The traditional Detroit automakers – General Motors, Ford, and Stellantis – should exit the Chinese market “as soon as they possibly can,” according to John Murphy, Bank of America’s top automotive analyst. Murphy issued this warning on June 18, highlighting the intense competition and increasing vehicle production in China, the world’s largest auto market for domestic consumers and global exports.
Murphy has previously questioned GM about leaving the Chinese market, emphasizing that the “D3” automakers must refocus on their core products and more profitable regions. At an Automotive Press Association event in suburban Detroit to discuss BofA’s annual “Car Wars” report, Murphy stated, “China is no longer core to GM, Ford, or Stellantis.”
This suggestion starkly contrasts the past, particularly for GM, which once held a significant position in China. However, the rise of local Chinese automakers such as BYD and Geely has intensified the competitive pressure on these traditional automakers. GM’s market share in China, including its joint ventures, has drastically fallen from about 15% in 2015 to 8.6% last year – the first time it dropped below 9% since 2003. Additionally, GM’s earnings from its Chinese operations have decreased by 78.5% since their peak in 2014.
Despite these challenges, GM executives remain optimistic about turning around their Chinese operations and regaining market share, mainly through new electric vehicles. This resilience and adaptability in the face of adversity is a testament to the strength of these companies. However, Murphy argues that the geopolitical risks and uncertainties for U.S. companies in China add to the urgency of exiting the market. For instance, President Joe Biden recently announced plans to quadruple tariffs on China-made electric vehicles, further complicating the business landscape for American automakers.
While Murphy stresses the need for Detroit automakers to rethink their strategies in China, he notes a different scenario for U.S. electric vehicle leader Tesla. According to Murphy, Tesla enjoys a significant cost advantage of roughly $17,000 in EV components compared to traditional Detroit automakers, providing the company with “more room to run” in the Chinese market.
The recommendation for Detroit automakers to leave China marks a pivotal moment. It urges a strategic shift in focus to more profitable regions and core products, opening new avenues for growth and ensuring long-term success amidst evolving market dynamics and geopolitical challenges.
