General Motors’ China Business Is Hurting, And It’s Not Just Because Of Covid

General Motors It’s losing ground in China, its top sales market for more than a decade and one of the two main profit engines for the Detroit automaker.

The company’s market share in the country, including its joint ventures, has fallen from about 15% in 2015 to 9.8% last year – the first time it has fallen below 10% since 2004. Its earnings from operations have also fallen nearly 70%. % since peak in 2014.

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The coronavirus pandemic, which originated in China, is partly to blame. However, the decline began years before the global health crisis and is becoming more complicated amid rising economic and political tensions between the US and China.

Driven by nationalism is increasing competition from government-backed domestic automakers and a generational shift in consumer perceptions about the automotive industry and electric vehicles.

Take Will Sundin, a 34-year-old science teacher, for example, who told CNBC he never envisioned buying a Chinese-branded vehicle when he moved to the city. country in 2011. Recently, Sundarin bought a Nio ET7 electric vehicle as her daily driver in Changsha, the capital of China’s Hunan province.

“I wanted something big and comfortable, but I also wanted something that was a little faster,” he said. “I like the look of it.”

Sundin, who is in the form of moonlight a youtube car reviewer, knows the Chinese vehicle industry very well. He bought his Nio over the model from rival Chinese automakers xpeng, Lee Auto and IM Motors. The ability to swap out the vehicle’s battery for a fresh one, rather than recharge it, “promotes it very quickly,” he said.

Not on their wish list? American brands such as GM’s Cadillac and Buick initially led the automaker’s growth in China.

“Cadillac has a good image in China, but it’s expensive,” said Sundin, who previously owned a 2012 Ford Focus. “I think the problem they’re facing is they have competition, new competition, a lot of new competition, from different directions that they weren’t expecting.”

This competition is increasingly becoming a problem for GM, which has acknowledged such issues with its Chinese business. However, the company hasn’t given much assurance on how to reverse the trend other than the promise of a new EV and a new business. The Durant Guild Which would import high margin expensive vehicles from the US to China.

While many American brands are not doing well in China, GM’s decline is particularly notable. GM’s operation in the country is much larger than that of its crosstown rival ford motor, For example. It has a much smaller footprint globally after abandoning its European operations and ceasing operations elsewhere to focus largely on North America, China and, to a lesser extent, South America.

Over-reliance on only a few markets can be risky. but it led GM’s record earnings, as the company weeded out underperforming operations under CEO Mary Barra. Electric vehicles could be a new avenue for GM’s growth globally, but experts say it will be an uphill battle compared to reforms in China in the coming years.

“With those changes, with the focus again on North America and China, getting out of Europe, essentially, creates a risky scenario now that you have some issues, many issues, going into the Chinese market.” have been,” said Jeff Schuster, executive vice president of LMC Automotive, a GlobalData company.

GM has been downplaying the role of its operations in China in recent quarters, including when CFO Paul Jacobson discussed that China was “not critical” to GM’s financial performance. earnings in october

Barra said in December that China is an important part of GM’s business, but the company is also focusing on other issues, including the government’s now-defunct “zero Covid” policy and recent protests.

“We still see opportunity out there… Obviously, we also see the geopolitical situation. We can’t operate in a vacuum,” he said during an Automotive Press Association meeting. “But we will continue to see opportunities there and we will continue to evaluate the situation, but our plan is to be in a leadership position in EVs.”

One bright spot for GM in China is its Wiling Honggang Mini, made by a joint venture, which is the best-selling EV on the market. Since the start of sales in mid-2020, over 1 million units of the economy car have been sold.

Still, earlier this year Jacobson said China’s handling of the coronavirus pandemic and a rise in Covid cases projected equity earnings from operations to decline by about 40% in 2022.

GM reports its earnings from China as equity income because the country mandates joint ventures for non-Chinese automakers — except for Tesla, which was exempted, GM has 10 joint ventures, two wholly owned overseas enterprises and more than 58,000 employees in China. Its brands include Cadillac, Buick, Chevrolet, Wuling and Baojun.

