China’s automotive market is at the sharp end of a number of converging pressures: cooling demand in the wake of the pandemic; new liberalization of the market to foreign competitors; increases in public transportation and ride-hailing services, and reduced demand for cars; advances in technological innovation to satisfy increasing local and global demand for electrical vehicles (EVs). Since the first industry JV was signed in 1984, multi-national car manufacturers (MNCs) have exponential growth in JVs with multiple Chinese suppliers, resulting in complex and bureaucratic relationships. Originally, these JVs were well-aligned with foreign companies gaining access to the growing and increasingly lucrative Chinese auto market (now comprising 20 million car sales per year) in exchange for technological know-how and tried and tested operational efficiency. However, that balance is now shifting.
First, Chinese OEMs are far less dependent on MNCs than they were for technology, and China has developed significant strength in battery technology, robotics and AI. Second, Chinese automakers are increasingly successful at selling cars in the domestic market: Chinese branded cars comprised 29% in 2010 and 40% in 2017.1 Third, Local players have set clear ambitions to become global automakers, turning JV partners into potential competitors.
These shifts mean that Chinese and foreign participants in the JV have increasingly divergent interests leading to decision-making inertia. As JV regulations have been lifted, the motivation for disentangling what for many Chinese OEMs are no longer productive relationships, is clear. But rationalizing what for some MNCs were multiple JVs with different Chinese players is not easy. And, underlying structural complexity, is the fundamental issue that MNCs are at risk of diminishing value to their Chinese JV participants.
How can global MNCs restore value to the Chinese market and how can Chinese auto parts suppliers negotiate terms with their global players to accelerate innovation?