‘If you quit, you will hurt the king’, if you can’t cut your losses, you won’t be able to continue playing

‘If you quit, you will hurt the king’, if you can’t cut your losses, you won’t be able to continue playing


2023-05-26 18:19:53

When the whole market is bad news, should the business continue or should it cut losses? This is a question that foreign electric car manufacturers in China have been pondering for months now.

The Financial Times (FT) reported that China has become the world’s number one new car consumption market, and foreign automakers have contributed significantly to building the country’s car production foundation.

Ironically, it is the Chinese domestic car manufacturers who are the ultimate beneficiaries today, taking away the results of decades of investment by foreign corporations, leaving them in the situation of “letting go and trade”. King is guilty”, can’t cut losses but continue to play is not finished.

What direction for the future?

The FT reported that before the electric car revolution broke out, foreign car brands in China were still the big players when it came to building a luxury image in the minds of consumers. These businesses themselves, after many years of investment, also begin to benefit from a market of 1.4 billion people with a growing middle class.

The tragedy of foreign electric car companies in China: 'If you quit, you will hurt the king', if you can't cut your losses, you can't continue playing - Photo 2.

Brands like Mercedes and Volkswagen in China have become luxury cars that demonstrate the rich status of the emerging rich as well as young people who want to prove themselves and their status in society.

With this result, being forced to enter into joint ventures and share technology with domestic Chinese factories is probably worth every penny.

But when the tram emerged, everything started to become “bitter”. The quality of China’s electric cars has improved more and more, even reaching the world without the help of international automakers.

Techniques such as software systems, connected screens, batteries… in Chinese electric vehicles are now mostly domestically produced and have the same quality as foreign firms, even the system. value in some arrays.

The consequences are very clear, for example, Volkswagen used to account for 1/5 of gasoline car sales in China, its current market share of electric vehicles is less than 5%.

Countless foreign names such as Nissan or GM in China are also facing a similar bleak situation. Nissan CEO Makoto Uchida even recently admitted that Chinese car brands are “growing too fast beyond their expectations”.

The question now is whether international car manufacturers will abandon this market of 1.4 billion people or continue to invest in the context of a comprehensive disadvantage to them. The Beijing government will certainly support domestic corporations with preferential policies for electric vehicles and technology, and China has become self-sufficient, even far ahead in the electric vehicle segment.

Consumers are also gradually preferring domestic electric cars because the design and performance are no less than luxury cars but the price is cheaper.

The tragedy of foreign electric car companies in China: 'If you quit, you will hurt the king', if you can't cut your losses, you can't continue playing - Photo 3.

In that context, each car company has a different gamble for the future.

Gambling billion USD

The Volkswagen Group has decided to bet on the Chinese market, which accounts for half of its annual profits, reaching 22 billion euros in 2022. Despite the myriad of difficulties mentioned above as well as the fact that China is currently not still need Volkswagen like 40 years ago when it “milked” enough technology to develop its auto market, this group still refused to “cut losses”.

Last month, Volkswagen brought most of its leadership to the Auto Expo in Shanghai, pledging to invest an additional 15 billion euros in China between now and 2024.

On the contrary, Ford is abandoning the billion-strong market when facing too many disadvantages and an uncertain future, when the Beijing government will certainly not let the electric car market for foreign corporations expand.

Ford CEO Jim Farley told the FT that it will reduce investment and do business more selectively. This means cutting budgets for product advertising, which is an extremely important part of the auto sales industry, and repositioning business units to be in a “listen to the situation” position. market before the current new electric car trend.

Even CEO Farley warned that the winners in the market today are domestic car companies, not the West or Japan, which are big players in the gasoline car segment.

Ford’s move shows that even major automakers are facing difficulties when resources are limited. These corporations are having to invest in all fronts, from developing software for electric vehicles, building battery supply chains, designing new products to feeding their staff, engineers and departments. operating machine.

Therefore, it is unreasonable to pour billions of dollars more into a market where the winning door is extremely small.

However, not every car company can “cut losses” as easily as Ford. 10 years ago, Ford ranked 6th in the Chinese market for gasoline cars, but now this brand has dropped to 20th, thereby giving the company a position where it can easily cut losses without thinking much.

Similarly, names that are no longer as popular in China as Stellantis, Peugeot or Citreon are also gradually reducing their investment in this market instead of accepting gambles like Volkswagen. Obviously, only companies that rely too much on China for revenue like Volkswagen are the most difficult players to let go.

Similarly, Mercedes Benz, which ranks third in the Chinese market for petrol cars, also said it would never think of withdrawing from here.

The tragedy of foreign electric car companies in China: 'If you quit, you will hurt the king', if you can't cut your losses, you can't continue playing - Photo 4.

However, according to the FT, with Western countries like Germany increasingly worried about China’s expansion in the electric vehicle industry, the opportunity for foreign brands to continue here is very difficult. Geopolitical uncertainties such as the US-China technology race, the US technology and electric vehicle embargo against foreign electric vehicles or the semiconductor chip industry will make gambling in China riskier than ever. .

It should be reminded that until now, the Beijing government has been very restrained with retaliation against Washington, but how long will this persistence last when a series of companies such as Huawei, Tiktok have become victims of America? Will Volkswagen or Mercedes Benz fall victim to China by then?

*Source: FT

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