Bank of America (NYSE:BAC) analysts have advised Detroit automakers General Motors (NYSE:GM), Ford (NYSE:FORD), and Stellantis (NYSE:STLA) to leave the competitive Chinese market and focus on their profitable U.S. operations. “Exiting China from a pure profit and strategic standpoint makes sense, focusing on where you’re making money—North American trucks,” said John Murphy, BofA auto analyst, as reported by The Detroit News and CNBC.
General Motors, with a long history in China through its Buick brand, once made significant profits, earning over $2 billion annually during its peak in the 2010s. However, increasing competition from local rivals like BYD and Geely has reduced volumes and profits. GM’s sales in China fell to 2.1 million vehicles in 2023, resulting in a loss of $106 million last quarter, only its third loss in 15 years.
The situation is even less favorable for Ford and Stellantis, formerly known as the Chrysler group. Both companies have struggled to secure a significant market share in China, the world’s largest car market with a record 30 million vehicles sold last year. Murphy warned that continued financial losses in China would drain resources, suggesting they should leave “as soon as they can” to focus on developing a competitive EV lineup against Tesla (NASDAQ:TSLA).
“Focus on your core,” Murphy stated during an event organized by the Automotive Press Association, presenting the bank’s annual Car Wars report. “China is no longer a core strategy for GM, Ford, or Stellantis.”
If GM, Ford, and Stellantis exit China, Tesla would be the only remaining American car brand competing in all three major global markets: North America, Europe, and China.
Despite the recommendation, GM remains committed to the Chinese market. A GM spokesperson referred to CEO Mary Barra’s April comments, emphasizing their commitment to the market while introducing new products like plug-in hybrids and luxury imports such as the Chevy Tahoe and GMC Yukon.
Ford, after years of losses in China totaling $572 million in 2022, has been profitable for the past three quarters and has no plans to leave. “Participating in the world’s largest automobile and electric vehicle market provides us with knowledge we’re applying to leading and winning across our global business,” a Ford spokesperson told Fortune.
Chinese carmakers have outpaced weaker Western brands by hiring European designers to create stylish vehicles in state-of-the-art factories with lower-cost labor. They have also gained access to advanced technology through joint ventures or acquisitions of Western brands like Volvo. Chinese consumers, with high expectations for tech features, demand the same from their vehicles.
Volkswagen’s ID line of EVs, once a market leader in China, disappointed due to perceived poor value-for-money, primarily because of its basic infotainment system and substandard software. Conversely, Tesla, which pioneered remote over-the-air updates for EVs, remains competitive despite its hardware being considered ordinary by Chinese standards. Except for GM’s Buick, Detroit brands like Ford and Chrysler lack heritage, premium cachet, and advanced technology.
The recent deflationary downturn in China, driven by a real estate market crash, led to a price war that many Western carmakers cannot match. This has even pushed local brands to explore healthier export markets abroad. Detroit’s automakers must decide whether to pursue global ambitions or cut into Tesla’s substantial lead in EV manufacturing costs.
“To be competitive with Tesla on price and cost is mission critical,” Murphy added. “Pushing volume while losing money doesn’t make a lot of sense.”
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