The necessity of joint ventures is waning.

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As a joint venture, GM has recently faced difficulties in China, with more drastic news emerging from across the Pacific Ocean.

On December 4, GM filed a document with the U.S. Securities and Exchange Commission stating that it would incur total asset write-downs and restructuring costs exceeding $5 billion in the fourth quarter of this year. Part of these funds will be allocated to close some Chinese factories and discontinue unprofitable models in China, as a response to the evolving market and competitive pressures.

On December 10, GM announced the termination of Cruise's exploration in the field of autonomous taxis (Robotaxi) and the integration of this business into its driver assistance technology research and development team. Since 2016, GM has invested over $10 billion (approximately RMB 72.4 billion) in Cruise.

Meanwhile, GM is experiencing an unprecedented setback in the Chinese market. In its 20th year in China, SAIC-GM achieved a peak annual sales volume of 2 million vehicles in 2017. However, just six years later, SAIC-GM's sales halved, barely maintaining 1 million vehicles in 2023. Sales are projected to decline further in 2024, with only 371,000 vehicles sold in the first 11 months of this year.

GM China emphasizes that the Chinese business remains a valuable asset for both its present and future endeavors.

Clearly, it is challenging to willingly abandon the world's largest single market; however, the direction of GM's self-initiated transformation in China remains uncertain.

The Challenge of Turning Around a Giant

The decline of established joint venture automakers is not without reason.

When discussing the causes behind SAIC-GM's plummeting sales in China, the three-cylinder engine stands out as a significant factor. In 2019, SAIC-GM began to vigorously promote three-cylinder engines across multiple Chevrolet and Buick models. However, consumer acceptance of these engines was low. For instance, sales of the once-popular Buick Excelle, which had annual sales exceeding 40,000 units, declined sharply after transitioning its entire lineup to three-cylinder engines. Consequently, SAIC-GM's RMB 3.6 billion investment in building the factory went to waste.

If the failure of three-cylinder engines was merely the fuse igniting SAIC-GM's decline, then the sluggish transition in the field of new energy vehicles has become a critical factor in the continuous sales decline.

In fact, as early as 2008, SAIC-GM proposed the "Green Power Future Strategic Plan" to comprehensively promote electrification technology. In 2017, it announced plans to launch over 10 new energy products in the following five years. However, it was not until 2021 that SAIC-GM comprehensively deployed the Ultium platform and PHEV.

In addition to the slow transition, SAIC-GM has struggled to maintain a balanced product layout.

In 2022, the Cadillac LYRIQ, the first product based on the Ultium platform, was launched with a high price range of RMB 439,700 to RMB 479,700. However, its premium positioning failed to help LYRIQ capture market share.

In 2023, Buick E4 and E5 were introduced with more attractive pricing. However, with a price range of around RMB 200,000, Buick ventured into the competitive territory dominated by Tesla and domestic brands. Coupled with the price war, sales volumes of these two models stood at 3,185 and 20,083 units respectively in the same year, which were not outstanding.

It is evident that SAIC-GM's product layout follows a top-down approach. However, in the mid-to-high-end electric vehicle market, the influence of Cadillac and Buick pales in comparison to Tesla, NIO, Li Auto, and BYD.

SAIC-GM has acknowledged this issue and proactively joined the price war. This year, the core product Buick GL8 introduced a plug-in hybrid version with a significantly reduced price. In November, terminal sales reached 10,730 units, marking a 38% month-on-month increase and setting a new high for monthly sales this year. Additionally, sales of the Envision PLUS surged due to a limited-time one-price offer of RMB 169,900 and high configuration, reaching 12,807 units in November.

Nevertheless, GM still aims to target the high-end market. In an interview earlier this year, Mary Barra, CEO of GM, revealed that to reverse the decline in sales and profits, GM would focus on "premiumization" in China.

In August this year, the first brand center of GMC Terrain, a high-end imported car brand of GM, opened in Shanghai. Simultaneously, the full-size SUV Chevrolet Tahoe was launched, with a starting price of RMB 648,000.

Sales performance remains to be seen, but in the context of a comprehensively reshaped competitive landscape in the Chinese automotive industry, securing market share should take precedence over profitability. Otherwise, Tesla would not have been the first to initiate a price war, and the inability to accept losses may have become the biggest constraint for GM.

The Viability of the Joint Venture Model

Why did they miss the boat? The root cause of SAIC-GM's dilemma lies in the "joint venture" model.

From a product perspective, when introducing products to the Chinese market, these joint venture automakers tend to directly import popular models from other countries without fully understanding the specific needs of the Chinese market.

For example, Guangqi Acura used to directly bring many successful products from European and American markets to China. However, these models generally featured excessively high fuel consumption and large sizes, exceeding domestic consumers' automotive preferences.

This is particularly evident in the case of GM, which originated in the United States. The American market favors large-sized, high-displacement, powerful muscle cars and pickup trucks with loading and towing capabilities, whereas the Chinese market prefers economical and practical vehicles.

GM is aware of this issue and has acquired automakers such as German Opel and Korean Daewoo to gain access to the development capabilities of economical and practical vehicles. These acquisitions yielded two classic models: the Buick Excelle and the Chevrolet Cruze.

