[HONG KONG] China’s world-beating electric vehicle (EV) boom is masking lopsided economic gains, with manufacturing hubs that rely on foreign carmakers falling behind cities that are home to hugely popular domestic brands such as BYD.
No city exhibits how quickly the tide can turn better than Guangzhou, where auto manufacturing accounts for about a quarter of economic output. The capital of Guangdong, China’s wealthiest province, was the country’s biggest car producer for five years running, buoyed by state-owned Guangzhou Automobile Group’s joint ventures with Toyota Motor and Honda Motor, as well as a Nissan Motor plant.
That all changed last year, when production plunged 20 per cent to 2.5 million cars as Chinese drivers eschewed foreign marques. The slump saw Guangzhou lose its No 1 position to nearby Shenzhen, headquarters of homegrown EV juggernaut BYD. There, output surged more than 65 per cent to 2.9 million vehicles.
The cities’ contrasting fortunes have rippled throughout their respective economies: Guangzhou’s 2.1 per cent growth in gross domestic product last year was the slowest out of China’s largest 19 cities by output and less than half the pace of Shenzhen.
In the EV transition, “some places, and people, will inevitably be left behind”, said David Hart, a senior fellow for climate and energy at the Council on Foreign Relations. The shift to cleaner cars, one that will arguably be more comprehensive than other industry pivots, will have “winners and losers”, not just geographically but among companies and occupations too, he said.
The change is hitting at a particularly sensitive time. China’s economy is coming under increasing strain as the impact of US President Donald Trump’s wide-ranging tariffs spreads across sectors, while punitive duties on made-in-China EVs in the US and Europe are damaging the outlook for exports.
BT in your inbox
Start and end each day with the latest news stories and analyses delivered straight to your inbox.
With Chinese consumers still strongly favouring domestic brands, officials in cities that rely on foreign automakers are under pressure to mitigate the economic fallout.
When a slump in demand saw Toyota plan to slash output in Guangzhou last year, local authorities protested on concerns they’d miss their GDP targets, according to a source familiar with the situation who asked not to be identified because they are not authorised to speak publicly. After Toyota threatened to cut exports of Japanese-made key components to Guangzhou, the city’s deputy mayor flew to Tokyo to try to persuade Toyota executives to maintain production, the source said.
It did not work, or at least not to the degree Guangzhou officials must have hoped. Output at the GAC-Toyota joint venture tumbled 23 per cent in 2024, according to company filings.
Toyota representatives in Japan said the company “had not received any protests from the Guangzhou municipal government regarding the issue at hand”. Representatives for GAC and Guangzhou city officials did not respond to requests for comment.
The strain in Guangzhou has been building for a while.
Zhang, a 55-year-old who worked at an American electronics manufacturer that served Honda and Tesla, said orders at his company started drying up about five years ago. His employer froze wages and began laying off staff. Facing an uncertain future, Zhang, who asked to be identified only by his last name due to privacy concerns, said he quit to work for ride-hailing service Didi Global.
His brother, who worked for a Japanese auto parts supplier, has also been trying to find another job in the industry after he was laid off three years ago. But, with no one hiring, he now drives for Didi too.
Guangzhou’s difficulties also involve a degree of plain bad luck. Toyota and Nissan, which has a joint venture with Dongfeng Motor Group, were seen as EV and hybrid trailblazers in the early 2000s. But they fumbled the nascent success of models such as the Prius and the Leaf and, along with Honda, have been usurped by a wave of Chinese carmakers such as BYD.
Meanwhile, several EV players that Guangzhou supported have faltered. The most high-profile is China Evergrande New Energy Vehicle Group, which in 2019 boldly claimed it could rank alongside Tesla within a few short years. Now it’s ceased production and is teetering on the brink of bankruptcy. Its 80-hectare factory in Nanshan district lies largely abandoned.
The city’s role as provincial capital has made it less nimble than nearby Shenzhen too, whose designation as a special economic zone relieves it of the bureaucratic burdens involved in getting industries up and running.
BYD set up shop in Shenzhen as a battery maker in 1995, before establishing an auto arm in 2003 and releasing its first car two years later. Last year, revenue topped US$100 billion and it leapfrogged Tesla in sales.
Guangzhou has managed to notch one major win – US-listed EV upstart Xpeng, which has an equity tie-up with Volkswagen (VW). Xpeng set up its first factory in Zhaoqing, a growing manufacturing centre in Guangdong. In 2023, a second factory started up in Guangzhou, supported by a four billion yuan (S$737 million) investment from a government fund.
“Guangzhou is a city with a strong pragmatic spirit,” Xpeng’s founder He Xiaopeng said in early March. “I hope more entrepreneurs can be created”, here.
While Guangzhou’s troubles are the most high profile example of the economic hit of a slow pivot to EVs, it’s a scenario being repeated in other auto hubs around China.
Changchun, the capital of Jilin province, is home to state-owned manufacturer FAW Group, which has joint ventures with Toyota and VW. The city was the second-biggest car producer in 2020 – trailing only Guangzhou – before slipping to fifth in 2023. Last year, auto manufacturing output fell 3.8 per cent, official statistics show.
With the sector’s headwinds likely to persist, joint ventures between Chinese firms and foreign manufacturers are forecast to reduce capacity by another 10 million vehicles by 2030, putting the US$20 billion profit pool that these ventures used to enjoy at risk, according to Paul Gong, UBS’ head of China autos research.
“These cities all face their own problems,” Gong said. “For Guangzhou, the failure of the Japanese brands has had an impact” that’s only partially been offset by the increase in production from Xpeng and GAC-owned EV brands, he said. “For a province like Jilin, its reliance on joint ventures with foreign automakers is even greater.”
In a nod to the importance of revitalising the sector, Guangzhou last year appointed Sun Zhiyang, an auto industry veteran who worked for the state-owned FAW Group for two decades, as mayor. Officials declined to make Sun available for an interview.
Guangzhou is also investing in future-facing technologies, such as autonomous driving, and two of China’s listed self-driving technology companies – WeRide and Pony.AI – have their headquarters in the city, thanks in part to lobbying efforts and incentives offered by officials.
Pressure is piling on GAC in particular, given it accounts for 75 per cent of Guangzhou’s overall auto output. “If GAC loses, Guangzhou loses,” former chairman Zeng Qinghong said at a car show held in the city in November.
After deliveries tumbled 20 per cent last year, GAC pledged a refresh. There’s a new chairman now, Zeng has retired, and GAC plans to launch 22 new-energy vehicles in three years. It’s also collaborating with Huawei Technologies on a new intelligent car brand.
Meanwhile, Toyota, Honda and Nissan are ramping up their shift into EVs and cutting internal combustion engine production in China. Honda has halved engine capacity at a key plant in Guangzhou, Kyodo reported in March.
In December, Honda started EV production at a factory with capacity for 120,000 vehicles a year that’s run by its joint venture with GAC. Parts of that facility, such as welding, are 100 per cent automated and many workers have been replaced by robots, according to Chinese media reports.
For Zhang, that adds to the difficulties of finding employment in the sector. His position at the American contract manufacturer afforded him and his wife a comfortable lifestyle and supported their children through university, but they now wrestle with making ends meet.
“The job used to have good pay with benefits like company housing for couples,” he said. “Those days are gone.” BLOOMBERG
