US automakers such as GM are rapidly losing ground in China

This comes after GM’s profits and market share in China have been stagnant for nearly a decade, and some industry insiders are wondering whether GM will be able to rebuild its business or whether the country’s I have doubts about whether it would be better to withdraw, given the unimaginable prospect. years ago.

Barra, who visited China last week during an auto show in Beijing, said GM would continue to serve the market., The company was founded in 1997 through a joint venture.

At GM’s quarterly earnings conference on April 23, he said, “Long term, we are focusing on China. We believe that China is a market that will see significant growth over the medium term.”

The comments come after Barra told investors in February that there is “nothing wrong with ensuring GM has a strong future that will generate adequate profitability and adequate returns for investors” in China. It was announced a few months later.

GM Chief Financial Officer Paul Jacobson told investors last week that the company expects its business to return to profitability this year and expect profits to be on par with or slightly lower than 2023’s profits of about $446 million. He said he expected it to be. He blamed the first-quarter loss on production downtime designed to reduce output – increase vehicle inventories.

The country’s automaker’s decline is surprising amid geopolitical tensions between the U.S. and China, changing consumer sentiment and increasing domestic competition.

The challenges are not unique to GM, but the company has the most to lose after reorganizing and exiting other markets to boost profitability. Mr. Barra’s philosophy for much of his 10-year tenure was that if GM wasn’t a leader in a region and couldn’t see a path to becoming one, it shouldn’t do business in that region.

Most notably, in 2017, the automaker sold its European operations to what was then PSA Group, now Chrysler’s parent company Stellantis. During the same period, companies also ended or withdrew from domestic production operations, particularly in Russia, India, Thailand, and Australia.

This move reduced GM’s footprint and placed a greater emphasis on China and North America. These two markets, along with the financial sector, are currently responsible for the overwhelming amount of the company’s annual revenue.

GM’s international operations, which posted an adjusted profit of $1.2 billion last year, include South Korea, Brazil and the Middle East. The company is also in the early stages of re-entering Europe with EVs.

GM’s market share in China, including joint ventures, plummeted from about 15% in 2015 to 8.6% last year, falling below 9% for the first time since 2003. GM’s business profit also decreased by 78.5%. % since its peak in 2014, according to regulatory filings.

Sales of GM’s U.S.-based brands such as Buick and Chevrolet fell more than sales of its joint ventures with SAIC and Wuling Motors. Of the 2.1 million vehicles sold in China last year, joint venture models accounted for about 60%.

Excluding the first quarter of this year, GM China’s quarterly losses since 2009 were a $167 million loss in the first quarter of 2020 due to the coronavirus pandemic and a $87 million loss in the second quarter of 2022. There was only a loss of .

Top auto analyst John Murphy of Bank of America Securities asked GM during its second straight quarterly earnings call whether it would consider exiting China. “Is it time to start thinking seriously about strategic alternatives to closing or selling the business?” he said recently.

In response, Barra said the new products will help automakers become more competitive in the market, including what China calls “new energy vehicles” such as all-electric vehicles and plug-in hybrid electric vehicles. GM unveiled several vehicles in China last week, including a plug-in hybrid version of the country’s best-selling Buick GL8 minivan and the Chevrolet Equinox crossover.

“We clearly think that China’s capabilities have changed the market and changed the landscape.” [automakers]”But we still think there’s a role and a place for GM to play when it comes to luxury premiums,” Barra said.

GM’s focus on “luxury cars” is a shift away from mainstream cars due to intensifying competition in China. The company’s plans include importing flagship vehicles such as the Hummer EV and other large SUVs into the country through a new direct-to-consumer division called Durant Guild. GM announced this unit in 2022.

But some, like Indonesia’s former GM executive Michael Dunn, think it may be too little, too late for America’s largest automaker in China.

“We are at the beginning of the end. [traditional] “Everything is going in the wrong direction for China’s Detroit automakers,” said China expert Dan, CEO of consulting firm Dan Insights.

The decline of Western automakers in China is the result of increased competition from government-backed domestic automakers fueled by nationalism and a generational shift in consumer perceptions of the auto industry and electric vehicles.

Mark Fulthorpe, executive director of automotive at S&P Global Mobility, believes GM has too much capital in its China operations to let it go like it does in other markets.

“They will try to consolidate what they have. They will certainly try again,” he said. “I think there’s still a little bit of room to play.”

China’s domestic automakers are not the only ones eating into market share from GM and crosstown rival Ford Motor Co., whose sales in China fell 32.4% from 2018 to 2022. U.S. EV leader Tesla is also playing a role, Dunn said.

