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AUTOMOTIVE NEWS

Who's next? Chinese EVs drive Stellantis' Jeep off the road
The bankruptcy of Jeep's joint venture in China is a warning for other global automakers as domestic players gain ground.


November 28, 2022 09:05 AM UPDATED 3 HOURS AGO
NICK CAREY
GIULIO PIOVACCARI



The bankruptcy of Stellantis' Jeep joint venture in China could spell trouble for other global automakers whose output has plunged over the last five years in the world's largest car market, as domestic players rapidly gain overtake them.

The first joint venture failure by a foreign brand in the electric vehicle era, the Oct. 31 bankruptcy filing marks a turning point in that Chinese automakers are beginning to surpass the long-dominant international brands in giving consumers what they want.

"I do not expect Stellantis to be an isolated case," said Marco Santino, a partner at management consultants Oliver Wyman. "Probably almost all of the western automakers will have to review the industrial logic of their presence in China."

A spokesman for Stellantis said Jeep would operate through an "asset light" strategy in China, importing vehicles via a distribution model that is profitable for its Maserati and Alfa Romeo brands.

"Jeep remains fully committed to its existing and future customers in China," the spokesman said, adding Stellantis' dealer network in China remains fully operational.

Some elements of the Jeep joint venture's failure are particular to Stellantis - and the former car groups that feature among its 14 brands. But data compiled for Reuters by consultancy LMC Automotive expose a problem shared by a number of other global automakers: plummeting Chinese plant usage.

The fewer cars a plant produces, the more likely it is to be money-losing.

The Jeep failure in China happened less than two years after Stellantis was formed by the merger of PSA Group and Fiat Chrysler Automobiles.

In the run-up to the deal, CEO Carlos Tavares had said no automaker could afford not to be in China and the expectation was the two companies would together be better equipped to make headway there.

But Stellantis earlier this year said it would end its venture with local partner Guangzhou Automobile Group, just months after saying it would raise its stake to 75 percent from 50 percent.
The U-turn leaves the world's No. 3 automaker by sales with only limited Peugeot and Citroen production in China, which it has said could also be shut down, although it has yet to decide on that.

'Deeply shocked'
Stellantis CEO Carlos Tavares has complained "political influence is growing by the day" in China and has accused Stellantis' joint-venture partner GAC of not acting in good faith.
GAC has said it was "deeply shocked" by critical comments from Stellantis.

According to LMC data, Stellantis' estimated full-year capacity utilization at its Chinese assembly plants will fall to 13 percent in 2022 from 43 percent in 2017.

Other mainstream brands, including Volkswagen Group, General Motors, Ford, Mitsubishi and Hyundai, have also seen plant usage fall by anything from over 30 to more than 50 percentage points in the last five years.

Some - especially premium brands Mercedes-Benz and BMW - have seen far smaller declines.
At the same time, global automakers' sales in China have dropped as local rivals have taken off because the Chinese automakers embraced EVs and consumer-centric in-car software far more quickly.

"The last five years, (China's) market has decidedly changed from foreign companies having a right to win because of their foreign-ness to where there is a far more level playing field," said Bill Russo, head of consultancy Automobility in Shanghai and a former Chrysler executive.
"Chinese companies actually have an early mover advantage because they embraced electrification faster than the foreign companies were willing to," he added.

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This was all predicted. China only allowed foreign "competition" providing that they set up local joint venture operations. As soon as China determines that they are able to do it all on their own, those foreign ventures would be consumed or expelled. China is still very much a totalitarian dictatorship that does whatever they feel like doing. The only question was when. I guess it's now.
 

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It was a rigged game from the start. That's why the "focus on China" business strategy was always doomed.
 

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This is the bankruptcy of the entire PSA/Stellantis strategy in China. Peugeot, Citroen, Fiat all failed in China, when other European carmakers (VW, Land Rover) were successful.
 

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This is the bankruptcy of the entire PSA/Stellantis strategy in China. Peugeot, Citroen, Fiat all failed in China, when other European carmakers (VW, Land Rover) were successful.
But they are all starting to lose market share too and running at less than optimal factory capacity now........
 

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I also see huge risks in China for any Western brand. I think the key is to face that reality and not let the operations drag on, generating net losses, for decades like GM did in Europe.

