U.S. automakers like General Motors (GM) are rapidly losing ground in China, once seen as an engine of expansion for them.

Mary Barra, Chair and Chief Executive Officer of General Motors Co. (GMC), spoke at a news conference held at Hudson’s building in Detroit on April 15th 2024. General Motors CEO Mary Barra has long shown an ability to quickly exit unprofitable or underperforming markets, though exiting China might prove more complex than usual. China was previously one of GM’s highest sales markets from 2010-2023 and thus poses one of the greatest hurdles when trying to do just that. “Over time, our commitment to China remains strong. “Over the medium term, China will experience substantial growth,” Barra stated during General Motors’ quarterly earnings call on April 23. Her words came months after Barra told investors in February that nothing is off-the-table when it comes to creating “an environment in China that generates strong profitability and returns for our investors”. Paul Jacobson from General Motors CFO also indicated in February that profits should return similar or slightly below 2023 profits – approximately $446 Million profit per annum. He blamed GM’s first-quarter loss on production downtime designed to decrease vehicle inventory levels, while his automaker suffered due to geopolitical tension between China and America, changing consumer sentiment, increased domestic competition as well as restructuring or exits in other markets to become more profitable. While other challenges exist as well for General Motors (GM), theirs stand out more due to recent restructuring or exiting efforts intended at increasing profitability. Under Barra’s tenure at General Motors (GM), his philosophy has long been that if there was no clear path forward in any region for them to lead there then they shouldn’t do business there. On March 25th of this year the Chevrolet Pure Electric Concept Car FNR-XE will be showcased at SAIC-GM Pan-Asia Automotive Technology Center located in Shanghai China. Costfoto | Nurphoto | Getty ImagesIn 2017, Volkswagen sold its European operations to what was then PSA Groupe, now Stellantis Automotive LLC – now Chrysler parent Stellantis Automotive LLC. General Motors also announced at this time its intention to cease domestic production operations or exit Russia, India, Thailand and Australia among others – decisions which dramatically reduced GM’s footprint while placing increased emphasis on North America and China. These two markets now account for most of GM’s annual earnings along with its financial arm. Meanwhile, its international operations – which posted $1.2 billion adjusted earnings last year – include South Korea, Brazil and other key markets worldwide. General Motors (GM) has also begun its return to Europe through electric vehicle (EV). China Market Share Has Slumped Since 2003 General Motors (GM) earnings have fallen since peaking in 2014 by 78.5 percent according to regulatory filings, according to regulatory filings. Their US-based brands such as Buick and Chevrolet saw sales decline more significantly than joint venture sales with SAIC Motor, Wuling Motors or others. Joint venture models comprised roughly 60% of its 2.1 million vehicles sold last year in China. Other than this year’s first quarter losses, General Motors (GM) in China since 2009 has experienced two other quarterly shortfalls: an $167 million shortfall during 2020 due to coronavirus pandemic; and an $87 million loss during 2022’s second quarter. Workers inspect vehicle before rolling it off assembly line at SAIC General Motors Wuling production workshop located near Qingdao city of East China’s Shandong province on January 28, 2023. John Murphy from Bank of America Securities, a top automotive analyst, has asked on two consecutive quarterly earnings conference calls whether General Motors (GM) would consider exiting China. Recently he stated, “Isn’t it time we started considering potential strategic alternatives like closing or selling off our business?” “Barra insisted that new products would help the automaker improve its competitive edge in China’s auto market, such as so-called ‘new energy vehicles’ – all-electric and plug-in hybrid hybrid vehicles.” General Motors unveiled several vehicles last week in China, including plug-in hybrid versions of its best-selling minivan in China – Buick GL8 minivan – and Chevrolet Equinox crossover SUV models. Barra acknowledged the changing market landscape due to Chinese automaker capabilities and noted, however, GM still believes there’s room for luxury premium vehicles in their portfolio. “GM is shifting away from mainstream vehicles as competition in China increases. They plan on importing flagship models such as Hummer EVs and large SUVs via an indirect sales unit called Durant Guild directly to consumers in China.” General Motors announced their China division in 2022; yet some, like Michael Dunne a former executive from Indonesia for General Motors believe its launch may come too little and too late for America’s largest automaker in China. On March 25th 2024 the Chevrolet-FNR Pure Electric Concept Car will be displayed at SAIC-GM Pan-Asia Automotive Technology Center located in Shanghai China. “[Traditional U.S. automakers are] reaching the beginning of their end,” noted Dunne, an expert on China and CEO of consulting firm Dunne Insights. Everything’s moving in the wrong direction for Detroit automakers operating there. Western automakers’ demise in China can be traced to increased competition from nationalism-inspired domestic automakers as well as changing consumer preferences for