No one said the transition to electric vehicles would be easy, and China’s traditional automakers are finding that out. Their experience shows why Ford Motor and General Motors are effectively in a Catch-22.
China’s traditional automakers earned an operating profit margin of roughly 5% between 2019 and 2022. But profit margins have declined as their core market has given up ground to battery-powered cars. Operating profit margin in 2022 came in at less than 3%, and 2023 profit margins are expected to be about 4% even as total industry sales volume is expected to be at near-record levels.
That’s the crux of the problem for Ford and GM . If they don’t invest aggressively in EVs, they risk losing market share and seeing profitability erode. And if they invest in EVs—which both are—there is no guarantee they will win against upstarts such as Tesla and Rivian Automotive . Failing to produce popular EVs also means losing market share and weaker profitability at Ford and GM.
As easy as it would be to focus on gasoline-powered cars for these legacy automakers, it would be difficult to ignore the trends. EVs are getting better and cheaper, and are backed by environmental policies around the globe.