The decline of automakers in China is a global warning

Stellantis CEO Carlos Tavares holds a news conference after meeting with unions, in Turin, Italy March 31, 2022. REUTERS/Massimo Pinca

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HONG KONG, Aug 5 (Reuters Breakingviews) – Political interference is just one of the headaches for Western automakers in China. Stellantis (STLA.MI) chief executive Carlos Tavares last month blamed government interference in the cancellation of the Jeep carmaker’s joint venture in the world’s biggest auto market. A more serious concern, however, is that local manufacturers are gaining market share – and could soon pose a bigger threat elsewhere.

For decades, major automakers seeking to establish a foothold in China have been forced into expensive joint ventures with local companies. Beijing hoped this approach would turn ineffective local partners into industrial champions. The policy, however, failed. Not only did these companies fail to develop export markets, even patriotic Chinese consumers preferred cars made by Nissan Motor (7201.T), General Motors (GM.N) or Volkswagen (VOWG_p.DE), (VOWG.DE). In 2000, the German company held more than 50% of the Chinese market.

Yet even as China eases restrictions on joint ventures, local competitors are accelerating. Last year, foreign automakers saw their collective share of the Chinese auto market shrink by 5.5 percentage points to 45.6%. In the first half of 2022, Volkswagen’s share was 15.5%.

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Two factors are behind the growing competitiveness of Chinese automakers. First, the deepening of the domestic engineering talent pool has helped incubate strong private manufacturers like BYD (002594.SZ), (1211.HK), owner Volvo Geely (0175.HK) and Great Wall Motor. They are now competent manufacturers of conventional mid-range passenger vehicles and can poach high-end foreign designers from BMW and Italian design firm Pininfarina (PNNI.MI).

The second factor is Beijing’s desire to overtake the West in the development of electric vehicles. Last year, China registered 3.3 million hybrid and battery-powered cars, accounting for 16 percent of total sales. Europeans bought 1.1 million fewer electric vehicles. Chinese manufacturers can build lighter but still safe car bodies compared to international rivals, McKinsey believes. They also have access to cutting-edge battery expertise through local champions like the $194 billion Amperex Contemporary Technology (300750.SZ).

Today, Tesla (TSLA.O) is the only foreign automaker to make the Chinese industry association’s list of top ten best-selling electric vehicles. Research firm Redburn estimates that Volkswagen holds just 10.8% of China’s electric vehicle market so far this year, although the $89 billion company plans to launch new models and invest in research centers and sale.

Growing competitiveness is having repercussions outside of China. As local manufacturers grow, they reinvest their profits to compete against Western giants in other markets. BYD, the Warren Buffett-backed Chinese automaker that is challenging Tesla for the title of the world’s largest electric vehicle maker, sent its first shipment of 1,000 Atto 3 sport utility vehicles to Australia in August. As Chinese cars appear on Western roads, the volume of complaints about political interference will only increase.

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(The authors are Reuters Breakingviews columnists. The opinions expressed are their own. Refile to add a graphic.)

BACKGROUND NEWS

Guangzhou Automobile Group slammed joint venture partner Stellantis on July 29, saying the Jeep maker’s woes in China were “the result of a lack of respect for customers in the Chinese auto market.”

Stellantis announced on July 18 that it would end its 12-year relationship with GAC after a deal for the European brand to increase its share of the joint venture to 75% fell apart. The company said it would instead generate revenue in China through imports.

Stellantis chief executive Carlos Tavares complained about political interference by local officials and worried about the impact of potential sanctions. β€œFor Western players, selling cars in China is getting harder and harder,” he said.

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Chronicle of Pete Sweeney in Hong Kong, Neil Unmack in London. Editing by Peter Thal Larsen, Katrina Hamlin and Pranav Kiran

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