Leading Auto Analyst Advises Legacy U.S. Automakers to Exit China

Legacy U.S. automakers like Ford Motor and General Motors should consider exiting the Chinese market to conserve capital during the costly transition to electric vehicles (EVs), advised John Murphy, a Bank of America Securities analyst, on Tuesday.

Murphy shared his insights during the annual “Car Wars” presentation, a highly regarded industry report.

Cost-Cutting Measures and Competitive Challenges:

Murphy emphasized the Detroit Three’s necessity to implement harsh cost-cutting measures to remain competitive with EV manufacturers such as Tesla and other global carmakers.

Given the slower-than-expected EV sales, Ford, GM, and Jeep-maker Stellantis have already initiated cost-cutting strategies across all segments of their businesses.

However, Murphy warned that more drastic measures might be required, particularly in their gas-engine operations, which generate most of their profits.

The Inhospitable Chinese Market:

China, the world’s largest automotive market, has become increasingly challenging for foreign automakers. The strength of local Chinese companies and strong consumer loyalty to homegrown brands present significant barriers.

Murphy noted that this loyalty could intensify with the U.S. imposing over 100% tariffs on Chinese EVs starting August 1.

Ford and GM have seen their sales in China decline over the past decade. Once GM’s largest market, the region is a battleground for profitability. In response to fierce competition from local rivals like BYD and Geely, Ford is restructuring its China operations to serve as an export hub.

Tough Decisions Ahead:

Murphy’s guidance highlights the difficult decisions ahead for the Detroit Three. “Very aggressively manage your core business.

And it’s some tough medicine. There’s a lot of really hard work to do here,” Murphy said at an event organized by the Automotive Press Association in a Detroit suburb.