- American car companies' sales in China have been on a steady decline.
- "The market has totally changed," Jim Farley, the CEO of Ford, said about China
- Without China, American car companies will likely lean into US electric-vehicle sales.
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This story was originally published in April 2023.
Chinese automakers are giving US car companies a run for their money, especially as the momentum behind electric vehicles accelerates — and that could force Ford and GM to make some hard decisions.
Other than Tesla, popular US auto brands lost major ground in China last year, the world's largest car market that's critically important to manufacturers. GM's car sales there fell by 20% from 2021, while Ford's declined by 33.5%, according to advisory firm Automobility Ltd.
"The market has totally changed," Jim Farley, the CEO of Ford, told reporters at an April charity event in Detroit. "We're going to have to rethink what the Ford brand means in a place like China." Advertisem*nt That's especially true as EVs take center stage, Farley said, noting that he has learned the luxury brands that sell only electric vehicles do best in Chinese markets.
Chinese EV-maker market share in China rose by 17% in 2022, while that of foreign automakers dropped by 11%. Some of this can be attributed to Chinese car companies' ability to build better and cheaper cars, especially EVs, that consumers are keen to buy.
"It's pretty much the consensus belief that the US automakers are increasingly irrelevant" in China, Edison Yu, an analyst at Deutsche Bank, told Insider.
"As we make this transition to EV, the GMs, the Fords in China will really have to be very bold and aggressive to find success," Yu said.
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"At some point, there needs to be either a decision to continue or to pull out," Yu said. "We're at a point where one does need to make a decision on their future."
Car companies will double down on US buyers and EVs
As the industry bounced back from the Great Recession, and China became the fastest-growing — and most EV-friendly — car market in the world, American car companies rushed to enter the market.
But as political tensions intensify between China and the US, operating in China is starting to become more of a risk for US companies.
Add in the fact that Chinese brands spent the last several years sapping up industry know-how from joint ventures with US brands, and the Chinese market suddenly becomes a much more hostile place for American companies.
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That means that US companies will redouble their EV efforts at home, where they can count on a more reliable and loyal customer base. The one kink in that plan is Elon Musk and his ongoing price war.
"Price wars are breaking out everywhere. Who's going to blink for growth?" Farley said at the event.
The China versus America face-off is at a stalemate – for now
While American companies lose ground in China, there is a bright spot. The pandemic forced automakers to make more with less, by shifting their supply chains and focusing on the markets where they make the biggest profit margins.
GM largely led the charge to exit money-losing markets, pulling out of Europe in 2017 and later leaving Russia, India, and Australia. The company still operates in China but is struggling to defend its market share. GM's China sales fell 25% in the first quarter of 2023 after retreating 20% last year.
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The retreat from China and a hyper-focus on the US could be risky.
Making up the difference in Europe isn't likely to be an option for US car companies — Europe's a market that Chinese car makers are already aggressively chasing after, and the competition is increasingly fierce.
While there aren't currently any Chinese car brands for sale in the US, the concern is that eventually, Chinese automakers could eventually make a play to upend the US market.
"What happens in China will not stay in China," Bill Russo, the CEO of Automobility, told Insider in January.
As an automotive industry expert with a deep understanding of the dynamics between American and Chinese car markets, it's evident that the challenges faced by American car companies in China are multifaceted and require a nuanced analysis. The evidence presented in the provided article aligns with the broader trends I've been closely monitoring.
Firstly, the decline in sales for American car companies in China, as highlighted by the statistics from advisory firm Automobility Ltd., is a clear indication of the shifting dynamics in the world's largest car market. GM's sales dropped by 20%, and Ford experienced a more significant decline of 33.5%. Jim Farley, the CEO of Ford, emphasized the profound changes in the Chinese market, signaling a need for American automakers to reassess their strategies.
The rise of Chinese automakers, particularly in the electric vehicle (EV) segment, is a pivotal aspect. Chinese EV-maker market share surged by 17% in 2022, while foreign automakers, including those from the United States, saw an 11% decrease. This reflects the ability of Chinese car companies to produce compelling and cost-effective EVs, a trend that has captured the preferences of Chinese consumers.
The article underscores the importance of the electric vehicle market in China, with Farley noting that luxury brands exclusively focused on electric vehicles perform best in the Chinese market. This aligns with my knowledge of the global automotive industry's increasing emphasis on electric and sustainable technologies.
The geopolitical context also plays a significant role, with political tensions between the U.S. and China impacting the feasibility and risk associated with operating in the Chinese market. The article suggests that, due to these tensions and the transfer of industry know-how to Chinese brands through joint ventures, China has become a more challenging and potentially hostile environment for American companies.
Looking at the broader strategy, the article suggests that American car companies, faced with challenges in China, may redirect their focus to the U.S. market and double down on electric vehicles. This shift is a logical response given the reliability and loyalty of the domestic customer base. However, the potential disruption caused by Elon Musk and ongoing price wars in the electric vehicle segment adds a layer of complexity to this strategy.
Finally, the article highlights the risk of a China versus America face-off in the automotive industry. While American companies might retreat from China and concentrate on the U.S., the article cautions that this strategy is not without risk. The hyper-focus on the U.S. market might leave American car companies vulnerable to competition from Chinese automakers, not only in China but potentially in other markets, including Europe.
In summary, the evidence presented in the article underscores the complex challenges facing American car companies in China, emphasizing the need for strategic decisions and bold moves in the evolving landscape of the global automotive industry.
