China’s car maker decline is a global warning

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

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HONG KONG, Aug. 5 (Reuters Breakingviews) – Political meddling is just one of the problems facing western automakers in China. Stellaantis (STLA.MI), Chief Executive Carlos Tavares, last month blamed government interference in canceling the Jeep maker’s joint venture in the world’s largest auto market. A bigger concern, however, is that local manufacturers are gaining market share and may soon pose a greater threat elsewhere.

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

But even as China eases restrictions on joint ventures, local competitors are accelerating. Foreign car manufacturers saw their combined share of the Chinese car market shrink by 5.5 percentage points to 45.6% last year. In the first half of 2022, Volkswagen’s share was 15.5%.

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Two factors are driving the increasing competitiveness of Chinese automakers. First, the growing pool of domestic engineering talent helped incubate powerful private manufacturers such as BYD (002594.SZ), (1211.HK), Volvo owner Geely (0175.HK) and Great Wall Motor. They are now competent manufacturers of conventional mid-range passenger cars and can outsource top foreign designers from BMW and the Italian design firm Pininfarina (PNNI.MI).

The second factor is Beijing’s pressure to skip the West in developing electric vehicles. Last year, China registered 3.3 million hybrid and battery-powered cars, accounting for 16% of total sales. Europeans bought 1.1 million fewer electric vehicles. Chinese manufacturers can build lighter yet safer bodies compared to international rivals, McKinsey believes. They also have access to advanced battery expertise through local champions such as $194 billion Contemporary Amperex Technology (300750.SZ).

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

The growing competitive position has repercussions outside of China. As local manufacturers expand, 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 EV maker, sent its first shipment of 1,000 Atto 3 SUVs to Australia in August. With Chinese cars appearing on Western roads, complaints about political interference will only increase.

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(The authors are columnists for Reuters Breakingviews. Opinions expressed are their own. Refiles to add images.)

CONTEXT NEWS

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

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

Stellantis CEO Carlos Tavares complained of political interference by local officials and was concerned about the impact of potential sanctions. “For Western players, selling cars in China is becoming increasingly difficult,” he said.

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

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