Global automakers scramble to reset China strategies as sales slow

Global automakers scramble to reset China strategies as sales slow

Foreign automakers in China are facing a critical decision: either intensify their efforts to turn the tide or accept their losses after relinquishing their position as leaders in the world’s largest auto market to local brands. Recent announcements from major automakers reveal divergent strategies, with some German brands and General Motors (GM.N) focusing on new electric vehicles, while Toyota (7203.T) and others prioritize cost-cutting measures.

According to data from the China Association of Automobile Manufacturers (CAAM), Chinese brands have become market leaders for the first time, capturing a 53% share in the first half of 2023. This shift in market dynamics has caught global automakers off guard, as they have been slow to adapt to the rapidly growing market for electric vehicles (EVs) with competitive offerings. As a result, the failure to pivot has been costly, with Tesla (TSLA.O) being the only foreign brand to gain market share in the first half, surpassing BMW (BMWG.DE) in popularity.

The intense price war in China has further squeezed profit margins for automakers, leading some to scale back their operations through production cuts and layoffs. Toyota and Mitsubishi (7211.T) are among the companies taking this approach. However, brands that heavily relied on China for a significant portion of their sales prior to the market shift have no choice but to double down on their efforts, according to Yale Zhang, managing director at Shanghai-based consultancy Automotive Foresight. This includes Volkswagen (VOWG_p.DE) and GM.

Volkswagen, which has been outperformed by BYD (002594.SZ) since late 2022, recently announced two agreements aimed at strengthening its position in China. The first is a partnership with China’s Xpeng Inc (9868.HK) to develop two new models featuring Xpeng’s software, while the second involves jointly developing Audi models and a new platform with Chinese partner SAIC (600104.SS). GM, on the other hand, is banking on EVs developed on its Ultium platform to reverse its declining sales in China.

The significance of the Chinese market for global ambitions is evident in the determination of Volkswagen and GM to protect their current market share. This reflects their confidence in designing, engineering, and manufacturing products that can compete with Tesla and other Chinese EV companies, according to Tu Le, an analyst at Sino Auto Insights.

While Chinese EV makers have also been affected by the price war and many remain unprofitable, their deeper pockets give established foreign automakers the ability to play the long game in their fight for market share in China. As Yang Honghai, chief operating officer of Kia China, stated, they will allow their competitors to fight first and return with ample resources and technologies to challenge them. Kia (000270.KS) plans to enter China’s EV market in August with its first EV, the EV6 crossover.

German luxury brands BMW, Mercedes Benz (MBGn.DE), and Volkswagen’s Audi managed to maintain their market share in China in the first half by offering significant dealer discounts. BMW also announced increased investment in product development in China, establishing a new research and development hub in Shanghai to develop EVs for global sales. He Lei, CEO of Chinese EV trading platform xChuxing, highlighted the German brands’ advantage in global scale and their continuous pursuit of China-developed products to remain competitive.

However, some automakers are taking a step back. Mitsubishi Motors has closed a plant that produces the Outlander SUV in partnership with a joint-venture partner, as they negotiate a restructuring plan due to sharp sales declines. Toyota, which fell to the third position in China in the first half, has slowed production at a joint-venture plant and laid off contract workers. Nissan (7201.T) is considering exporting cars from China to other regions to leverage China’s cost advantages, a strategy also pursued by Tesla, BMW, Ford (F.N), and Renault (RENA.PA).

According to Bill Russo of Automobility, China is not just a sales market but also a platform for achieving economies of scale, reducing costs, and enhancing international competitiveness. The decisions made by foreign automakers in China will have a significant impact on their global ambitions and their ability to compete with both Tesla and Chinese EV companies.

In conclusion, the landscape of the Chinese auto market has shifted, with local brands taking the lead. Foreign automakers are now faced with the choice of either intensifying their efforts or accepting their losses. The focus on electric vehicles and cost-cutting measures varies among different automakers. The intense price war has impacted profit margins, leading some companies to scale back their operations. However, those heavily reliant on the Chinese market have no choice but to double down. Volkswagen and GM are among the companies determined to protect their market share. German luxury brands have managed to maintain their position through dealer discounts. Some automakers are pulling back, while others are exploring strategies to leverage China’s cost advantages. The decisions made in the Chinese market will have implications for global ambitions and competition with Tesla and Chinese EV companies.

About News Team

Hi, I'm Alex Perez, an experienced writer with a focus on lifestyle and culture news. From food and fashion to travel and entertainment, I love exploring the latest trends and sharing my insights with readers. I also have a strong interest in world news and business, and enjoy covering breaking stories and events.

Have a tip we should know?

Most Read

  1. News
    Pandora Papers Financial Leak Shows Us the Secrets of the World’s Rich and Powerful
    3 years ago
  2. Health
    US Supreme Court Rejects J & J TALC Cancer Case Appeal
    3 years ago
  3. Lifestyle
    9 Habits that Drain your Daily Focus and How to Avoid Them
    3 years ago
    Women’s Demand for Shapewear – the big Trends
    3 years ago
    Valentino Launches its Cosmetics Line
    3 years ago
  6. Health
    US Promises to Share 60 million Doses of AstraZeneca Vaccines
    3 years ago
  7. Health
    UK Offers Aid Amid Surging COVID-19 Cases in India
    3 years ago
  8. Sports
    Thousands of fans welcome Charlton funeral cortege at Old Trafford
    8 months ago
  9. News
    Brit left fighting for life after train derails in Argentinia
    8 months ago
    Dubai faces down airline rivals with $50 bln jet orders
    8 months ago
  11. Sunak
    UK’s Sunak brings back Cameron, sacks Braverman
    8 months ago
  12. Sports
    Man United’s Hojlund, Eriksen withdrawn from Denmark team duty
    8 months ago
  13. Health
    Autumn Sneezing Syndrome is on the rise… here’s what you can do
    8 months ago
  14. Canada
    Canada beat Italy to win Billie Jean King Cup for first time
    8 months ago

Follow @rushhourdaily: