U.S. automakers like GM are rapidly losing ground in China, once an engine for growth

DEROIT
–


General
Motors
CEO
Mary
Barra
has
been
aggressive
in
exiting
unprofitable
or
underperforming
markets
over
the
past
decade,
but
leaving
the
automaker’s
latest
problematic
country
would
be
far
more
difficult
than
others.

China
was
once
a
profit
engine
for
GM,
and
its
top
sales
market
from
2010
to
2023.
But
the
automaker
lost
$106
million
there
during
the
first
quarter,
only
its
third
quarterly
loss
in
the
region
in
at
least
15
years
and
the
largest
outside
of
the
coronavirus
pandemic
during
that
time.

It
comes
after
a
nearly

decade-long
slide
in
profits
and
market
share
for
GM
in
China
that
has
some
industry
watchers
questioning
whether
the
automaker
can
turn
around
the
operations,
or
if
it
would
be
better
to
exit
the
country
–
an
unimaginable
prospect
just
a
few
years
ago.

Barra,
who
visited
China
last
week
during
an
auto
show
in
Beijing,
said
GM
remains
committed
to
the
market,
which
the
company
entered
through
a
joint
venture
in
1997.

“Over
the
long
term,
we’re
committed
to
China.
We
believe
that
it’s
a
market
that,
over
the
medium
term,
will
have
substantial
growth,”
she
said
during

GM’s
quarterly
earnings
call
on
April
23.

The
comments
came
months
after
Barra
told
investors
in
February
that “nothing
is
off
the table
in
ensuring
that
GM
has
a
strong
future
to
generate
the
right
profitability
and
the
right
return
for
our
investors”
in
China.

GM
CFO
Paul
Jacobson
last
week
told
investors
that
the
company
expects
the
operations
to
return
to
profitability
this
year,
with
results
similar
or
slightly
lower
than
its
roughly
$446
million
profit
in
2023.
He
attributed
the
first-quarter
loss
to
production
downtime
designed
to
reduce
built-up
vehicle
inventory.

The
automaker’s
fall
from
grace
in
the
country
is
staggering
amid
geopolitical
tensions
between
the
U.S.
and
China,
along
with
changing
consumer
sentiment
and

increased
domestic
competition
there.

While
the
challenges
aren’t
unique
to
GM,
the
company
has
the
most
to
lose
after
it
restructured
or
exited
from
other
markets
in
a
bid
to
become
more
profitable.
The
philosophy
during
much
of
Barra’s
10-year
tenure
has
been
if
GM
wasn’t
a
leader
in
a
region
—
and
didn’t
see
a
track
to
become
one
—
then
it
shouldn’t
do
business
there.

Most
notably,
in
2017,
the
automaker

sold
its
European
operations
to
then-PSA
Groupe,
which
is
now
Chrysler
parent


Stellantis.
It
also
ended
domestic
production
operations
or
exited
Russia,
India,
Thailand
and
Australia,
among
other
countries,
around
that
time.

The
moves
shrank
GM’s
footprint
and
put
outsized
importance
on
China
and
North
America.
Those
two
markets
are
now
responsible
for
an
overwhelming
amount
of
its
annual
earnings,
along
with
its
financial
arm.

GM’s
international
operations,
which
recorded
$1.2
billion
in
adjusted
earnings
last
year,
include
South
Korea,
Brazil
and
the
Middle
East,
among
other
markets.
The
automaker
also
is
in
the
early
stages
of
reentering
Europe
with
EVs.

GM’s
market
share
in
China,
including
its
joint
ventures,
has
plummeted
from
roughly
15%
as
recently
as
2015
to
8.6%
last
year
—
the
first
time
it
has
dropped
below
9%
since
2003.
GM’s
earnings
from
the
operations
have
also
fallen,
down
78.5%
since
peaking
in
2014,
according
to
regulatory
filings.

GM’s
U.S.-based
brands
such
as
Buick
and
Chevrolet
have
seen
sales
drop
more
than
its
joint
venture
sales
with


SAIC
Motor,


Wuling
Motors
and
others.
The
joint
venture
models
accounted
for
about
60%
of
its
2.1
million
vehicles
sold
last
year
in
China.

Other
than
the
first
quarter
of
this
year,
the
only
quarterly
losses
for
GM
in
China
since
2009
were
a
$167
million
shortfall
during
the
first
quarter
of
2020
due
to
the
coronavirus
pandemic
and
an
$87
million
loss
during
the
second
quarter
of
2022.

John
Murphy
at
Bank
of
America
Securities,
a
top
automotive
analyst,
has
asked
on
two
consecutive
quarterly
earnings
conference
calls
whether
GM
would
consider
exiting
China.
He
most
recently
said, “Is
it
time
to
really
start
thinking
about
strategic
alternatives
over
there
to
potentially
closing
or
selling
the
business?”

In
response,
Barra
said
new
products
will
help
the
automaker
better
compete
in
the
market,
including
what
China
calls “new
energy
vehicles”
like
all-electric
and

plug-in
hybrid
electric
vehicles.
GM
revealed
several
vehicles
last
week
in
China,
including
plug-in
hybrid
versions
of
its
Buick
GL8
minivan,
a
bestseller
in
China,
and
the
Chevrolet
Equinox
crossover.

“We
think
clearly
that
market
has
shifted
and
the
landscape
has
shifted
…
with
the
capability
of
the
Chinese
[automakers],”
Barra
said. “But
we
still
think
there’s
a
role
and
a
place
for
GM
to
play
with
luxury
premium.”

GM’s
focus
on “luxury”
is
a
shift
away
from
mainstream
vehicles
amid
increased
competition
in
China.
The
company’s
plans
include
importing
flagship
vehicles
such
as
the
Hummer
EV
and
other
large
SUVs
to
the
country
through
a
new
unit
that
sells
directly
to
consumers
called
the
Durant
Guild.
GM
announced
the
unit
in
2022.

But
some,
such
as

Michael
Dunne,
a
former
GM
executive
in
Indonesia,
believe
it
may
be
too
little,
too
late
for
America’s
largest
automaker
in
China.

“We’re
at
the
beginning
of
the
end
for
[traditional]
U.S.
automakers
in
China,”
said
Dunne,
an
expert
on
China
and
CEO
of
consulting
firm
Dunne
Insights. “Everything’s
heading
in
the
wrong
direction
for
Detroit
automakers
in
China.”

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

Mark
Fulthorpe,
an
executive
director
for
automotive
at
S&P
Global
Mobility,
believes
GM
has
too
much
equity
in
its
China
operations
to
give
them
up
like
it
did
other
markets.

“They’ll
try
and
consolidate
what
they’ve
got.
I’m
sure
they’ll
have
another
go
at
it,”
he
said. “I
think
there’s
still
a
bit
to
play
for.”

It’s
not
just
domestic
Chinese
automakers
eating
into
market
share
for
GM
and
crosstown
rival


Ford
Motor,
which
experienced
a
32.4%
decline
in
China
sales
from
2018
to
2022.
U.S.
EV
leader


Tesla
has
also
played
a
role,
according
to
Dunne.

“I
call
it
the
Tesla
effect.
It
transformed
Chinese
consumers’
views
on
electric
cars.
Suddenly,
wow,
here’s
the
Apple-equivalent
of
the
automotive
industry,”
he
said. “By
extension,
electrics
were
the ‘new
cool’
for
Chinese
consumers.”

The
electric
vehicle
manufacturer
started

Chinese
production
in
2019.
It
quickly
grew
production
following
Covid
lockdowns
in
the
country
and
proved
to
many
Chinese
consumers
that
electric
vehicles
–
even
non-Tesla
models
–
were
viable
options,
Dunne
said.

Tesla
is
facing
pressure
in
China
but
remains
in
vogue
more
than
its
traditional
rivals,
experts
say.
But
it
has
had
to
aggressively
cut
prices
to
compete
against
Chinese
automakers
such
as
BYD,


Nio
and
others.

Morgan
Stanley
analyst
Adam
Jonas,
a
longtime
Tesla
bull,
believes
the
automaker
and
other
Western
auto
companies
will
likely “enter
a
new
phase
of
capex
spend
(lower),
protectionism
(higher)
and
cooperation
with
China
(eventual).”

“We
believe
that
Western
auto
firms
(including
Tesla)
have
come
to
a
unanimous
and
simultaneous
realization:
China
has
won
the
contest
for
EV
supremacy,”
he
said
Friday
in
an
investor
note.

Tesla
is
in
the
midst
of
a
global
restructuring
that
has
included
laying
off
more
than
10%
of
its
workforce,
as
EV
market
conditions
shift.

Tesla’s
revenue
in
China
increased
57%
from
2021,
to
$21.74
billion
last
year,
according
to
its
annual
regulatory
filing.
But
its
Chinese
revenue
fell
6%
to
$4.6
billion
during
the
first
quarter
of
this
year
compared
with
a
year
earlier.

“If
you
look
at
the
drop
in
our
competitors
in
China
sales
versus
our
drop
in
sales,
our
drop
was
less
than
theirs.
So,
we’re
doing
well,”
Tesla
CEO

Elon
Musk
said
last
month
during

an
investor
earnings
call.

Musk
also
touted
a
potential
expansion
of
the
automaker’s
driver
assistance
systems
such
as
Full
Self-Driving,
or
FSD,
in
China
but
gave
no
timeline.

It
was

reported
last
Monday
that
Tesla
passed
a
significant
milestone
to
roll
out
its
advanced
driver
assistance
technology
in
China
amid
a
visit
by
Musk.

