For most European and American auto manufacturers, decisions about their automotive business or joint venture in China is becoming more urgent as joint ventures shift from delivering profits to generating losses.
In 2022-2023, before Changan Ford returned to profitability, Ford’s China operations incurred impairment charges (a non-cash expense reflecting a write-down of asset values) worth USD825 million.
Honda’s JV with GAC booked a USD450 million impairment alongside a USD111 million loss in 2024.
Then over the last few years, Hyundai and KIA had to transfer several hundred million dollars to their China JVs to prevent their China subsidiaries from going bankrupt. General Motors, meanwhile, reported a USD4.4 billion loss from its China JVs in 2024, driven largely by write-downs of asset values.
Other factors also shape automakers’ strategic decisions. For some OEMs, like Stellantis or Renault, the China market has always been a side show, making the decision to scale back or exit easier.
For others, like Volkswagen and GM, China is (or was once) central to global growth, so their assets on the ground are substantial, as are sunk costs in the market, making strategic choices more complex. On the flip-side, auto manufacturers are also asking how they can benefit from and potentially regain a technological leadership in China’s fast-moving EV market, to compete in third markets, where Chinese carmakers are expanding fast.
For most OEMs racking up losses in the past few years, the most straightforward option is to exit China and stop the drain on their resources. With US tariffs, sluggish European growth and rising Chinese competition abroad, some auto players may lack the capital to reinvest meaningfully in their China operations to attempt a turnaround.
We now see German carmakers are doubling down.
They are expanding EV production capacity, building new R&D centers, and deepening local partnerships. Volkswagen has been especially active: It launched a JV with JAC Motors in 2017 and expanded it in 2020 and 2024, set up a JV with chipmaker Horizon Robotics in 2022, and took a stake in Xpeng in 2023.
Toyota, while never as dependent on China as its German peers, is the world’s largest and most profitable carmaker and still enjoys a strong China business. To maintain its global lead, it appears determined to keep a substantial presence in China. Earlier this year, for example, the company announced plans to localize Lexus production.
The logic for German auto manufacturers doubling down in China and this is a huge financial move.
Strategy, to use global profitability to outlast weaker, loss-making Chinese and foreign rivals, especially as Beijing faces fiscal constraints that limit how much it can subsidize the sector. Mercedes-Benz CEO Ola Källenius captured the mindset: “You must control your nerves, keep investing, keep innovating, and ensure that at the end of that Darwinian battle, you are one of the combatants that are left.”
