Mitsubishi Motors to Cease Manufacturing Operations in China

28 Sep, 2023

Mitsubishi Motors to Cease Manufacturing Operations in China

Mitsubishi Motors has made the decision to exit its automobile production operations in China, according to sources at Nikkei. The company is currently in the final stages of negotiations regarding its withdrawal from China's Guangzhou Automobile Group (GAC), a significant player in the automotive industry and Mitsubishi's joint venture partner.

Mitsubishi has faced challenges in the Chinese market, with sluggish sales attributed to the increasing popularity of electric vehicles (EVs) and the emergence of local automotive brands. This struggle is not unique to Mitsubishi, as other Japanese automakers are also grappling with similar issues and may reevaluate their strategies in the Chinese market.

The GAC Mitsubishi Motors factory, located in Hunan province, ceased production in March and will not resume operations. This facility represents Mitsubishi's sole manufacturing presence in China. GAC intends to repurpose the Hunan plant for EV production and maintain a certain level of employment. GAC Mitsubishi is a joint venture in which GAC holds a 50% stake, Mitsubishi Motors owns 30%, and Mitsubishi Corp. holds the remaining 20%. While GAC Mitsubishi will continue to exist as a corporate entity, Mitsubishi Motors, and Mitsubishi Corp. will divest their investments.

In 2022, Mitsubishi sold 38,550 vehicles in China, reflecting a significant decline of approximately 60% compared to the previous year. In an attempt to reverse this downward trend, Mitsubishi introduced a hybrid model, the Outlander SUV, specifically for the Chinese market last fall, although sales fell below expectations.

As Mitsubishi exits the Chinese market, the company plans to redirect its resources toward Southeast Asia and Oceania, regions that constitute approximately one-third of Mitsubishi's consolidated sales.

The China Association of Automobile Manufacturers reported an 80% increase in EV sales in 2022, totaling 5.36 million cars and representing roughly 20% of all new car sales in China. Mitsubishi, however, lacks proprietary EV offerings in China, as GAC has been the primary supplier of these vehicles.

Furthermore, competition with Chinese automakers is intensifying. Research firm MarkLines reported that passenger car sales in China reached 23.56 million units in 2022, with Chinese brands capturing 50.7% of those sales, a 5.2-percentage-point increase from the previous year. Japanese companies accounted for 18.3% of the market, experiencing a 2.8-percentage-point decline.

Makoto Uchida, president and CEO of Nissan Motor, recently expressed concerns about market conditions, citing heavy discounting as a barrier to profitability. Nissan is considering various options, including a review of its strategy, such as its joint ventures in China.

Mitsubishi's involvement in exporting commercial vehicles to China dates back to the 1970s, and it participated in a joint venture with Soueast Motor from 2006 to 2021. GAC Mitsubishi Motors was established in 2012 and achieved peak sales of 140,000 vehicles in 2018.