Reuters Analysts Warn Western Automakers To Lose China Market

Political meddling is just one of the headaches for Western carmakers in China. Stellantis' Chief Executive Carlos Tavares last month blamed government interference when canceling the Jeep maker’s joint venture in the world’s biggest car market.

Photo Insert: The production version of the ID.AERO for China is expected to go on sale in the second half of 2023.

A more serious worry, however, is that local manufacturers are gaining market share – and may soon pose a greater threat elsewhere, Pete Sweeney and Neil Unmack wrote for their Reuters Breakingviews column.

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, but even Chinese consumers preferred cars made by Nissan Motor, General Motors, or Volkswagen. 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%.

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, Volvo owner Geely, 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.

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 locals like $194 billion Contemporary Amperex Technology.

Today, Tesla is the only foreign carmaker 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.

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