German luxury automaker BMW’s announcement this week that it was cutting its profit margin forecast in part because of sluggish demand in China was the latest example of what analysts say is a broader trend: the impact electric vehicles are having on auto sales in world's biggest market for cars.
Nearly a decade ago, the automobile industry in China was a lucrative way for foreign companies to make large profits, but according to data from Dunne Insights, a global automobile industry consulting firm that focuses on electric and autonomous vehicle markets, foreign car manufacturers have seen their sales and profits plummet in recent years.
In addition to an expensive braking problem that is affecting 1.5 million cars, BMW said in a press release Tuesday that "ongoing muted demand” in China was having an impact as well.
“Despite stimulus measures from the [Chinese] government, consumer sentiment remains weak,” BMW said in the press release.
Foreign brands that used to dominate the Chinese automotive industry have taken a back seat to cars made domestically in China, particularly “new energy vehicles,” or NEVs.
In July, data from the China Passenger Car Association showed a record 50.7% of Chinese cars purchased that month were NEVs, meaning they were either electric vehicles or plug-in hybrids.
General Motors sold more than 4 million vehicles in China in 2017, but by 2023 the U.S. automaker had seen its annual sales cut in half. In 2022, Stellantis, the owner of Chrysler, stopped manufacturing Jeep automobiles in China as its joint venture that produced that brand filed for bankruptcy.
More recently, Japanese automaker Toyota’s Chinese joint venture saw income fall by 73% in the quarter through June when compared with the same period of last year. Honda announced it was lowering its forecast for group car sales, which include 10 vehicle types, in China for the year ending in March 2025, reducing the number by 220,000.
Industry observers attribute foreign companies’ declining market share and decreasing profitability to their inability to meet Chinese consumers’ growing demand for low prices and the need for foreign firms to adhere to Beijing’s strict policies.
Foreign automakers have seen their market share decline for the last four years, according to Dunne Insights. From 2020 to 2024, Japanese cars' market share fell from 16% to 12%; German cars from 19% to 16%; American cars from 12% to 7%; Korean cars from 7% to 2%; and French cars from 3% to 0.4%.
During the same period, China’s market share grew from 43% to 62%, according to Dunne Insights.
Both GM’s and Ford’s CEOs have spoken out about difficulties of competing in the China market. “We’ve never seen competition like this before,” said Ford CEO Jim Farley at a March 2024 conference hosted by the Stanford Institute for Economic Policy Research.
When compared with foreign automakers, China has been able to find success in the automobile market by pushing the transition from gas-powered to electric cars, said Clark Packard, a research fellow in international economic policy at the Cato Institute in Washington. He attributed this in part to large government subsidies.
“I do think that it is true that the Chinese subsidies are heavier and more sustained than U.S. subsidies for auto,” Packard told VOA in a phone interview.
He added that Chinese auto giant BYD, for example, "can build cars about 25% more cheaply than other prominent global competitors, and some of that is due to market forces and some of it is due to subsidies. And I have more of a problem with the subsidies than market forces forcing down prices," he told VOA in a phone interview.
From several hundred Chinese EV makers a few years ago, fierce competition has reduced the number of brands to around 100, of which BYD has emerged as the leader.
“With the exception of the last six or seven years, five or six years, ICE [internal combustion engine] vehicles dominated, so that was OK [for foreign automakers] to have large operations in China," said Tu Le, the founder and managing director of Sino Auto Insights, an American automotive innovation and management consulting firm.
“But because of the significant decrease in ICE demand and significant increase in NEV demand, the legacies are getting squeezed on both sides.”
