An EV car is pictured at BYD’s first electric vehicle (EV) plant in Southeast Asia, a rapidly growing regional EV market and a dominant player, in Rayong, Thailand, July 4, 2024.
Chalinee Thirasupa | Reuters
BEIJING – Time is running out for traditional foreign automakers to adapt to China’s electric car market, signaling to industry analysts that companies must double down on local partnerships to survive.
Fossil fuel-based carmakers have struggled to maintain the world’s largest car market, which is rapidly changing to new energy vehicles now accounting for more than half of the country’s car sales.
If foreign brands “can’t launch competitive clean energy vehicles in the Chinese market, the only hope to save market share is through partnerships with domestic players,” said Tu Le, founder and managing director of Sino Auto Insights.
“But is it too late? Maybe for some foreign brands,” he said.
US car manufacturers General MotorsGermany Volkswagen and Japan’s Nissan each saw a decline in Chinese revenue between 2019 and 2023, according to CNBC’s company data calculations.
In 2023, South Korea’s Kia reported China sales to be more than 30% lower than 2020 levels. Tesla In comparison, China’s sales increased more than six times between 2019 and 2023.
As investor concerns grow, management considers plans. GM CEO Mary Barra said in last month’s earnings call the company has meetings lined up with shareholders and joint venture board members to discuss “restructuring” to increase profits in China, once GM’s top market by revenue.
US, German and other foreign automakers that entered China decades ago were required by Beijing to form joint ventures with local, usually state-owned, companies.
Only in 2022 will the Chinese authorities allow foreign car companies to have local production. But it’s a lucrative market, with GM and Volkswagen holding the top two spots by market share in 2022.
BYD China and Geely has begun to climb, cementing the first and second place in the market, respectively, according to October data from the national passenger car association.
“Western (automakers) have woken up to the fact that they can’t just sit here and watch their market position just erode and erode, and they have to do something, they have to do something big,” said David Norman, a Hong Kong-based merger and acquisition lawyer. at A&O Sherman.
He represented Netherlands-based Stellantis last year in its $1.59 billion purchase of a 20% stake in Chinese electric car company Leapmotor.
“To take the crystal ball out, I think we will see more tie-ups for sure,” said Norman. “The technological lead that China’s NEV companies have is many and many.”
Chinese electric car companies have integrated smartphone-like entertainment displays, projectors and driver-assistance technologies into their vehicles to stay afloat in the highly competitive local market.
While Tesla’s version of driver-assist has yet to gain full approval in China, domestic players have developed their own. Xpeng, BYD and other local companies use it NvidiaChips, while the Chinese telecommunications giant Huawei has built driver-assist and entertainment systems in cars for other automakers.
“I think to have competitive vehicles in China, (foreign) companies need to have advanced driver systems that can be compared to some Chinese vehicles,” said Stephen Dyer, leader and head of AlixPartners’ Asia automotive practice. .
He expects foreign automakers to cooperate with Chinese companies on driver assistance, not only for the local market but also overseas.
Already, Volkswagen last year invested $ 700 million in the Chinese electric car startup Xpeng to create a model for delivery in China in 2026. The previous year, the German automaker announced plans to invest 2.4 billion euros ($2.5 billion) in a partnership between its car software subsidiary and a Chinese autonomous driving chip maker. Horizon Robotics.
Other notable partnerships in advanced driver assistance technology include Toyota’s announcement last year of a joint venture to mass-produce cars with Chinese autonomous driving startup Pony.ai.
Chinese companies may not be easy to buy
It remains to be seen whether foreign automakers can build an effective edge by partnering with Chinese companies that sell their own cars or technology in the same market.
“Domestic new energy vehicle brands are very competitive,” Weng Yajun, a Shanghai-based partner in M&A at JunHe Law, said in Chinese, translated by CNBC. “You can try everything, but only sell a few cars.”
Weng expects industry players to fight “to the death” for survival, rather than acquisitions in the near term
Carmakers in China have slashed prices to attract buyers, while launching several new models over the course of a year. Even state-owned car companies are struggling.
That means foreign automakers will have to compete with state-owned companies for local acquisitions, said Yiming Wang, an analyst at China Renaissance Securities. He added that Chinese startups are also not yet at the point where they want to sell themselves, even at a loss.
Volkswagen’s stake in Xpeng remains the highest bond between foreign automakers and Chinese electric car startups in the Chinese market.
German companies are trying other strategies to regain market share. The Audi brand, together with its partner SAIC, the Chinese state car manufacturer, this month launched a new electric car brand in China that ditches the four-ring logo, instead writing “AUDI” in round capital letters.
China’s foreign car market share will decline next year, with some brands exiting the country, said Jing Yang, director of Asia-Pacific corporate ratings at Fitch Ratings.
The global auto company also faces competition from Chinese automakers that are expanding overseas, Yang said. He noted that despite tariffs, such as in the European Union, “Chinese companies will not easily give up overseas expansion for the sake of higher profits.”