electric vehicles and the automotive industry. Mark Fulthorpe, Executive Director for Automotive at S&P Global Mobility believes GM’s equity holdings make China operations too valuable to abandon like they would other markets. “They will seek to build upon what they already possess. No doubt there will be another attempt made at it,” he continued, believing there’s still plenty to play for in 2019. Dunne has noted the Tesla effect has also played an influential role. “This phenomenon, commonly referred to as ‘The Tesla Effect,’ refers to domestic Chinese automakers taking market share away from GM and Ford in China (with Ford experiencing an 32.44% drop from 2018-2022 sales), while U.S. electric vehicle leader Tesla may also have played its part,” according to Dunne. He refers to it as the Tesla effect: “Suddenly, Chinese consumers had an entirely different outlook on electric vehicles: here was Apple-esque status when it comes to automotive industry innovation, said Chen. In turn, electrics became “cool” among Chinese consumers.” In 2019, Chinese production for this manufacturer started. Tesla quickly increased production after Covid lockouts were enforced in China and was quickly seen by Chinese consumers as viable transportation solutions, according to Dunne. Tesla CEO Elon Musk leaves a hotel in Beijing China May 31 in his Tesla vehicle on May 31, 2023 (Tingshu Wang | Reuters). While facing pressures here in China, experts state Tesla remains popular over its traditional competitors. Tesla, like other Western auto companies, has had to aggressively cut prices in order to compete against Chinese automakers like BYD and Nio. Morgan Stanley analyst Adam Jonas-a long-standing Tesla bull-believes that Tesla and other Western car companies will soon enter a period with lower capex spend, higher protectionism levels, and eventual cooperation between themselves and China. “We believe Western auto firms (including Tesla) have come to a collective and simultaneous realization: China has won the contest for electric vehicle supremacy,” according to an investor note on Friday from John Poddar of Insight Investment Advisory Services LLC. Tesla currently in midst of global restructuring with over 10% reduction of workforce due to changing market conditions; their revenue in China increased 57% year over year reaching $21.74 billion last year according to annual regulatory filing. But its Chinese revenue fell 6% year-on-year during the first quarter, to $4.6 billion, in comparison to their competitors’ sales drops in China. “Compared with their drops, ours were smaller.” Due to supply chain and geopolitical challenges in China, automakers like Stellantis and Ford have begun operating “asset-light” operations there in response. That entails continuing operations while using less assets or better using those already present; Stellantis recently changed strategy after filing bankruptcy for its joint venture with Guangzhou Automobile Group late 2022. Stellantis’ partnership to produce Jeep vehicles in China was officially terminated, leading the automaker to opt instead to go “asset-light” by importing such SUVs directly. Stellantis CEO Carlos Tavares identified Chinese automakers as their main competitor earlier this year. Stellantis continues its partnerships with Chinese firms. CEO Carlos Tavares of Stellantis shakes hands with Zhu Jiangming of Leapmotor after signing agreements that strengthen both companies’ mutual relationships. Stellantis most notably purchased 20% stake of Leapmotor and established an electric vehicle manufacturing joint venture together. Stellantis’ vehicle sales in China have seen a 44% decrease from 124,000 units sold in 2021 to 69,000 last year; unfortunately, Stellantis does not disclose financial results from China. Ford saw its adjusted operating income drop 22% since 2022 while revenue dropped roughly one billion euros; nevertheless, Ford still plans on producing Lincoln luxury brand models there. “To maximize our available capacity and de-risk the business we use Chinese plants for production of vehicles for exportation elsewhere.” “We have done extensive work de-risking that business; our assets in China have been leveraged into production lines in an asset light fashion. Ford CFO John Lawler told media last week during an earnings briefing: “Our strategy also leverages partnerships in China for export of low-cost products into other global markets,” Lawler noted. Last year alone Ford exported 100,000 vehicles out of China into South America and other regions. Ford recently began exporting its Lincoln Nautilus SUV from China to the U.S. for sale and plans on increasing exports further, according to a Ford spokesperson. While they no longer disclose financial results by region, from 2017-2022 Ford lost roughly $5.5 billion due to losses there. Lawler reported all Ford Blue operations – which includes China – were profitable during the first quarter, although this unit does not encompass commercial sales or electric vehicles (EVs).Despite facing stiffer business and competition in China, S&P Global estimates U.S. automakers exported an estimated 482,000 vehicles out of China last year. That figure represents more than three and half times an increase over 2019 levels and roughly 22% from 2022 levels, as Chinese consumers were shown interest again in both General Motors (GM) and Ford products, said Dunne. Boardrooms across China are focused on answering one key question right now – How do we convince Chinese consumers they like these again? – CNBC contributors Lora Kolodny, Eunice Yoon and Michael Bloom contributed significantly.