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EV cars are displayed inside BYD’s first electric vehicle (EV) factory located in Rayong, Thailand, which has rapidly emerged as a key market in Southeast Asia. This region’s EV landscape has been notably influenced by BYD’s rise as the leading manufacturer as of July 4, 2024.
BEIJING — The urgency for traditional international car manufacturers to adjust to the dynamics of China’s burgeoning electric vehicle market is becoming increasingly evident. Industry analysts are advising these companies to forge stronger local partnerships as a strategy for maintaining their competitiveness.
Established automakers that rely on fossil fuels have found it challenging to maintain their presence in the world’s largest automotive market, which has seen a dramatic shift towards new energy vehicles, now constituting over half of all car sales in the country.
According to Tu Le, founder and managing director of Sino Auto Insights, if foreign brands fail to introduce competitive clean energy vehicles soon, they may have to rely solely on partnerships with domestic companies to salvage any market presence. “Is it too little too late? Perhaps for several foreign brands,” he remarked.
Prominent automakers such as General Motors, Volkswagen, and Nissan have experienced declines in their revenues from the Chinese market between 2019 and 2023, based on CNBC’s analysis of their financial data.
In 2023, South Korea’s Kia reported sales figures in China that were over 30% lower than in 2020. In stark contrast, Tesla indicated its sales in China increased more than sixfold during the same period.
As concerns among investors grow, leadership teams are actively exploring various strategies. GM CEO Mary Barra recently mentioned to shareholders and board members the need for “restructuring” initiatives to enhance profitability in China, which previously was its most lucrative market.
Foreign automakers have historically had to establish joint ventures with local companies as mandated by the Chinese government. It wasn’t until 2022 that full ownership of local production was permitted for foreign manufacturers. Despite these regulatory changes, GM and Volkswagen had successfully secured leading positions by market share as late as 2022.
However, companies like BYD and Geely have surged ahead, claiming the top spots in the market according to data from October released by the country’s passenger car association.
David Norman, a mergers and acquisitions lawyer based in Hong Kong, remarked, “Western automakers are starting to realize they can’t just stand by as their market positions continue to decline; they need to take significant action.” His firm had represented Stellantis in a substantial investment into Chinese electric vehicle company Leapmotor.
Looking ahead, Norman predicts an increase in collaborations, noting the substantial and growing technological advantage that Chinese new energy vehicle manufacturers hold.
Chinese EV manufacturers have incorporated advanced features such as smartphone-like entertainment displays and robust driver-assistance technologies to navigate the highly competitive local market.
While Tesla’s driver-assistance technology has yet to receive full authorization in China, local companies like Xpeng and BYD have made significant strides using Nvidia’s AI chips, while Huawei has developed its own systems for in-car entertainment and driver assistance.
Stephen Dyer, co-leader of AlixPartners’ Asia automotive practice, believes that foreign companies must develop advanced driver-assist systems that can compete with those found in many Chinese models. He anticipates a surge in partnerships between foreign and local firms aimed at enhancing driving technologies for both local and global markets.
Volkswagen has already made strides in this direction, investing $700 million in Xpeng to develop new models for China by 2026. Additionally, in a separate initiative, Volkswagen allocated 2.4 billion euros to facilitate a partnership focused on autonomous driving technology.
Significant developments can also be seen in Toyota’s recent announcement of a joint venture with the autonomous driving startup Pony.ai, aimed at mass-producing vehicles equipped with advanced driving capabilities.
Challenges in Acquiring Chinese Companies
The ability of foreign automakers to cultivate a competitive edge through alliances with Chinese companies selling their own electric vehicles remains uncertain. Shanghai-based M&A partner Weng Yajun stresses the intense competition from domestic brands, stating, “Even with considerable endeavors, selling a limited number of cars may be all that results.” He predicts that the industry will engage in fierce competition for survival rather than focusing on acquisitions in the short term.
To attract buyers, Chinese automakers have been known to reduce prices while launching numerous new models within a single year, creating a highly aggressive pricing environment. In this context, foreign manufacturers face stiff competition from state-owned enterprises for any potential acquisitions.
Yiming Wang of China Renaissance Securities points out that while Chinese startups currently operate at a loss, they are not inclined to consider selling themselves at this time.
Volkswagen’s investment in Xpeng stands out as a notable collaboration between a foreign firm and a Chinese electric car startup. Volkswagen is also refining its strategies to reclaim market share; for instance, its Audi brand, in partnership with state-owned SAIC, recently introduced a new electric car lineup in China, emphasizing an updated branding approach.
Market forecasts indicate that foreign automakers’ market share in China may continue to deteriorate, with some brands potentially withdrawing from the market entirely, according to Jing Yang of Fitch Ratings.
Additionally, global car companies are now contending with the aggressive overseas expansion efforts of Chinese manufacturers, which persist despite trade barriers and tariffs, as noted by Yang.
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