General Motors is losing ground in China, its top sales market for more than a decade, and one of the Detroit automaker’s two key profit generators.
The company’s market share in the country, including joint ventures, fell from almost 15% in 2015 to 9.8% last year, the first time it has fallen below 10% since 2004. Its operating earnings have likewise dropped by over 70% since peaking in 2014.
The coronavirus epidemic, which began in China, is to blame in part. Yet, the decreases started years before the global health crisis and are growing even more complex amid escalating economic and political tensions between the U.S. and China.
There is also increasing rivalry from government-backed domestic automakers, which is being driven by nationalism, as well as a generational shift in customer opinions of the automotive sector and electric vehicles.
Will Sundin, a 34-year-old physics teacher, told CNBC that when he relocated to the country in 2011, he had no intention of purchasing a Chinese-branded vehicle. Sundin just purchased a Nio ET7 electric vehicle as his everyday driver in Changsha, China’s Hunan Province.
“I wanted something huge and comfortable, but also something quick,” he explained. “I like the way it looks.”
Sundin, who also works as a YouTube car reviewer, is well-versed in the Chinese automobile sector. He chose the Nio over models from Chinese rivals Xpeng, Li Auto, and IM Motors. He claimed that the vehicle’s capacity to replace the battery rather than recharge it “placed it ahead quite rapidly.”
Not in his list of possibilities? American brands such as General Motors’ Cadillac and Buick, which first drove the automaker’s rise in China, are now declining.
“Cadillac has a fantastic reputation in China, but it’s pricey,” Sundin, who previously owned a 2012 Ford Focus, said. “I believe the challenge they are facing is that they are facing new competition, a lot of new competition, from unexpected directions.”
Such rivalry is proving increasingly problematic for GM, which has acknowledged such concerns with its Chinese operations. Nevertheless, other than the promise of new EVs and a new business unit called The Durant Guild that will import expensive automobiles with high profits from the United States to China, the company has not provided much certainty on how to reverse the trend.
While many American businesses are struggling in China, GM’s downturn stands out. GM’s operations in the country are far greater than those of its crosstown rival Ford Motor. It also has a significantly reduced worldwide footprint after selling its European assets and closing operations overseas to focus primarily on North America, Asia, and, to a lesser extent, South America.
Being excessively reliant on a few markets might be dangerous. Nonetheless, it has resulted in record earnings for GM, as the corporation, led by CEO Mary Barra, has eliminated failing operations. Electric vehicles could provide a new avenue for GM to expand globally, but analysts believe it would be a difficult battle compared to recovering in China in the coming years.
“With the changes that they put in place, with a refocus on North America and China, the pull out of Europe, essentially, that does create a risky scenario now that you have some issues, multiple issues, going on in the Chinese market,” said Jeff Schuster, executive vice president of LMC Automotive, a GlobalData company.
Results are being minimized.
In recent quarters, GM has downplayed the importance of its business in China, with CFO Paul Jacobson stating that China is “not important” to GM’s financial success while discussing earnings in October.
In December, Barra stated that while China is an essential part of GM’s business, the company is also focused on other concerns, which at the time included the government’s now-defunct “zero Covid” policy and recent protests.
“We still see possibilities there … obviously, we also watch the geopolitical scenario. “We can’t work in a vacuum,” she stated at a conference of the Automotive Press Association. “But we still see possibility there, and we’ll continue to examine the situation, but our goals are to be at the forefront of EVs.”
The Wuling Hongguang Mini, produced by a joint venture and the market’s best-selling EV, has been a bright spot for GM in China. Since its introduction in mid-2020, the economy car has sold over one million units.
Yet, Jacobson stated earlier this year that China’s handling of the coronavirus epidemic and rising Covid cases were responsible for a nearly 40% decline in equity income for the operations in 2022.
GM discloses its earnings from China as equity income because the country requires non-Chinese automakers to form joint ventures – with the exception of Tesla, which was granted an exemption. In China, GM has 10 joint ventures, two totally owned foreign firms, and over 58,000 employees. Cadillac, Buick, Chevrolet, Wuling, and Baojun are among its brands.
“Right now, we’re seeing a lot of Covid cases in China, which has slowed down the consumer. So we expect it to be a modest buildup, but ideally working its way back up to levels we’re used to over time,” he said during an earnings call on Jan. 31.
