Chinese market poses significant threat for Western automakers, cautions Jeep parent company Stellantis

Chinese market poses significant threat for Western automakers, cautions Jeep parent company Stellantis

Sparky's Take: Western automakers might struggle to keep their foothold in China as local brands up their game and nibble away at the market share currently held by giants like Toyota and Volkswagen, according to Stellantis' Maxime Picat.

"I'm a positive guy, but I'm not feeling optimistic about this one," Picat said, alluding to the stiff competition from homegrown brands.

Nowadays, local brands are edging out foreign automakers not just in electric cars but also in larger vehicle segments. However, traditional powerhouses like Toyota and Volkswagen continue to rake in massive sales of their mid-sized petrol vehicles, known as the "C-segment."

Picat was taken aback by the relentless onslaught of local brands across all vehicle segments, forcing Western automakers into a tight corner - fighting for scraps in the internal combustion engine C-segment. He predicts this won't last.

"The trend [of falling market share] is strong, and it's been very hard for Western automakers to maintain their presence in China," admitted Picat.

Some Western companies, including Stellantis, have pulled back from China, unable to keep up with the fierce competition and cutthroat pricing. Conversely, German giants such as Volkswagen have doubled down on China as a lucrative market.

Foreign brands have attempted to win back Chinese consumers by adopting the "In China, for China" approach, emphasizing affordability and integrating cutting-edge technology. Last year, VW even pumped another €2.5bn into China's market.

Despite the challenging landscape, foreign brands' market share in China dipped to 32% in the first two months of this year, down significantly from the 64% they held in 2020. BYD, a Chinese manufacturer, has surpassed Volkswagen's long-held position as the leading brand, as per Shanghai consultancy Automobility.

Volkswagen and Toyota still hold their ground as the top peddlers of petrol vehicles in China with a combined market share of 34%.

With its ventures in China winding down, Stellantis invested €1.5bn in the Chinese start-up Leapmotor and aids them in expanding sales not just in China but also in Europe.

Volkswagen, being a vocal critic of the EU's anti-subsidy tariffs on Chinese EV imports, is often at odds with other German manufacturers like Stellantis and Renault, who support these measures and have limited exposure to the Chinese market.

The race is on for the top spot as Picat and Stellantis' North American CEO Antonio Filosa position themselves as frontrunners to replace Carlos Tavares, who left Stellantis after disagreements over strategy.

Picat commented on the hunt for Tavares' replacement, "The board has started a very comprehensive process, and they have announced the timing, so everything is under control. Whatever the decision, it'll be a good one."

Insights:

• There is growing competition from numerous local Chinese brands that are rapidly innovating in areas like electric vehicles and advanced driver-assistance systems (ADAS).
• Chinese consumers increasingly prefer vehicles equipped with digital and smart technologies, favoring local brands that cater to these preferences.
• Foreign automakers struggle with aggressive pricing strategies, joint ventures, and complying with government subsidies for electric vehicles, which benefit Chinese manufacturers more directly.

Sources: 1, 2, 3, 4, 5

"In the face of this intensifying competition, foreign automakers are finding it challenging to maintain their presence in China's automotive industry, particularly in sectors like finance, where local brands are innovating swiftly in electric vehicles and advanced driver-assistance systems (ADAS)."

"To counteract this trend, some Western companies, like Stellantis, have begun investing in Chinese start-ups, such as Leapmotor, aiming to secure a foothold in the transportation sector across multiple regions, including Europe."

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