A well-known analyst issued a warning on Tuesday (June 18) that American automakers such as General Motors (GM), Ford, and Stellantis should “quickly” exit the Chinese market to preserve their capital.
John Murphy, an analyst at Bank of America Securities, presented the highly anticipated annual report on the automotive industry titled “Car Wars” on Tuesday.
“I believe you must see the Detroit Big Three exit China as soon as possible,” he said at a press conference. “China is no longer a core market for General Motors, Ford, or Stellantis.”
Just a few years ago, this scenario would have been unthinkable for automakers. However, with the rise of Chinese car manufacturers like BYD and Geely, along with substantial subsidies in the electric vehicle sector from the Chinese government, American car companies are facing increasing pressure.
Including joint ventures, General Motors’ market share in China has plummeted from about 15% in 2015 to 8.6% last year, marking the first time it has fallen below 9% since 2003. Regulatory filings show that General Motors’ profitability in China has also declined, dropping by 78.5% since reaching its peak in 2014.
American companies operating in China also face geopolitical risks and uncertainties. President Biden announced last month that electric vehicles manufactured in China would be subjected to four times the tariff.
Currently, the Chinese automotive market is experiencing unprecedented overcapacity and price competition. As a result, Ford, General Motors, and Stellantis are focusing their business strategies on cost reduction.
Murphy warned that the Detroit Big Three may have to take more severe measures to cut expenses, especially in the gasoline engine business, which currently provides most of the profits.
He also pointed out that American companies struggle to outperform local competitors in China, where consumers exhibit high loyalty to domestic brands. With the U.S. set to impose tariffs of over 100% on Chinese electric vehicles starting August 1, this loyalty may further increase.
He urged the Detroit automakers to concentrate on their core business, such as gasoline-powered trucks, in the coming years instead of the Chinese market. He also emphasized the need to enhance electric vehicle production technology until they can rival Tesla.
However, despite Murphy’s call for the Detroit Big Three to reconsider their operations in China, he noted that the situation for the American electric vehicle leader Tesla is slightly different.
Murphy stated that Tesla holds a cost advantage of approximately $17,000 in electric vehicle components compared to traditional Detroit automakers, allowing it some room for development in the Chinese market for the time being.