However, GM has not been able to truly capture the preferences of the vast domestic market. As the market questions GM, "Are these really legitimate American cars?" and with strategic contractions, German Opel, Saab, and Korean Daewoo were abandoned, leaving GM struggling to support the extensive product line updates in China.

In fact, examining SAIC-GM's classic models, including the Buick Excelle and the Chevrolet Cruze, their core competitiveness lies more in being inexpensive and cost-effective rather than "innovative".

While the products do not align with China's national conditions, the slow pace of introducing new products has also hindered the competitiveness of joint venture brands. Taking Guangqi Mitsubishi as an example, it has only a few products in China, including Outlander, ASX, and Eclipse Cross, in over a decade.

Beyond products, a deeper reason is the decision-making confusion within joint venture automakers. China Business News quoted a source from a joint venture automaker stating that due to the equal equity structure, joint venture automakers have two systems at the decision-making level. There are often conflicting voices regarding product and strategic decisions, and they may even accuse each other when encountering problems instead of resolving them promptly.

This decision-making confusion has also hindered the determination to transition. In 2021, Wang Yongqing, the former general manager of SAIC-GM, publicly stated, "Mainstream automakers cannot immediately abandon the 95% gasoline vehicle market to compete for the 5% new energy vehicle market."

Perhaps in the eyes of these joint venture automakers, since gasoline vehicles have been successful with a premium in the past, it seems reasonable to require a certain profit margin for the transition to new energy vehicles. After all, one cannot use the profits from gasoline vehicles to subsidize electric vehicles. However, they overlook changes in the domestic environment. In the 1990s, when joint venture automakers were introduced to a barren Chinese market, they naturally faced no competition. Nowadays, with a fully established automotive industry chain in China, many domestic automotive brands have emerged. The external competitive environment is no longer the same.

Reversal of Roles for Chinese and Foreign Brands

Can joint venture automakers, which have enjoyed market dividends for 40 years, continue to stay in the game?

So far, some joint venture automakers such as Changan Suzuki, Dongfeng Renault, and Guangqi Acura have announced their withdrawal from the Chinese market, and the trend of joint venture automakers exiting the market continues.

However, some foreign automakers have chosen to cooperate with domestic automakers, such as the Volkswagen Group.

On the evening of July 27, the Volkswagen Group announced that it had reached a technical framework agreement with XPeng and would invest approximately $700 million to acquire a 4.99% stake in XPeng.

According to the agreement, Volkswagen will leverage XPeng's G9 platform, smart cockpit, and high-level assisted driving system software to jointly develop two B-segment electric vehicle products, which will be sold in the Chinese market under the Volkswagen brand. The relevant models are expected to commence production in 2026.

Almost simultaneously, Audi, a subsidiary of the Volkswagen Group, also announced its cooperation with SAIC Motor. Audi will introduce new electric vehicle models, and market speculation suggests that these models will likely be jointly developed with SAIC Motor's IM Intelligence brand.

"Chinese startups are remarkable in terms of research and development, technology, and development speed. We have been inspired by them. Based on the experience gained from China, our current research and development timeline can be shortened by approximately two years," said Kai Grünitz, Member of the Board of Management of Volkswagen Passenger Cars and responsible for Technical Development, in a public statement.

Foreign automakers with similar ideas include Stellantis.

The Stellantis Group plans to invest approximately €1.5 billion to acquire approximately 20% equity in LEAP MOTOR and secure two seats on its board of directors. The two parties will also establish a joint venture named "LEAP MOTOR International" with a 49% and 51% shareholding ratio.

The purpose of both parties is clear. Stellantis will assist LEAP MOTOR in selling cars in overseas markets. In return, in addition to holding equity and seats in LEAP MOTOR and the joint venture, Stellantis will also obtain self-developed technical support from LEAP MOTOR.

Interestingly, regarding the division of labor in the joint venture, according to Carlos Tavares, the former CEO of Stellantis, major decisions such as technology adoption, product launches, and new market entries will be made by LEAP MOTOR, while Stellantis will only be responsible for providing corresponding support.

In other words, XPeng and LEAP MOTOR dominate the discourse, while foreign parties only intervene at the board level. This cooperation model differs significantly from the traditional joint venture model of equal equity ratios, joint decision-making, and joint definition. It can even be said that the positions have been reversed.

At this juncture, the Volkswagen Group and the Stellantis Group resemble Chinese automotive brands from 40 years ago, attempting to leverage their market advantages to exchange for mainstream vehicle manufacturing technology. The entities they seek to rely on are Chinese electric vehicle brands that have achieved global prominence in the new energy vehicle industry.

Although the Volkswagen Group may not necessarily remain in the game as a joint venture automaker, it has already renewed its joint venture agreement with SAIC Motor in advance, extending the joint venture period to 2040. This underscores Volkswagen's commitment to increasing its investment in the Chinese market. In contrast, GM's future in China remains uncertain, and its joint venture agreement with SAIC Motor will expire in 2027, with no clear news of renewal so far.