Bank of America Advises Detroit Automakers to Exit China

Bank of America (NYSE:BAC) analysts have advised Detroit’s General Motors (NYSE:GM), Ford, and Stellantis (NYSE:STLA) to exit the highly competitive Chinese market and concentrate on their profitable North American operations. “Exiting China makes sense from both a profit and strategic standpoint,” said BofA auto analyst John Murphy, according to The Detroit News and CNBC. “Focus on where you’re making money—North American trucks.”

General Motors once saw significant profits in China, earning over $2 billion annually at its peak with sales of 4 million vehicles. However, the rise of local competitors like BYD and Geely has led to declining volumes and profits. In 2023, GM’s sales in China fell to 2.1 million vehicles, resulting in a loss of $106 million in the past quarter, only its third loss in 15 years.

Ford and Stellantis have struggled even more in China, failing to secure a significant market share. The world’s largest car market sold a record 30 million vehicles last year, but the competition has been tough for these American automakers. Murphy warned that continued financial losses in China would drain resources from the three carmakers, urging them to exit “as soon as they can” to focus on developing competitive EV line-ups against Tesla (NASDAQ:TSLA).

Murphy emphasized that China is no longer a core strategy for GM, Ford, or Stellantis. Should these companies leave China, Tesla would remain the only American car brand competing in all three major global markets: North America, Europe, and China.

GM, however, seems determined to stay. A company spokesman referred to CEO Mary Barra’s April comments reaffirming their commitment to the Chinese market. GM is reducing costs while introducing new products in China, including plug-in hybrids and luxury imports like the Chevy Tahoe and GMC Yukon.

Ford, after years of losses in China, claims profitability for the past three quarters and plans to continue its presence in the market. “Participating in the world’s largest automobile and electric vehicle market provides us with knowledge we’re applying to leading and winning across our global business,” a Ford spokesman told Fortune.

Chinese carmakers have gained an edge by hiring European designers and building vehicles in state-of-the-art factories with lower-cost labor. Many have acquired technology through joint ventures or by purchasing Western brands like Volvo. Chinese consumers’ high expectations for tech features have further pressured Western brands to compete on value and innovation.

Volkswagen’s ID line of EVs, once a market leader in China, struggled due to perceived poor value-for-money, particularly its infotainment system. In contrast, Tesla, which pioneered remote over-the-air updates for EVs, remains competitive despite its hardware being considered ordinary by Chinese standards.

The recent economic downturn in China, sparked by a real estate market crash, led to a price war that many Western carmakers cannot match. Even Chinese brands are seeking better opportunities abroad. Detroit’s automakers must decide whether to pursue global ambitions or focus on catching up to Tesla in EV manufacturing costs.

“It’s mission-critical to become competitive on price and cost with Tesla,” Murphy added. “Pushing volume while losing money doesn’t make sense.”