In 10 years or less, the average vehicle sold will be electric, but we are a long way from there, however the present leader in EV market is China. There are a number of reasons but the primary one is Bejing is similar to LA – they are built up in bowl like areas where pollution sits until the wind blows it out. Bejing as capital allows government officials to want to have less pollution EVs are a partial solution. All the major car companies have subsidiaries set up in China to sell into the EV market.
In an article by Nick Carey and Giulio Piovaccari of Reuters, according to LMC data while fully electric cars make up an average of 5% of models for foreign carmakers sell in China, they account for 30% of Chinese carmakers models.
The formula for success in China has changed, consumers want EVs akin to smartphones where the emphasis is on connectivity and apps rather than performance – to the extent the EV makers such as Nio have a built-in selfie camera in some models to appeal to younger buyers.
Within the above market, the bankruptcy of Stellantis’s Jeep joint venture in China could spell trouble for other global automakers whose output has plunged over the past 5 years in the world’s largest car market, as domestic players rapidly takeover. On October 31, the joint venture between Stellantis and Guangzhou Automobile Group (GAC) has ended although earlier this year, Stellantis was discussing increasing its stake from 50% to 75%. A spokesperson for Stellantis noted the Jeep dealership in China is still operational and Jeep is committed to it.
According to LMC Automotive, capacity utilization at its plants has fallen from 43% to 13%. At those numbers profitability is not going to be reached.
Part of the reason is the markets have changed from the foreign carmakers right to win to where there is far more level playing field according to Bill Russo, head of consultancy Automobility Ltd in Shanghai and a former Chrysler executive.
Part of the problem with capacity has been the Chinese government’s response to COVID 19 by locking down parts of the country which has also caused a semi-conductor shortage to build the vehicles.
Linking to dividend paying stocks, companies are brand loyal, but customers are not always brand loyal. The brand gives an edge to begin with. but if the consumer is more features driven, they will switch to other brands. If consumers are seeing their vehicle as an extension of their smartphones, then you have to notice the different brands of smartphones and see how consumers switch between the brands. A car used to be a status symbol does that change. We all look to the big companies to see even if consumers change their habits, somehow money flows into the big company, if it does at healthy margins allowing for profits and dividends, as shareholders we do not have to do anything but enjoy the ride.
There are more questions than answers, till the next time – to raising questions.