“I call it the Tesla effect. It changed the way Chinese consumers looked at electric cars. Suddenly, wow, here’s the equivalent of the Apple of the auto industry,” he said. Ta. “In turn, electronics were the ‘new cool’ for Chinese consumers.”

The electric car maker started production in China in 2019. Dunn said the company rapidly ramped up production in response to China’s coronavirus lockdown, proving to many Chinese consumers that electric cars, even non-Tesla models, are a viable option. said.

Tesla is under pressure in China but remains more popular than traditional rivals, experts say. However, in order to compete with Chinese automakers such as BYD and Nio, they have been forced to aggressively lower prices.

Morgan Stanley analyst Adam Jonas, a longtime Tesla bull, said the company and other Western car companies are “lowering capital spending, increasing protectionism, and ultimately increasing cooperation with China.” We believe that there is a high possibility that Japan will enter a new stage called

“We believe that Western auto companies (including Tesla) have unanimously and simultaneously reached the recognition that China has won the battle for EV supremacy,” he said in a note to investors on Friday. Ta.

Tesla is in the midst of a global restructuring that includes laying off more than 10% of its workforce as conditions in the EV market change.

Tesla’s sales in China last year rose 57% from 2021 to $21.74 billion, according to its annual regulatory filing. However, sales in China in the first quarter of this year were $4.6 billion, down 6% from the same period last year.

Last week, Tesla CEO Elon Musk said in a financial results conference for investors, “Comparing our competitors’ sales decline in China to our company’s sales decline, our company’s sales decline is greater than that of our competitors. “In other words, our business is doing well.”

Musk also touted that automakers’ driver assistance systems, such as fully self-driving (FSD), could expand in China, but did not provide a timeline.

During Musk’s visit, it was reported on Monday that Tesla passed an important milestone in the rollout of advanced driver assistance technology in China.

Tesla also partnered with Chinese search engine giant Baidu to provide digital maps for driver assistance systems.

Junheng Li, CEO of JL Warren Capital, said while these developments are positive for Tesla, “the lack of important details makes it impossible to assess China FSD” for the automaker’s business. ” he said.

Given China’s lingering supply chains and geopolitical challenges, automakers such as Stellantis and Ford are moving toward so-called “asset-light” operations in the region.

As the term suggests, this means using fewer assets or making better use of what you already have to keep your business running.

Stellantis also changed its strategy after its Chinese joint venture with Guangzhou Automobile Group filed for bankruptcy at the end of 2022. The partnership to produce Jeep vehicles in China has been dissolved, with Stellantis opting instead to import Jeep vehicles on an “asset-light” basis. SUVs have entered Japan.

Earlier this year, Stellantis CEO Carlos Tavares called the Chinese automaker his company’s “biggest competitor.” Stellantis continues to partner with Chinese companies.

Most notably, it bought a 20% stake in China-based Leap Motor and is leading an EV production joint venture with the company. The agreement includes exclusive rights to export and sell, as well as manufacture the product outside of Greater China.

Stellantis’ car sales in China fell 44% from 124,000 units in 2021 to 69,000 units last year. The automaker has not announced its financial results in China. However, adjusted operating profit in the China, India and Asia-Pacific region fell by about 22% last year compared to 2022, and sales fell by about 1 billion euros.

Ford’s strategy still includes production in China, particularly for its luxury Lincoln brand. However, the company is using its factories in China to make vehicles for export to other countries in order to utilize excess production capacity.

“We’ve put a lot of effort into de-risking that business. We’re asset light. We’re leveraging assets in China. We’re also leveraging our partners to de-risk China. We’re exporting at a low cost, providing products to markets around the world,” Ford Chief Financial Officer John Lawler told the media on an earnings call last week.

Lawler noted that Ford exported 100,000 cars from China to South America and other regions last year. The company recently began exporting the Lincoln Nautilus SUV from China to the United States. A Ford spokesperson confirmed that the company plans to continue increasing exports from the country.

Ford does not currently report financial results by region, but from 2017 to 2022, the company lost about $5.5 billion in China. Lawler said all of the company’s traditional Ford Blue businesses, including China, were profitable in the first quarter, but that unit does not include commercial sales or electric vehicles.

As business and competition in China intensifies, S&P Global estimates that U.S.-based automakers exported about 482,000 vehicles from China last year. This is more than 3.5 times as much as in 2019, and approximately 22% more than in 2022.

“It’s hard to imagine what would change the minds of Chinese consumers and cause them to look at GM products and Ford products again,” Dunn said. “That’s the question the board is looking at now: How do we get them and how do we get Chinese consumers to like this?”

— CNBC Laura KolodnyEunice Yoon and Michael Bloom contributed to this report.