Running out of gas
A joint venture to build Jeeps in China is to file for bankruptcy, the companies behind the scheme, Stellantis and Guangzhou Automobile Group (GAC), have said.
The decision doesn’t bode well for outside automotive manufacturing in the country or for those looking to invest in such ventures.
The conclusion is not a shock given the split the two partners announced earlier this year. It is however, a powerful symbol of the growing challenges global auto brands face in such a large and relatively affluent market.
Jeepers creepers!
Jeep is one of the most valuable brands in the auto industry, yet in China sales of its vehicles have collapsed over the past five years from more than 200,000 vehicles in 2017, to fewer than 2,000 so far this year.
In May, incredible as it sounds, Jeep sold only one new vehicle in China. The nation’s fast shift to electric vehicles – driven by government policy and the growing skill of domestic auto brands at delivering in-vehicle connectivity tailored to Chinese consumer tastes – is challenging global brands.
Changing lanes
Some day, China’s bustling auto market may consolidate and give big names more operating room.
But the battle for the driving consumer is still raging: Volkswagen, for example, took a bashing in China last year – in part because of the pandemic. However VW said recently that sales recovered and the company is taking action to catch up with connectivity trends, including partnering with Chinese smart vehicle tech company Horizon Robotics.
Also, BMW’s third quarter sales grew by 35% to €37.2bn (£32.5bn), helped by strong demand in China and higher prices for its luxury models. The German carmaker’s net profit reached €3.2bn, up from €2.6bn euros between July and September last year.
The results underscore the deep economic ties between Germany and China, the world’s largest car market, as German Chancellor Olaf Scholz prepares to visit Beijing. BMW will be part of a delegation of German companies to accompany Scholz on the trip.
Our take
Global automakers’ efforts to rebuild sales and profitability in China face near-term risks from Beijing’s war on covid – which recently escalated with the lockdown at Shanghai Disney and restrictions that crashed Apple’s production network.
Those disruptions, and a potential slowdown in China’s economy, give Chinese manufacturers (and the Chinese operations of players such as Tesla) even more incentive to export vehicles to chase sales in Europe.
This leaves a situation whereby the Chinese auto market looks set to rebound but it’s unclear how and by whom any extra demand will be met by. But the idea that the world’s largest car market will not adapt is unthinkable – so watching how the market moves – and the movers behind it – is sage advice.