The first joint venture failure by a foreign brand in the electric vehicle (EV) era, the Oct. 31 bankruptcy filing marks a turning point in that Chinese automakers are beginning to overtake long-dominant international brands.
The bankruptcy of Stellantis’ Jeep joint venture in China could spell trouble for other global automakers whose production has declined over the past five years in the world’s largest auto market, quickly overtaking local ones.
The first joint venture failure by a foreign brand in the electric vehicle (EV) era, the Oct. 31 bankruptcy filing marks a turning point in that Chinese automakers are beginning to overtake long-dominant international brands in giving consumers what they want.
“I don’t expect the Stellants to be an isolated case,” said Marco Santino, partner at management consultants Oliver Wyman. “Perhaps almost all Western automakers should revise the industrial logic of their presence in China.”
Some of the elements of the Jeep joint venture’s failure are specific to Stellantis — and the groups of former cars that stand out among its 14 brands. But data compiled for Reuters by consulting firm LMC Automotive reveals a problem shared by a number of other global automakers: low utilization of Chinese factories.
The fewer cars a factory produces, the more likely it is to lose money.
Jeep’s failure in China occurred less than two years after Stellantis was formed through the merger of PSA and Fiat Chrysler.
In the run-up to the deal, CEO Carlos Tavares said no automaker could not be in China, and together the two companies were expected to be better prepared to make headway there.
But Stellantis earlier this year said it would end its venture with local partner Guangzhou Automobile Group (GAC), just months after saying it would raise its stake to 75% from 50%.
The shift leaves the world’s No. 3 automaker by sales with only limited production from Peugeot and Citroen in China, which it said could also be discontinued, though it has yet to decide on that.
Meanwhile, Stellantis’ Tavares promoted an “asset-light” strategy in which the automaker would import higher-margin cars like Maseratis and Jeeps into China.
The automaker’s outspoken Portuguese CEO complained that “political influence is growing day by day” in China and accused Stellantis’ joint venture partner GAC of not acting in good faith.
The GAC said it was “deeply shocked” by the critical comments from Stellantis.
According to LMC data, Stellantis’ estimated full-year production capacity at Chinese assembly plants will drop to 13% in 2022 from 43% in 2017.
At the same time, global automakers’ sales in China have slumped as local competitors take off because Chinese automakers have embraced electric vehicles and consumer-focused in-vehicle software more quickly.
“Over the past five years, the (Chinese) market has changed definitively from foreign companies having the right to win because of their foreigners to where there is a more level playing field,” said Bill Russo, president of Automobility Ltd in Shanghai. and former CEO of Chrysler Corporation.
“Chinese companies actually have the advantage of early movement because they have embraced electrification faster than foreign companies would like to do so,” he added.
While fully electric vehicles make up an average of 5% of the models sold by foreign automakers Chinathey account for 30% of Chinese automakers’ models, according to LMC data.
Intense competition Europe
Some Chinese competitors like BYD who have more EV models in their lineups are also aiming to grow in Europe.
This means that as global giants Volkswagen, Ford and General Motors work to bring more electric vehicle models to market, they face stiff competition from young Chinese rivals who have quickly adapted to changing consumer tastes.
“They’re miles behind compared to (Chinese) domestics,” said Justin Cox, LMC’s global production manager.
They must also overcome an image rooted in the technology of the combustion engine era.
GM is counting on a wide range of electric vehicles to rebuild profits from its China operations — which fell 44% to $477 million in the first nine months of this year — to $2 billion by 2030.
“I wouldn’t jump to conclusions about China based on 2022,” Chief Financial Officer Paul Jacobson told reporters earlier this month. “We still feel really good about where we go there.”
Volkswagen said in a statement that China was in a “special situation” due to the pandemic, global semiconductor shortages and the “accelerated shift towards electric mobility” which affected production capacities across the industry.
“Volkswagen continuously assesses these special factors and adjusts its production planning at an early stage if necessary,” Volkswagen said.
stronghold It said it is working to overcome the production challenges posed by COVID-19 and the semiconductor shortage.
Smartphones on wheels?
The Jeep brand was originally brought to China by American Motors Corp. before it was acquired by Chrysler in 1987. It sold the same single Jeep Cherokee model for 20 years.
Automobility’s Russo said that over the years, Chrysler, Fiat and Peugeot — all part of Stellantis, all of which have their own Chinese joint ventures — struggled before becoming part of the same company. Sentences Collection.
“These are companies that have never figured out the formula for success in China,” Russo said.
With the rise of domestic automakers in China, international brands will find it more difficult to obtain local licenses and won’t have the same access to loans from state-owned banks, said Michael Dunn, CEO of California-based consulting firm ZoZo Go and a former CEO of General Motors. . .
“Stellantis is a canary in a coal mine,” Dunn said. “Forever, foreign brands have been China’s favorite sons.”
As the formula for success changes in China, consumers want electric cars like it smart phones On wheels where the focus is on communication and Apps rather than performance — so much so that electric car makers like Nio have a selfie camera built into some models to entice younger buyers.
So far Mercedes and BMW have maintained their appeal, in part because they maintain a good image as aspirational brands in China, but also because Chinese automakers have yet to turn their attention to producing luxury electric vehicles.
LMC’s Cox said other international brands could find their way back to a higher market share in China, but it would take time and a lot of investment in new products.
“Once a brand is damaged or at least looks bland, old-fashioned, or unattractive, it’s very difficult to make some hits at home,” said Cox. “Some companies with clearly dominant positions may find it very difficult to come back.”
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