China has early-mover advantage in EVs
Falling plant usage a common problem
Some Chinese automakers target Europe
Global players dominate luxury sector for now
Stellantis adopts profitable import-based model in China
LONDON/MILAN, Nov 28 (Reuters) - 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 overtake.
The first joint venture failure by a foreign brand in the
electric vehicle (EV) era, the Oct. 31 bankruptcy filing marks a
turning point in that Chinese carmakers are beginning to surpass
the long-dominant international brands in giving consumers what
"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 carmakers 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
"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 carmakers: plummeting Chinese plant usage.
The fewer cars a plant produces, the more likely it is to be
The Jeep failure in China happened less than two years after
Stellantis was formed by the merger of PSA and Fiat Chrysler.
In the run-up to the deal, Chief Executive Carlos Tavares
had said no carmaker 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 (GAC)
, just months after saying it would raise its stake
to 75% from 50%.
The U-turn leaves the world's No. 3 carmaker 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
Tavares, the carmaker's outspoken Portuguese CEO, 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
According to LMC data, Stellantis' estimated full-year
capacity utilisation at its Chinese assembly plants will fall to
13% in 2022 from 43% in 2017.
Other mainstream brands, including Volkswagen,
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
Some - especially premium brands Mercedes and BMW
- have seen far smaller declines.
At the same time, global carmakers' sales in China have
dropped as local rivals have taken off because the Chinese
automakers embraced EVs and consumer-centric in-car software far
"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 Ltd 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.
While fully-electric cars make up an average of 5% of models
foreign carmakers sell in China, they account for 30% of Chinese
carmakers' models, according to LMC data.
COMPETITION HOTS UP IN EUROPE
Some Chinese rivals like BYD that have more EV
models in their line-ups, are also aiming to grow in Europe.
This means that as the global giants Volkswagen, Ford and GM
work to bring more EV models to market, they face stiff
competition from younger Chinese rivals that have adapted
quickly to shifting consumer tastes.
"They're miles behind compared to the (Chinese) domestics,"
said Justin Cox, LMC's director of global production.
They must also overcome an image that is rooted in
combustion-engine era technology.
GM is counting on a broad range of EVs to rebuild profits
from its Chinese operations - which fell by 44% to $477 million
in the first nine months of this year - to $2 billion by 2030.
"I wouldn't jump to conclusions about China based on 2022,"
Chief Financial Officer Paul Jacobson told reporters earlier
this month. "We still feel good about where we are going there."
Volkswagen said in a statement that China has been in a
"special situation" due to the pandemic, the global
semiconductor shortage and the "accelerated transformation
towards electric mobility" that has affected production
capacities across the industry.
"Volkswagen continuously assesses these special factors and
adjusts its production planning at an early stage if necessary,"
the carmaker said.
Ford said it was working to overcome the production
challenges posed by COVID-19 and the semiconductor shortage.
SMART PHONES ON WHEELS?
The Jeep brand was originally brought to China by American
Motors Corp before being taken over by Chrysler in 1987. It sold
the same lone Jeep Cherokee model for 20 years.
Automobility's Russo said that over the years, Chrysler,
Fiat and Peugeot - which are all part of Stellantis, and all had
their own Chinese joint ventures - had struggled before they
became part of the same car group.
"These are companies that really never quite figured out the
formula that leads to success in China," Russo said.
Michael Dunne, CEO of California-based consultancy ZoZo Go
and a former GM executive, said that as domestic carmakers rise
in China, international brands will find it harder to obtain
local licences and will not have the same access to loans from
"Stellantis is a canary in the coal mine," Dunne said.
"Forever, the foreign brands were the favoured sons in China."
As the formula for success in China has changed, consumers
want EVs akin to smartphones on wheels where the emphasis is on
connectivity and apps rather than performance - to the extent
that EV makers like Nio have a built-in selfie camera
in some models to appeal to younger buyers.
So far Mercedes and BMW have held their appeal, partly
because they retain a good image as aspirational brands in
China, but also because Chinese carmakers have yet to turn their
attention to producing luxury EVs.
LMC's Cox said other international brands could possibly
claw their way back to higher market share in China, but it
would take time and a lot of investment in new products.
"Once a brand's damaged or at least looks stuffy or
old-fashioned or not appealing, then it's very difficult to hit
some home runs," Cox said. "Some of the companies with a clearly
mainstream positioning may find it very difficult to come back."
(Reporting By Nick Carey and Giulio Piovaccari, additional
reporting by Paul Lienert and Joe White in Detroit and Victoria
Waldersee in Berlin; editing by Ben Klayman and Barbara Lewis)