China, EVs and profit: three takeaways from the Car Wars report

Author

Colin Velez
June 19, 2024

Bank of America’s Car Wars report urges U.S. automakers to focus their efforts on electric vehicle innovation rather than production, while extricating themselves from the increasingly costly battleground that is China’s car market.

What this means: Up till now, car manufacturers have spent billions trying to replicate Tesla’s success in the EV sector. And yet, not only do electric cars remain unprofitable they also aren’t selling as much as automakers had hoped.

While EVs are performing incredibly well in China, its domestic automakers have clawed back so much market share that foreign competitors are starting to lose money by staying in the country. Rather than sticking to the status quo, however, the Car Wars report recommends taking a more strategic approach, one that plays to the strengths of American car brands rather than their weaknesses.

John Murphy, automotive expert and Bank of America Securities research analyst, offered the following recommendations during a presentation of the Car Wars report on June 18.

Get out of China:

  • “China is no longer core to GM, Ford or Stellantis,” Murphy observed. While U.S. and global automakers used to dominate China’s car market, domestic brands like BYD now reign supreme over the country’s consumers.

  • Tariffs are also making it more and more expensive for manufacturers to export vehicles after building them in China, forcing some to reconsider their supply chains. Shifting focus away from China and back to major profit centers like the U.S. truck market will help brands recoup losses from increased competition overseas, Murphy reasons.

Stop releasing new EVs:

  • Automakers have released expansive electrified lineups over the last few years in an effort to compete with Tesla. While their efforts have succeeded in diminishing the EV brand’s grip on the market, this has come at the cost of profitability.

  • "Pushing volume at the moment and losing money doesn't make a tremendous amount of sense,” Murphy commented. Instead of burning through cash on new releases, manufacturers can focus their investments elsewhere.

Invest in the future:

  • Rather than trying to drive short term gains in the EV sector through new products, Murphy suggests that automakers focus on long term sustainability. “You really want to focus on some of the next-generation platforms to have a profitable business,” he explains.

  • Using ICE vehicles as a source of funding, Murphy recommends that automakers invest more into EV supply chains, research and development, aiming to cut costs and overcome the challenges preventing consumer adoption (such as lack of charging infrastructure and inadequate driving ranges).

Bottom line: Overall, the Car Wars report recommends that automakers replace ineffective strategies with those that have a higher chance of success in the long term, even if progress towards their goals is slower. Although manufacturers seem determined to remain in China, many seem to share Murphy’s conclusions that EVs need more time to mature, evidenced by the cancellations of new model releases among brands like Ford and General Motors.

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