Transitioning to electric vehicles has proven costly for U.S. automakers, even those with operations in China.
General Motors issued a warning to shareholders on Wednesday, signaling how painful and tricky the transition could become given geopolitical tensions and competition between the world's two largest economies.
The U.S. automaker said it would record two non-cash charges totaling more than $5 billion on its China joint venture, one related to a restructuring of the business and another reflecting a decline in its value.
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General Motors expects restructuring costs of $260 to $2.9 billion and joint venture value reduction charges of $2.7 billion.
Shares of the U.S. automaker fell 2.7% in premarket trading.
GM partners with SAIC to produce Buick, Chevrolet and Cadillac vehicles in China.
The company's board of directors believes the non-cash charge is necessary “in light of new business forecasts and the finalization of certain restructuring actions,” according to company filings.
GM has not disclosed details of the restructuring.
A company spokesman said most of the charges will be charged to the company's fourth-quarter earnings, reducing net income but not adjusted results.
GM Chief Executive Mary Barra has been transforming GM's operations in China as the former profit engine plunged into the red last year.
“Dealer inventories are significantly reduced”
Barra told investors in October that they would see improvements in that effort by the end of the year, saying “dealer inventories will be significantly reduced and sales and share will improve slightly.”
In the first three quarters of this year, the automaker lost about $350 million in the region.
In March, Reuters reported that SAIC plans thousands of layoffs, including at joint venture with General Motors.
Barra has previously warned that the Chinese market is becoming difficult for many companies to gain a foothold.
“It's a difficult market right now. Frankly, it's unsustainable because the number of loss-making companies out there can't continue indefinitely.
Intense competition from domestic manufacturers and price wars have had a clear impact.
In the first 11 months of this year, SAIC General Motors' sales dropped 59% to 370,989 vehicles, while local new energy vehicle champion BYD's sales during the same period were more than 10 times.
The GM joint venture reached its peak in 2018, with annual sales reaching 2 million vehicles.
In 2022, Volkswagen's title of best-selling brand in China will be taken away by BYD. Redouble efforts to deepen relationships with Chinese partners It includes electric vehicle technology from Xpeng Motors and SAIC Motor in response to weak sales in its largest market. The German automaker and SAIC recently agreed to extend their joint venture contract by ten years to 2040.
Japanese car manufacturer Nissan The company also laid off 9,000 employees and slashed production capacity as sales in China and the United States fell.
In Detroit, GM's crosstown rival Ford Motor Co is transforming its operations in China into an auto export hub, even as some analysts urge Detroit's automakers to cut their losses and exit the world's largest auto market entirely.
- Reuters Additional editing by Jim Pollard
See also:
Volkswagen says it will exit controversial Xinjiang factory
Survey finds Asian steelmakers failing to switch to renewable energy
EU may ask China for clean tech know-how in return for subsidies – FT
Ford CEO is driving a Xiaomi electric car and doesn't want to give it up
Transition to electric vehicles will have profound impact on trade and jobs: IMF
EU supports high tariffs on Chinese electric cars, but negotiations will continue
Tavares: Tariffs on Chinese electric cars will accelerate EU factory closures
China's SAIC Motor and joint ventures with General Motors and Volkswagen to lay off employees
Volkswagen says it “doesn't want to give up” on China's electric car market