Tesla
also
partnered
with
China’s
search
engine
giant, Baidu,
to
provide
digital
maps
for
its
driver
assistance
systems.

JL
Warren
Capital
CEO
Junheng
Li
said
while
the
developments
are
positive
for
Tesla, “a
lack
of
critical
detail
makes
it
impossible
to
value
the
China
FSD”
for
the
automaker’s
business.

In
light
of
lingering
supply
chain
and
geopolitical
challenges
in
China,
automakers
such
as
Stellantis
and
Ford
have
moved
to
what
they
call “asset-light”
operations
in
the
region.

As
the
term
suggests,
that
means
continuing
operations,
but
by
using
fewer
assets
or
better
utilizing
what’s
already
there.

Stellantis,
for
its
part,
has
shifted
strategies
after
its
Chinese
joint
venture
with
Guangzhou
Automobile
Group
filed
for
bankruptcy
in
late
2022.
The
partnership
to
produce
Jeep
vehicles
in
China
was
dissolved,
and
Stellantis
opted
instead
to
go “asset-light”
and
import
such
SUVs
into
the
country.

Carlos
Tavares,
CEO
of
Stellantis,
earlier
this
year
called
Chinese
automakers
his
company’s “No.
1
competitor.”
Stellantis
continues
to
operate
partnerships
with
Chinese
companies.

Most
notably,
it
bought
a
20%
stake

in
China-based
Leapmotor
and
leads
a
joint
venture
with
the
company
to
produce
EVs.
The
agreement
includes
exclusive
rights
for
export
and
sale,
as
well
as
for
manufacturing
products
outside
of
Greater
China.

Stellantis’
vehicle
sales
in
China
have
fallen
44%
from
124,000
in
2021
to
69,000
last
year.
The
automaker
does
not
break
out
its
China
financial
results.
But
its
adjusted
operating
income
in
the “China
and
India
&
Asia
Pacific”
region
fell
about
22%
last
year
from
2022,
while
revenue
decreased
by
roughly
1
billion
euros
($1.08
billion).

Ford’s
strategy
still
includes
China-based
production,
specifically
for
its
Lincoln
luxury
brand.
But
the
company
uses
Chinese
plants
to
produce
vehicles
for
exportation
elsewhere
in
an
attempt
to
utilize
excess
capacity.

“We’ve
really
spent
a
lot
of
work
on
trying
to
de-risking
that
business.
We’re
asset-light.
We’re
leveraging
the
assets
in
China.
We’re
also
leveraging
our
partners
to
export
from
China
with
low-cost
products
to
markets
around
the
world,”
Ford
CFO
John
Lawler
told
media
last
month
during
an
earnings
briefing.

Lawler
noted
Ford
last
year
exported
100,000
vehicles
out
of
China
to
South
America
and
other
regions.
It
recently
started
exporting
its
Lincoln
Nautilus
SUV
from
China
to
the
U.S.
The
company
plans
to
continue
to
increase
exports
from
the
country,
a
Ford
spokesman
confirmed.

Ford
no
longer
reports
its
financial
results
by
region,
but
from
2017
to
2022,
the
company
lost
roughly
$5.5
billion
in
China.
Lawler
said
all
of
the
company’s
regions
of
its
traditional “Ford
Blue”
operations,
including
China,
were
profitable
during
the
first
quarter,
but
that
unit
does
not
include
commercial
sales
or
EVs.

Amid
the
tougher
business
and
competition
in
China,
S&P
Global
estimates
U.S.-based
automakers
exported
about
482,000
vehicles
from
China
last
year.
That’s
more
than
3½
times
higher
than
2019
and
a
roughly
22%
increase
from
2022.

“It’s
difficult
to
imagine
what
what’s
going
to
change
the
Chinese
consumers’
minds
to
take
a
fresh
look
at
GM
products
or
Ford
products,”
Dunne
said. “That’s,
that’s
the
question
that
the
boardrooms
are
looking
at
right
now.
How
do
we
get
them,
how
do
we
get
Chinese
consumers
to
like
this
again?”

—
CNBC’s


Lora
Kolodny,
Eunice
Yoon
and
Michael
Bloom
contributed
to
this
report.

Correction:
Tesla
CEO
Elon
Musk
spoke
last
month
during
an
investor
earnings
call.
An
earlier
version
misstated
the
timing.
It
was
reported
last
Monday
that
Tesla
passed
a
significant
milestone
to
roll
out
its
advanced
driver
assistance
technology
in
China
amid
a
visit
by
Musk.
An
earlier
version
misstated
the
timing.
Ford
CFO
John
Lawler
spoke
to
the
media
last
month
during
an
earnings
briefing.
An
earlier
version
misstated
the
timing.