European automaker Stellantis terminated its loss-making joint-venture (JV) with Chinese Guangzhou Automobile Group (GAC) on July 18, in a move that signals the uncertain future of existing JVs between Western original equipment manufacturers (OEMs) and Chinese partners.
Andrew Hart, CEO of SBD Automotive, told fDi the growing Chinese automotive industry and global crises, including the pandemic and Russia’s invasion of Ukraine, point “towards a continued trend of JVs between Chinese and Western OEMs splitting up gradually over the coming years”
A statement published by Stellantis said that “lack of progress” in the previously announced plan for taking a majority share in the JV motivated a discussion on the termination of its 12-year-old partnership with GAC.
The company said it will focus on distributing an electrified line-up of imported vehicles for the Jeep brand in China to implement its “asset-light approach”.
China used to require foreign automakers to partner with domestic ones to operate in the country. The country loosened the foreign ownership regulations for commercial vehicles in 2020 and passenger cars in 2022.
Under the new rules, foreign automakers will be able to increase shares in their JVs of fossil-fuelled passenger vehicle manufacturing by more than a majority and set up more than two JVs in different vehicle segments.
“We're reaching a milestone in 2022, when for the first time over half of cars sold in China are being built by Chinese OEMs,” Mr Hart said, as Statista’s data show that Chinese OEMs made up 44.4% of the domestic market in 2021, up from 38.4% in 2020.
“The Chinese government's decision to no longer require JVs with Western OEMs is an indication of their growing confidence in the capability of Chinese OEMs,” Mr Hart adds.
However, “the Chinese partners are typically central or local state-owned companies that are critical in maintaining government relationships and obtaining local resources and I would rather take [Stellantis breaking up its JV with GAC] as a single case instead of a trend in the industry”, Laura Long, a director at credit rating agency Fitch, tells fDi.
In a note in January, Fitch wrote that “imbalanced bargaining power and weak JV performance could lead to a break-up or changing ownership, in particular if a JV’s parents show different levels of willingness or capability to support further development [...] In contrast, foreign shareholders are likely to negotiate for more stakes in outperforming JVs, but the resistance from their Chinese partners could be high.”
According to fDi Markets, the Chinese automotive OEMs industry has become less attractive for foreign investors since 2018. After generating a record high investment of $21bn in 2018, it saw a huge decline in 2021 with $1.7bn of foreign direct investment in the automotive OEMs market in China — half that of the previous year’s $3.47bn.
The Chinese automotive OEM market generated $79.4bn from January 2012 to May 2022.