The global auto industry is in turmoil. The whole automobile industry has been hit hard by two meteorites — Chinese automakers and electrification. Some automakers are abruptly departing from markets and some are closing down their plants. Some continue to operate but at less than their capacity. Many makers write down their investments and sell off their stake in projects.
China has built amazing auto manufacturing capacity. It can manufacture more than 50 million passenger vehicles of all types. It has also emerged as a major hub for making EVs. It accounts for two-thirds of worldwide sales in 2024 and more than 90 per cent of its growth. Its domestic sales of EVs have reached 11.2 million. It can produce only half of this number there. China also dominates the underlying supply chain.
The traditional auto industry is challenged by electrification. They are facing competition in China. And outside China, their business is affected by the Chinese exports. Chinese manufacturers and suppliers dominate the EVs.
Other countries cannot turn a blind eye to the Chinese invasion of the market owing to its massive capacity. The US has already imposed high tariffs and entry barriers on the Chinese products. It is a protectionist policy of the US.
The US is a large market for automobiles. The US market demand is for pickup trucks and SUVs. The US companies forays into EVs and autonomous vehicles is slow. The US companies focus on fuel economy. But the US market is mature market. It is high margin market. Vehicle ownership costs including funding and insurance have reached a natural limit.
Electrification has also changed the vehicle architecture. Branding adds value, but most of the value resides in engine. EVs commoditize battery and electric motors.
The changes in the automobile industry force them to merge together to consolidate their position.
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