General Motors Co. (GM, Financial) dispatches millions of vehicles in China, which is a big market for the American automaker. The company heavily depends on this Asian economy, which majorly contributes to its top and bottom lines. As such, any shift in consumer preferences or changes in policy by the government impacts the automaker. China is on the verge of becoming the largest market for electric cars as the government is looking to ban gasoline-powered cars.
Several countries, including Norway, the U.K., the Netherlands and France, have decided to shift from internal combustion engines to electric vehicles. China, which is the world’s largest auto market, is also setting similar policies to reduce extreme air pollution in urban areas. There is no doubt China is promoting its domestic companies to develop electric vehicles to have a bigger piece of the global market share in the production of electric vehicles.
How this decision affects GM
CEO Marry Barra is determining how best to manage the ban on cars that run on gasoline and diesel, considering the massive deliveries the automaker makes in China. General Motors does have a line of electric vehicles it sells in China: the Buick Velite 5, the Cadillac CT6 plug-in and the Baojun E100. By the end of 2020, the company will be selling 10 new electric vehicles. Barra commented:
“By 2025, nearly all models from GM’s global brands in China – Buick, Cadillac and Chevrolet – will offer electrification technology. To support GM’s growing NEV fleet planned for China; its SAIC-GM joint venture is opening a new battery assembly plant in Shanghai this year.”
Challenges and targets ahead
Building a solid portfolio of environmentally friendly cars is a herculean task for the company. GM needs to produce a minimum of 50,000 to 70,000 new energy vehicles in 2018 and 2019 in order to obtain a minimum specified new-energy vehicle credit score, which is set by the government.
Barra remains optimistic most of the company’s well-established global brands will deliver electric vehicles by 2025. At the same time, the company aims to reduce carbon dioxide emissions for vehicles in China by 28% between 2016 and 2020. To reduce emissions, electrification becomes a very important element for the future. Barra said:
“Electrification is a crucial element of our global strategy to reduce CO2 emissions, reduce petroleum use and help customers to save money…Battery technology improvements will continue to make electric vehicles more desirable and more affordable.”
Last word
In the years ahead, a larger chunk of new vehicles will consist of plug-in hybrids and battery electric cars. The Chinese government is determined to move into an environmentally friendly automotive world by phasing out gas-powered vehicles. General Motors is building a strategy to bulk up its electric cars portfolio, but that will take a while. The company might face sales challenges in the short term.
General Motors, together with its joint ventures in China, sold nearly 1.8 million vehicles in the first half of this year in the mainland. That compares with 1.7 million cars and light trucks sold in North America for the same period. It is crucial for the company to increase its investments in electric cars. The company aims to develop vehicles that meet general requirement across the global markets by using a combination of autonomous driving, electrification and internet connectivity. It will be interesting to see if the top Detroit automaker is able to meet its vision for “a world with zero crashes, zero emissions and zero congestion” and maintain its dominance in China.
Disclosure: I do not hold any positions in the stocks mentioned in this article.