“We see a lot of covid cases in China right now which slows down consumer. So we expect it to be a slightly slower buildup but hopefully working back to the levels we are used to over time. ” , “he told reporters during the Jan. 31 earnings call.

“This is not Covid. It started well before Covid,” Michael Dunn, CEO of zozo go, China, a consulting firm focused on electrification and autonomous vehicles. “It coincides with rising tensions between the United States and China. There’s no question, and it’s impossible to quantify, but it’s certainly a factor.”

Dunne, president of GM’s Indonesia operations from 2013-15, said the decline of GM and other non-domestic automakers coincides with the slowing growth of the China market, with Chinese automakers becoming increasingly more competitive and all-electric Change in vehicles – which is heavily subsidized by the government. agencies.

He added, “They’ve all really taken it on the chin as middle-market brands over the last five years. Chinese consumers are increasingly buying Chinese brands.” “It’s a seismic shift … the mindset has changed.”

Domestic startups and automakers have helped Beijing realize its goal of increasing penetration of new energy vehicles – a category that includes electric cars. More than one-quarter of passenger cars sold in China last year were new energy vehicles, according to the China Passenger Car Association, which predicts penetration will reach 36% this year.

In an overall slowing auto market, local companies raced to grab a share of that growth. startup like nio Helped promote the idea of ​​electric vehicles as part of an aspirational lifestyle and status symbol in China. And the rising quality of domestically made electric vehicles helped support and tap into growing nationalistic pride among China’s consumers.

Chinese brands have increased market share by 21% since 2015, accounting for nearly half of all passenger vehicles sold in China last year. China Association of Automobile Manufacturers, For comparison, sales of American brands in the US have been at around 45% during that time.

“Obviously the market has just been in a different place, a lot of it is policy-driven,” Schuster said.

Last year, half of the top 10 automakers in the country belonged to Chinese companies, compared to only three in 2015, according to a report by LMC Automotive. most notable BYD AutoAn electric vehicle maker that has since grown from selling about 445,000 units to nearly 2 million last year, making it one of the top five automakers in terms of sales in China.

“I think the No. 1 reason for GM’s downfall is the tilt toward Chinese nationalism,” Dunne said. “It takes the form of China declaring that it wants to become the global dominant force in electric vehicles and that it is doing everything in its power to cultivate national champions like BYD.”

Besides GM, America’s other older automakers—Ford and Chrysler—descend stellentis Haven’t fared much better. Both have experienced significant declines in sales; However, neither of them has revealed any plans to exit the market.

Ford in February named sam wooA former Whirlpool executive, who joined the automaker in October as president and chief executive of its China operations from March 1.

Ford’s market share in China has been around 2% since 2019, up from 4.8% in 2015 and 2016, according to the company’s annual filing.

Ford’s problems in China aren’t just overseas. company said in February It will collaborate with Chinese supplier CATL on a new $3.5 billion battery plant for electric vehicles in Michigan. The deal has been criticized by some Republicans, including Sen. Marco Rubio of Florida, who urged the Biden administration Ford deal review To license technology from CATL.

JV between Stellantis and Guangzhou Automobile Group to produce Jeep vehicles in China filed for bankruptcy Following the decision to dissolve the partnership in late 2022 and import its SUV in the country.

Stellantis CEO Carlos Tavares has said the company is taking an “asset-light” approach in the country, focused on growing profits and not necessarily sales, in the country, which is projected to decline by 7% in 2022.

“It’s also important that you realize that our financial position in China has improved significantly,” he told reporters during a call last month, adding that the company is “cleaning up the space.”

While US-focused automakers regroup, China’s local automakers continue to gain ground in their home market.

“People in China are proud,” said Nio owner Sundin.

“Just as ‘American Made’ is in America and the patriotism behind it is in China, [it’s] Same thing: ‘Eventually, we can make a phone or we can make a car that’s as good as or better than foreign automakers.'”

– CNBC evelyn cheng contributed to this report.