Peter Lyon
August 17, 2024
What’s happening in China? Some of the world’s biggest carmakers are finding it tough going in China. For example, GM swung from a $75 million profit in China in the second quarter of 2023 to a $104 million loss in the second quarter of 2024.
China was once a source of significant sales growth for foreign automakers like Volkswagen, Toyota and General Motors — but domestic competition is now posing serious challenges to their business. Last week, Volkswagen CEO Oliver Blume called China “a major challenge” for the company.
Toyota said profit from its China ventures plunged 73% on lower sales volume and increased sales expenses. GM CEO Mary Barra commented recently that the situation in China is “unsustainable” and that the company is restructuring its business there.
Intense competition in China — especially from surging and subsidized EV companies such as BYD — has led to excess production capacity and a price war. Foreign automakers are struggling to compete in China’s rapidly growing EV market, dominated by domestic brands like BYD, due to higher production costs and insufficient differentiation of their products.
“Very few people are making money, and a lot of OEMs are prioritizing production over profitability,” Barra said, adding that “the amount of companies losing money there cannot continue indefinitely.”
The situationis particularly problematic for VW, which last year lost its post as China’s best-selling automaker to BYD.
Volkswagen’s vehicle sales in China fell 6% in the first half of 2024, compared with a year earlier. China is so important to VW that Blume in April called it “our second home market” and vowed VW would be “pushing pioneering technologies, increasing cost efficiency, and deepening local partnerships.”
Over 30% of VW’s sales came from China in the first half of this year. That’s just slightly more than the 29% for GM, while 18.5% of global Toyota sales came from the country last year.
“With sales of non-Chinese brands there now dropping fast, Americans and Europeans feel that they must convert those plants to ship products to markets worldwide,” China auto industry expert Michael Dunne wrote recently. Dunne Thursday predicted that some automakers could exit China within months.
CARLIST THOUGHTS
Yes, things are that desperate in China with several firms considering the unthinkable—leaving China for good. Let’s face it, the Chinese were always going to win in China—especially when the country is totally geared up for EVs and they’re able to reap the benefits of the economies of scale that the foreign makers can’t replicate.
