China: The Great JV Boomerang
Zeekr, AESC, Hyundai, Critical Minerals, Mitsubishi, Leapmotor, Gotion
China: The Great JV Boomerang
Global automakers operating in China are about to get clocked by a powerful boomerang. Is it too late to duck?
Since the 1980s, global automakers have formed 50-50 joint ventures in China to sell into the world’s largest car market. Those were the rules: Sharing the business with a Chinese partner was the cost of market access. Giant bets were made, channeling billions of dollars into dozens of new plants and equipment.
For decades, the partners sold tens of millions of cars and made tremendous profits. China would be their forever profit machine, the GM and VW and Nissan execs told themselves.
Alas, those days are finished. Now, as Chinese consumers get zealous about Chinese EVs, global joint ventures making mostly ICE-powered cars find themselves suddenly out of fashion.
Sales at Ford, GM, Hyundai, VW and others are down by 40-60% from their peaks. As a result, their China JVs are sitting on massive overcapacity – and losing a lot of money.
Mitsubishi this week announced that it is retreating from the China market. This follows recent capitulations by Jeep, Suzuki and Acura.
Done. Over. Kaput.
Boardrooms in Wolfsburg, Tokyo, Detroit and Seoul are asking themselves: “Where to from here?”
Doing nothing means drowning in red ink. Some, like Hyundai and Kia, are selling off their excess capacity to Chinese competitors. Others, like Jeep and Mitsubishi, are simply closing shop or handing the business over to their Chinese partners.
But the single most alarming development - the one that no one is talking about - is what I call the great China boomerang effect: Several JVs in China are now using the excess capacity to export products to global markets.
GM and its partner, SAIC, have already shipped more than a million vehicles to Mexico and other markets. BMW is sending the China-built iX3s to Europe. Volkswagen and Renault JVs in China are exporting China-built EVs, too.
For decades, the accepted gospel was that the global JVs would never, ever export from China for two reasons: First, shipping products from China would mean handing half of the revenues and profits to their Chinese partners. And second, exporting from China would be facilitating their Chinese partners’ (and competitors’) entry into global markets.
That iron-clad “never export” mantra now seems to be forgotten.
Global automakers will continue to lose share in the China market. Now, in a panicked move to put idle China capacity to work, global automakers risk giving away their global markets, too.
China will ship 5 million vehicles overseas this year, surpassing Japan to become the world’s number one exporter.
Ten million is not out of the question.
Future Cars & Markets
Electrics
Zeekr 001. Driving the Zeekr 001 EV at the Monticello Motor Club this week left me with very good first impressions. The vehicle is smooth, spacious, quiet and quick. It likes corners at speed, too. The 001 will soon enter Sweden, The Netherlands, Germany and markets in the Middle East. Zeekr is positioned in the Geely portfolio as a premium electric. Link
Batteries / Supply Chains
Water is insistent, always finding the path of least resistance. Chinese battery cell manufacturing in America appears to be a lot like water.
Michigan. The Ford-CATL arrangement seems to be paused for now. But Gotion is proceeding with a $2.36 billion investment to manufacture cathodes and anodes to supply a battery plant in Illinois. Link
Arizona. The American Battery Company broke ground on a $1.2 billion gigafactory in Tucson, Arizona last week to manufacture LFP batteries, ostensibly with support from Chinese battery partners. Link
Tennessee, Kentucky, South Carolina. AESC (formerly China Envision AESC) will break ground on a new battery plant in Florence, South Carolina, the company’s third plant in the United States. Link
It is still to be determined whether such Chinese and Chinese-supported companies will be eligible for incentives under the Inflation Reduction Act.
Advanced Technologies
Several readers wrote to say they are curious to know more about the China AV scene. China is steps ahead of the US when it comes to commercializing autonomous vehicles. Here are just two examples:
Zeekr + Waymo.
Geely subsidiary Zeekr manufactures the electric vehicle. Waymo adds the magic AV driving pieces. My Swedish hosts accompanied me on a convincing walk round this week. Swedish design ingenuity, Chinese low-cost manufacturing and Waymo brainpower. Look for them on American roads before you know it.
Baidu-Geely JI YUE 01
Geely and Baidu formed a joint venture to produce the JI YUE 01. This vehicle features more than 400 miles of range and starts at $35,000. The JI YUE 01 is equipped with 11 cameras and 17 sensors and radars. Link
New Money / Numbers / Rules
1. Stellantis’ $1.6 Billion Leap. Carlos Taveras and his Board at Stellantis approved a $1.6 billion investment to secure a 20% stake in Leapmotor. The most significant aspect of this deal: Stellantis secures exclusive rights for Leapmotor exports. Mr. Tavares needs electrics and Leapmotor needs exports. Link
China 36/24. NEV share of new passenger vehicle sales in China climbed to 36%. Of that total, 24% are BEVs. Link
Japan Mobility Show - Three Big Takeaways:
Toyota presented several EV concepts, the most compelling of which might be the future electric Land Cruiser. Link
BYD joined Mercedes and BMW as the only foreign brands at the show. Link
Mazda still makes the prettiest Japanese cars. Check out the Iconic SP.
Tapping AI For Battery Breakthroughs
Jason Koeller, Co-Founder, Chemix
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