How should businesses respond when the market is against you? This is the question that boardrooms in the automotive industry around the world are urgently pondering.
The market is China, the world’s largest auto market. It was once the granary of the industry, filled with a lucrative upstart consumer base, many of whom were eager to show off their status with a shiny Mercedes-Benz or Buick. The entry price for the overseas automaker – a technology-sharing joint venture with a local manufacturer – appears to be worth the money.
But the tide has turned. The manufacturing quality of Chinese brands has caught up with global brands, no doubt thanks to the experience of joint venture factories. And inside the vehicle, technology — the key to the hearts and minds of Chinese consumers — is now advanced.
Whether it’s the touchscreen system, the connectivity, or the battery itself, many Chinese-made models are now considered comparable, if not better.
Showrooms are already feeling the difference. While Volkswagen once accounted for nearly a fifth of all engine-powered cars sold in China, its share of the EV market is less than 5%.
Other companies, from Nissan to General Motors, faced similar rates of decline. Nissan Chief Executive Makoto Uchida acknowledged last week that the development of local brands is “much faster than we had previously expected”.
The question is how to respond. Volkswagen, a company with strong ties to China and whose board members are committed to the market, is now doubling down. Last month, the group sent a large group of executives to the Shanghai Auto Show to announce a commitment to invest 15 billion euros by 2024.
Ford charted a different path this week. Chief executive Jim Farley told the FT that the company would take a “lower investment, more focused” approach, cutting the commercial vehicle business and retaining some others as battery development and consumer trends “listening station”. Farley warns that the winners in EVs will not be Western (or Japanese) automakers, but new local brands.
The move is a strategic one because they know automakers have limited resources and need to meet a growing appetite for investments in everything from engines and batteries to software. It would be rash to throw money into a market that has decided it doesn’t want your vehicle.
But not all automakers are breaking free so easily. Ten years ago, Ford was the sixth-largest player in the market. It has dropped to almost No. 20, a drop that gives it the ability to make that decision.
For Ford — or Stellantis, whose Peugeot and Citroen brands are also struggling in the market — it’s easier to dial back than other companies that still rely heavily on Chinese revenues without offending the local ecosystem. Not surprisingly, Mercedes-Benz, which sells a third of its cars in the country, said cutting ties would be “unthinkable”.
Meanwhile, too much self-indulgence could hurt international business: German consumers and politicians are acutely aware of rising geopolitical tensions between China and the West over Taiwan’s fate, and the way their country’s auto champions embrace the Chinese market It’s just irreversible.
Volkswagen’s annual meeting last week was disrupted by protesters over the company’s involvement in a factory in Xinjiang, an area that has come under scrutiny for discrimination against the local Muslim population.
The company is smaller, employing fewer than 250 people, and is run by the company’s Chinese joint venture partner, SAIC Motor, VW Chief Financial Officer Arno Antlitz told the FT Automotive Summit the following day. But whether car buyers or protesters, the connection in the minds of global consumers is indelible.