressed here are the writer’s own.