On the good side for GM is though they'd have a massive one-time write-down, otherwise last I looked GM China has never generated massive profits (decent profit, but not massive like GMNA). Dumping GM China won't have a massive impact on the financials after the initial asset write-down and other closing costs.
 

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I also see huge risks in China for any Western brand. I think the key is to face that reality and not let the operations drag on, generating net losses, for decades like GM did in Europe.

On the good side for GM is though they'd have a massive one-time write-down, otherwise last I looked GM China has never generated massive profits (decent profit, but not massive like GMNA). Dumping GM China won't have a massive impact on the financials after the initial asset write-down and other closing costs.
Just imagine what would happen if geo-political situation kicked off in Taiwan, and the world put sanctions on China like they have with warmonger Putin, Apple ouch! Imagine a world without computer chips in cars and nobody to refine the raw materials that go into batteries in EV, all the grocery non-food items the shelves at Walmart would be empty, the only big bonus the West would get it's manufacturing base back it would take a while to re-establish itself hopefully would never make the same mistake again, good to see both Ford & GM are are ahead of the game becoming less dependant on China for it's batteries in the future.

Chinese people are finally waking up to how brutal barbaric its Government covid lockdowns are, after welding the doors shut on a skyscraper cooking frying all of its inhabitants trapped in a fire probably because somebody got covid in the next tower block that's unforgivable. I thought UK draconian covid lockdowns were bad enough one of the worst in the world it bankrupted us as country.
 

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Just imagine what would happen if geo-political situation kicked off in Taiwan, and the world put sanctions on China like they have with warmonger Putin, Apple ouch and a world without chips in cars and nobody to refine the raw materials that go into batteries in EV, all the grocery non-food items the shelves at Walmart would be empty, the only big bonus the West would get it's manufacturing base back it would take a while to re-establish itself hopefully would never make the same mistake again, good to see both Ford & GM are are ahead of the game becoming less dependant on China,

Chinese people are finally waking up to how brutal barbaric its Government covid lockdowns are, after welding the doors shut on a skyscraper cooking frying all of its inhabitants trapped in a fire probably because somebody got covid in the next tower block that's unforgivable. I thought UK draconian covid lockdowns were bad enough one of the worst in the world it bankrupted us a country.
I don't know if GM/Ford are necessarily ahead of the game with not being utterly reliant on China for major profits - I think they'd both be really happy if they had bigger profits from China. But, if the China/USA market were cut off, it would be debilitating for Detroit as a lot of their parts are from China that generate those massive sales in the USA.
 

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The last sentence says it all...."Chinese companies actually have an early mover advantage because they embraced electrification faster than the foreign companies were willing to,"
The Chinese consumers do not have the fear of EV's that the western consumers have and China has made it clear in the past that EV's are the future for them. GM has a few EV's that are being currently sold in China with more to come, so I think they are ahead of the curve in comparison to other western companies. I believe their joint venture mini-EV is the top EV seller in China currently.

So for the other foreign companies selling ICE vehicles, that will be their downfall. Get in the EV game or get out because China is full speed ahead on the EV market.
 

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The last sentence says it all...."Chinese companies actually have an early mover advantage because they embraced electrification faster than the foreign companies were willing to,"
The Chinese consumers do not have the fear of EV's that the western consumers have and China has made it clear in the past that EV's are the future for them. GM has a few EV's that are being currently sold in China with more to come, so I think they are ahead of the curve in comparison to other western companies. I believe their joint venture mini-EV is the top EV seller in China currently.

So for the other foreign companies selling ICE vehicles, that will be their downfall. Get in the EV game or get out because China is full speed ahead on the EV market.
The thing about the early mover advantage is that it is not limited to EVs or even to the automobile industry. It is also known as the "Winner Take All Economy" and is a feature of technology-based business. These businesses are characterized by high start-up costs and low running costs. The firm that gets out front and is able to cover its start-up costs is then extremely difficult for the competition to catch. After it covers its start-up costs, the first out the gate can set its retail price at levels lower than its competition's production costs. If second out the gate intends to compete, then it must accept the possibility of losing significant money on every unit sold.

The transition to EVs is changing the industrial paradigm of the automobile industry. ICE vehicles fit the model of traditional durable goods. EVs are durable goods, but their economics are better understood in terms of technology products. We see quite a few people here who clamor for manufacturers to go slow on their EV transitions. This is a prescription for disaster.
 
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