Global OEMs in China: Tough Times

Things are clearly tough for foreign automakers in the region, as some global OEMs are reassessing their investment plans in China or, in fact, openly considering exiting their vehicle assembly business. It seems that

For most of this century, China’s rapidly expanding market, coupled with its trade policies, have been a consistent attraction for global OEMs to localize their automobile production in China. Additionally, localization in China has significant strategic and financial importance for OEMs as the traditional market becomes increasingly saturated. Over the past 20 years, light vehicle (LV) production by China’s “foreign” OEMs has increased more than 10-fold, accounting for about 12 million units in 2021, and his 15th of the world’s total LV production. %. So what seems to have gone wrong?

Overall, China remains a huge market attraction, and despite supply-side challenges, the auto industry’s LV production is well above pre-pandemic levels, which is ahead of the rest of the world. Contrast with region (see chart below).

However, the relative strength of China’s LV production performance has not been enjoyed by all OEMs, especially traditional “foreign” automakers. In fact, since 2019, the share of “foreign” brand production in China has shrunk from 54% to 47%, and the decline is even worse when Tesla’s performance on fire is excluded.

A more ‘flexible’ approach to materials procurement and the benefits of deeper supply chain integration have contributed to China’s ‘domestic’ progress, which is likely to supply it with desirable battery electric vehicles (BEVs). was successful. A strong segment in China that has supported these gains.

Moreover, by 2022, the average BEV mix of car production by major Chinese brands is expected to approach 30%. This compares with just 5% of the localized traditional global players (excluding Tesla).

Going forward, for many of China’s traditional ‘foreign’ automakers, new medium-term investments in factories and BEV products will bring a welcome boost to competitiveness as the local market continues to move towards electrification. is expected. However, for some of his OEMs, the size of investment required, geopolitics, or ongoing operational challenges may overwhelm them, making it difficult for them to serve his LV market, the largest in the world. A more “asset-light” approach will be pursued.

Nonetheless, the head start to BEV competitiveness that China’s “domestic firms” seem to have gained at home is unlikely to stop there. As demonstrated at the motor show, China’s broader offering of BEV products could soon impact the global market for LV. China could be encouraged to adopt its own localization strategy more quickly.