Foreign Carmakers Face Struggle in China

"New data show foreign carmakers' share of the Chinese market is shrinking more quickly, and foreign executives say any turnaround is years away.

In the first six months of the year, foreign brands such as Tesla and Volkswagen took 43% of the passenger-car market in China, down from 50.5% in the same period a year earlier, the China Passenger Car Association said Monday.

China's auto market, the world's largest by unit sales, is rapidly electrifying with help from state subsidies, and local electric-vehicle makers have grabbed significant market share.

"What's tough is, the models that have been our strengths, the Accord, the Civic or the CR-V, are now seen as old fashioned at times," said Masayuki Igarashi, Honda's managing executive officer overseeing its China business, in April. "Still, we have to protect our brand."

The foreigners' setbacks in China have added to the global backlash against Chinese car exports, with the U.S. and some other governments figuring they have little to lose by hitting Beijing with tariffs. The U.S. in May set a 100% tariff on Chinese EVs, and the European Union followed suit the next month by releasing tariff rates of about 17% to 38%.

More than 70 EVs are expected to be introduced this year in China, according to Volkswagen, leading to a price war that hits domestic and foreign brands alike. Some carmakers are grappling with excess production capacity and are trying to export their way out of trouble, exacerbating tensions with Western governments.

In the first six months of this year, car sales rose 3.3% from a year earlier to 9.84 million vehicles, according to the Chinese car association. Gas-car sales continued to tumble, while growth of EV sales slowed. Overall, new-energy vehicles, a category that includes full EVs and plug-in hybrid vehicles, accounted for about 42% of the market in the first half. Tesla fell to third place in the new-energy-vehicle category in the January-May period, according to the latest available data from the association, behind China's BYD and Geely Auto.

Cars are one of many consumer products where Chinese buyers are switching to local brands as homegrown companies improve in quality and some people express their patriotism through their purchases.

Last year, Japan's Mitsubishi Motors said it was ending production in China, while two years ago Stellantis did the same for its Jeep vehicles.

Other foreign makers of gasoline-powered cars are retrenching to adapt to declining sales. Gasoline-car factories tend to have more workers than EV factories because EVs require fewer production steps and typically are made with more advanced manufacturing automation technology.

Hyundai, whose China sales have been dropping, has sold its plant in Chongqing, western China, to a local company. Nissan recently halted vehicle production at its Changzhou plant in eastern China, while Honda has sought to cut workers at a China joint venture through voluntary buyouts.

Companies that retain hope for China are trying to cater better to local tastes, especially in EVs, and speed up development.

Volkswagen, the bestselling foreign brand in China, has shifted much of its development decision-making authority to executives in the country. To absorb local technology, it invested in Chinese EV-startup Xpeng and auto-industry chip maker Horizon Robotics among others. VW says it has cut development time in China by about 30%.

Still, the first of its locally developed cars won't reach the market until 2026. Ralf Brandstatter, who heads Volkswagen's business in China, characterized the two years until then as a "stabilization phase."

"We expect in these two years very challenging moments," he said in April. "We don't worry about that. For us it's important to prepare [for] '26."

Toyota and Nissan also have said they plan to further localize development of cars sold in China.

Tesla is an exception among U.S. carmakers in that it still relies heavily on China. Its locally produced Model 3 and Model Y helped spark interest in EVs and remain strong sellers. Still, sales have dropped as those models age.

To reignite consumer interest, Chief Executive Elon Musk wants to introduce driving assistance software that he calls full self-driving." [1]

1. Foreign Carmakers Face Struggle in China. Kubota, Yoko; Leong, Clarence.  Wall Street Journal, Eastern edition; New York, N.Y.. 09 July 2024: B.1.