Honda, Nissan, GM, and VW are encountering more challenges due to declining sales and significant discounts.
In China, international automakers are facing a challenging situation with stagnating sales and intense pricing competition in the market for conventionally fueled vehicles. This competitive environment makes it difficult for companies that are behind in the electric vehicle (EV) sector to allocate sufficient funds to transition to this emerging technology.
Mitsubishi Motors declared its withdrawal from China’s auto production scene, citing poor sales. The GAC Mitsubishi signage was subsequently removed, and by late December, the site had transformed into a dealership for IM Motors, an EV subsidiary of the state-owned SAIC Motor, erasing all traces of the former dealership in a matter of two months. Mitsubishi Motors’ struggles were not unique in the Chinese market in 2023. Honda Motor experienced a 10% decline in sales to 1.23 million vehicles, and Nissan Motor saw a 16% drop to 790,000 units. Even Toyota Motor’s sales decreased, though only by 2% to 1.9 million units, thanks to the strong performance of its hybrid vehicles.
Sales of passenger vehicles powered by internal combustion engines (ICE), including hybrids, decreased by 7% in 2023. This downturn indicates that the sales declines for Honda and Nissan outpaced the overall market shrinkage for these types of vehicles.
In contrast, the market for new energy vehicles (NEVs) – encompassing EVs, plug-in hybrids, and fuel cell vehicles – for passenger cars surged by approximately 30% in 2023, even as the total passenger car market saw a modest growth of 4%. Chinese domestic EV manufacturers like BYD aggressively expanded their product lines, challenging their Western counterparts, who were slower to adopt NEV technologies. The Volkswagen Group managed a slight 2% increase in sales to 3.23 million units in 2023, while General Motors’ primary brand, Buick, faced a significant 20% decline.
The difficulties faced by foreign automakers were exacerbated by aggressive price competition that extended beyond the EV sector. Early in 2023, Tesla initiated substantial discounts on its EVs, prompting Chinese NEV manufacturers to do the same. As interest in ICE vehicles waned, Chinese automakers also began to reduce prices in that segment.
From January to September, the average discount per vehicle in China reached 26,000 yuan ($3,600), a notable increase from the 15,000 to 20,000 yuan average seen in 2021 and 2022. September saw average discounts for ICE vehicles surpassing 30,000 yuan, far exceeding the 10,000 yuan-plus discounts for NEVs.
Among the larger foreign brands, the U.K.’s Jaguar implemented the most significant average discount of 115,000 yuan from January to September. BMW followed with cuts of 63,000 yuan, and Cadillac at 56,000 yuan. Volkswagen, targeting mid-range and budget segments in China, offered discounts averaging 31,000 yuan.
Honda and Nissan offered respective discounts of 25,000 yuan and 23,000 yuan, starkly contrasted with the modest 5,000 yuan discount by BYD. Honda has set a target for all new cars sold in China to be EVs by 2035 and has introduced a new EV brand in the country. However, the brand is currently operating at a loss due to high battery prices and development costs. Honda had planned to compensate for these losses with profits from ICE vehicles, but weakening sales in this sector may jeopardize its strategy for transitioning to EVs.
Japanese carmakers are now under pressure to intensify their focus to remain competitive. China represents a significant portion of their global sales, with over 30% for Honda and more than 20% for both Toyota and Nissan. Masayuki Igarashi, Honda’s chief officer for regional operations in China, emphasizes the importance of the Chinese market, which is 1.5 times larger than the U.S. market, and the company’s determination not to retreat easily.
Honda plans to prioritize investment and resources in the development and sales of hybrid vehicles, leveraging its expertise in this technology. Although plug-in hybrid sales are on the rise in China, they will be given less priority. Toyota and Nissan, on the other hand, are expanding their EV offerings.
In 2023, Japanese brands held a 17% market share, according to data from the China Passenger Car Association, a decrease of 7 percentage points from 2020. Analysts, such as Yuji Miura, senior economist at the Japan Research Institute, warn that consumer spending could be impacted by the downturn in the housing market, potentially slowing even the resilient automotive industry.
