Mulinsen - Witnessing the Rise of China's Automotive Industry

Recently, there have been media rumors that Dongfeng Nissan plans to close its factory in Changzhou, Jiangsu. If true, it indicates that competition in China's automotive market has entered a new phase.

Sales Plummeted by 800,000 Units, Capacity Utilization Below 50%

Exit May Be a Matter of Time

Dongfeng Nissan is a joint venture between Dongfeng and Nissan.

Since entering the Chinese market, Dongfeng Nissan has achieved remarkable results through its star models such as the Teana, X-Trail, and Sylphy. In 2018, it achieved sales of 1.56 million units.

However, with the implementation of China's new energy strategy and the rise of domestic automotive brands, Dongfeng Nissan has begun to decline, with sales declining year after year.

In 2023, Nissan only sold 790,000 units, a drop of 800,000 units from its peak, and it is estimated that the decline will only be more severe in 2024.

The sharp decline in sales highlights the overcapacity of Dongfeng Nissan.

According to public information, Dongfeng Nissan has manufacturing plants across China with an annual production capacity of approximately 1.6 million vehicles. Simple calculations show that its capacity utilization rate is less than 50%.

As a response, shutting down factories and reducing capacity seems to be an inevitable option. Therefore, the rumors of Dongfeng Nissan closing factories are not unfounded.

It is worth noting that compared to other joint ventures, Nissan's influence on the joint venture is more direct and profound. For example, the legal representative of Dongfeng Nissan is YAMAGUCHI TAKESHI (Yamaguchi Takeshi) from the Japanese side; in addition, Dongfeng Nissan's sales and revenue are not included in Dongfeng's consolidated financial statements.

The closure of the Changzhou factory is essentially an action taken by the Japanese side, signifying Nissan's first step in fleeing China.

Let's classify brand exits from China as asset-light mode exits, such as Fiat and Subaru, which only involve brand exits and not physical factories; then, the closure of factories belongs to the asset-heavy mode exit, involving physical factories and many more stakeholders.

This is a new form of exit, signifying that competition in China's automotive market has entered a new phase.

Joint Venture Brands Fade Out, Domestic Brands Take Center Stage

Automotive Competition Home Appliance-style

As mentioned above, Nissan's closure of factories means that China's automotive market has entered a new competitive phase, where joint venture brands are giving way to domestic brands, which can be simply analogized as the home appliance-style of the automotive industry.

In the home appliance industry, Chinese brands have gone from imitation to catching up to ultimately surpassing foreign brands.

The home appliance-style of the automotive industry can be seen by tracking the sales and market share of joint venture brands in the Chinese market.

In January, joint venture brands retailed 670,000 units, a year-on-year increase of 43%. The German share was 19.2%, down 3.8 percentage points year-on-year. The Japanese share was 16.7%, flat year-on-year.

The retail market share of American brands reached 6.5%, down 1.3 percentage points year-on-year.

In February, mainstream joint venture brands retailed 330,000 units, down 31% year-on-year and 51% month-on-month. The German share was 20.5%, down 0.2 percentage points year-on-year. The Japanese share was 14.4%, down 3.4 percentage points year-on-year.

The American share reached 6.4%, down 0.9 percentage points year-on-year.

In March, mainstream joint venture brands retailed 500,000 units, down 8% year-on-year and up 49% month-on-month. The German share was 20.4%, down 1.5 percentage points year-on-year. The Japanese share was 13.8%, down 2.2 percentage points year-on-year.

The American share reached 8.2%, down 1.8 percentage points year-on-year.

In April, mainstream joint venture brands retailed 450,000 units, down 26% year-on-year and 9% month-on-month. The German share was 19%, down 2.2 percentage points year-on-year. The Japanese share was 15.2%, down 3.6 percentage points year-on-year.

The American share reached 5.9%, down 2.6 percentage points year-on-year.

In May, mainstream joint venture brands retailed 490,000 units, down 21% year-on-year and up 8% month-on-month. The German share was 18.6%, down 2 percentage points year-on-year. The Japanese share was 14.8%, down 3.2 percentage points year-on-year.

The American share reached 6.7%, down 1.4 percentage points year-on-year.

It can be seen that Nissan's defeat is only a microcosm of the decline of foreign brands. The entire Japanese, German, and American brands, including their sales and market share, are shrinking day by day, while Korean brands have become others.

The decline in market share of joint venture brands is largely due to the erosion of domestic brands.

The rise of domestic brands is not only due to the overall improvement in the manufacturing level of China's automotive industry chain but also the awakening of the people and the prevalence of pragmatism.

On one side are top-of-the-line models and low prices, and on the other side are stripped-down models and price hikes, where the law of "truly delicious" comes into play.

Here, the improvement in the quality of domestic brands is the key, otherwise, sentiment alone cannot support the rise of China's domestic brands.

The Way Forward for "Chinese Partners"

In the joint venture model, there are two parties: one is the foreign party, and the other is the "Chinese partner." The largest "Chinese partners" include SAIC, FAW, Dongfeng, Changan, and GAC, among others.

In the case of foreign partners fleeing, the only way forward for "Chinese partners" is to fully embrace the electric vehicle wave, with the most crucial aspect being the creation of autonomous electric vehicle brands.

Possessing high-quality domestic brands is the key to Chery, Geely, BYD, and others surpassing the competition in the electric vehicle era.

Additionally, as foreign partners flee in an asset-heavy mode, the "sons" need to be prepared to face the impact, which is mainly reflected in the collapse of joint venture brands leading to steep declines in revenue and profits, overcapacity issues, and especially the need to focus on employee placement.

For most automotive industry professionals, they need to have realistic expectations as the compensation and benefits of domestic automakers are generally below the market average.