Carmakers’ China decline is global warning

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Stellantis CEO Carlos Tavares holds a news conference after 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 headaches for Western carmakers in China. Stellantis (STLA.MI), Chief Executive Carlos Tavares last month blamed government interference when cancelling the Jeep maker’s joint venture in the world’s biggest car market. A more serious worry, however, is that local manufacturers are gaining market share – and may soon pose a greater threat elsewhere.

For decades, big carmakers seeking a foothold in China were forced to set up onerous joint ventures with local enterprises. Beijing hoped that approach would turn inefficient local partners into industrial champions. The policy failed, though. Not only did these companies fail to develop export markets, even patriotic Chinese consumers preferred cars made by Nissan Motor (7201.T), General Motors (GM.N) or Volkswagen (VOWG_p.DE), (VOWG.DE). In 2000, the German company had over 50% of the Chinese market.

Yet even as China loosens joint venture restrictions, local competitors are accelerating. Foreign automakers last year saw their collective share of the Chinese car market shrink by 5.5 percentage points to 45.6%. In the first half of 2022, Volkswagen’s share was 15.5%.

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Two factors are driving the rising competitiveness of Chinese carmakers. First, the deepening pool of domestic engineering talent helped incubate vigorous private manufacturers like BYD (002594.SZ), (1211.HK), Volvo owner Geely (0175.HK) and Great Wall Motor . They are now competent manufacturers of mid-range conventional passenger vehicles and can poach top-shelf foreign designers from BMW and Italian design firm Pininfarina (PNNI.MI).

The second factor is Beijing’s push to leapfrog 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-weight yet still safe auto bodies compared to international rivals, McKinsey reckons. They also have access to cutting-edge battery expertise via local champions like $194 billion Contemporary Amperex Technology (300750.SZ).

Today Tesla (TSLA.O) is the only foreign carmaker that features in the Chinese industry association’s list of the ten top-selling electric vehicles. Research firm Redburn reckons Volkswagen has just 10.8% of China's electric vehicle market so far this year, although the $89 billion company is planning to launch new models and is investing in research and sales hubs.

The growing competitiveness has repercussions outside China. As local manufacturers expand, they are reinvesting earnings to take on Western giants in other markets. BYD, the Warren Buffett-backed Chinese carmaker challenging Tesla for the title of world’s largest EV maker, sent its first shipment of 1,000 Atto 3 sport utility vehicles to Australia in August. As Chinese cars show up on Western roads, the volume of complaints about political meddling will only increase.

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(The authors are Reuters Breakingviews columnists. The opinions expressed are their own. Refiles to add graphic.)

CONTEXT NEWS

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

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

Stellantis Chief Executive Carlos Tavares complained about political interference by local officials and worried 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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