Not only Covid
Yet, it is not only tied to the pandemic. From peaking at more than $2 billion in 2014 and 2015, GM’s Chinese operations and joint ventures’ equity income has dropped 67%. This includes a drop of around 45% between then and 2019, prior to the coronavirus hurting China’s economy and auto production. In 2022, GM’s Chinese businesses generated $677 million in equity income for the company.
“It’s not Covid. “This started long before Covid,” says Michael Dunne, CEO of ZoZo Go, a consultancy firm specializing in China, electrification, and self-driving cars. “It also corresponds with rising tensions between the United States and China. There’s no doubt about it, and it’s tough to quantify, but it’s absolutely a factor.”
Dunne, who led GM’s Indonesia operations from 2013 to 2015, said the decline of GM and other nondomestic automakers coincides with China’s market growth slowing, Chinese automakers becoming more competitive, and the shift to all-electric vehicles, which has been heavily subsidized by government agencies.
“They’ve all really taken it on the chin in the last five years as middle-market brands. “Chinese consumers are increasingly purchasing Chinese brands,” he explained. “There’s been a seismic shift… the thinking has shifted.”
Domestic companies and manufacturers have aided Beijing in achieving its objective of increasing the adoption of new energy vehicles, which include electric automobiles. According to the Chinese Passenger Vehicle Association, more than one-fourth of passenger cars sold in China last year were new energy vehicles, with penetration expected to reach 36% this year.
Local businesses sought to seize a piece of that increase in a declining vehicle industry. Companies like Nio aided in the promotion of electric vehicles as an aspirational lifestyle and status symbol in China. And the increased quality of domestic-made electric automobiles helped sustain — and exploit — growing nationalistic pride among China’s consumers.
According to the China Association of Vehicle Manufacturers, Chinese brands increased their market share by 21% since 2015, accounting for approximately half of all passenger vehicles sold in China last year. In comparison, sales of American brands in the United States during that time period were almost 45%.
“Clearly, the market has been in a different place; a lot of it is policy-driven,” Schuster explained.
Chinese nationalism’s impact
According to LMC Automotive Last year, Chinese automakers accounted for half of the top ten automakers in terms of sales in the country, up from only three in 2015. The most prominent is BYD Auto, an electric automaker that has grown from 445,000 to over 2 million units sold since then, making it one of China’s top five automakers by sales.
“I believe the primary cause for GM’s downturn is this shift toward Chinese nationalism,” Dunne said. “China has announced that it wants to be the global leader in electric vehicles and is doing everything in its power to foster national champions like BYD.”
Aside from GM, the country’s other historic automakers — Ford and Chrysler-descendent Stellantis — have fared little better. Both have experienced considerable revenue declines; yet, neither has announced any intention of exiting the market.
Ford named Sam Wu, a former Whirlpool executive who joined the carmaker in October, president and CEO of its China business, effective March 1.
According to the company’s annual filings, Ford’s market share in China has been under 2% since 2019, down from 4.8% in 2015 and 2016.
Ford’s issues in China aren’t limited to the country. In February, the business announced a collaboration with Chinese supplier CATL on a new $3.5 billion battery plant for electric vehicles in Michigan. Other Republicans have attacked the agreement, including Florida Senator Marco Rubio, who has asked the Biden administration to look into Ford’s agreement to license technology from CATL.
Stellantis and Guangzhou Automotive Group’s joint venture in China that produces Jeep vehicles filed for bankruptcy in late 2022, following a decision to end the alliance and import its SUVs into the country.
Stellantis CEO Carlos Tavares has stated that the company is taking a “asset-light” approach in the country, focusing on increasing profitability rather than revenues, which are expected to fall 7% in 2022.
“It’s also crucial that you understand that our financials in China have been dramatically improving,” he told reporters on a call last month, adding that the corporation is “cleaning up the place.”
While the American-focused automakers regroup, China’s local automakers continue to gain ground in their home market.
“People in China are proud,” said Nio owner Sundin.
“The same way as ‘American Made’ is in the USA and all the patriotism behind that, in China, [it’s] the same thing: ‘Finally, we can make a phone or we can make a car that’s as good or better than foreign automakers.’”