Detroit Automakers Urged to Reconsider Strategies
According to a recent “Car Wars” report from Bank of America, the Detroit Three automakers—General Motors, Ford, and Stellantis—should reconsider their approach to the Chinese market and prioritize their core, profitable businesses, including gas-powered trucks. The report suggests this shift is essential to fund the development of electric vehicles (EVs) that can compete with Tesla on both cost and profitability.
John Murphy, a Bank of America Securities research analyst, presented the report and highlighted the significant cost difference between U.S.-produced EVs and Tesla’s models. This difference, approximately $17,000 per vehicle, makes the Detroit Three’s EVs less competitive, a situation predicted to persist for several years.
Focusing on profit-generating vehicles, especially trucks, will enable these companies to invest in the research and development necessary for future EVs. Murphy emphasized that the current market conditions in China, with intense competition and advanced technologies from domestic manufacturers, are challenging for the Detroit Three. GM, for example, experienced financial losses in the region during the first quarter, and the risk of tariff retaliation is high. Murphy analogized the situation to GM’s exit from Europe in 2017, suggesting that China is no longer a core strategic market.
Despite acknowledging the difficulty of this strategy, Murphy emphasized the importance of generating near-record profits to fund the necessary investments for survival. He noted that while inventory levels are rising and interest rates remain high, pent-up demand exists. He expects pricing to remain stable through 2026, and the U.S. market to reach 18 million vehicle sales annually by 2028.
Murphy indicated that even upcoming EVs from companies like Ford, which are expected to reduce costs, may not be sufficient to close the profitability gap with Tesla. He suggests it will require a third generation of these vehicles, potentially four to five years out, to become truly cost-competitive. He also noted that automakers will need to continue selling enough EVs and fuel-efficient models to meet government regulations.
Additionally, the report suggests the importance of investing in connected and automated driving technologies, which represent high return-on-investment potential. These technologies can generate revenue through aftersales services and reshape the value of vehicles by improving safety and saving driving time for consumers.
The report forecasts a lower replacement rate of old models in the coming years, with more launches anticipated in 2027 and 2028. Tesla Inc. is predicted to have the highest replacement rate through 2028, indicating a potential increase in market share. Other automakers, including GM, Ford, and Stellantis showed varying replacement rates, with GM’s being the lowest, potentially leading to a decrease in its market share.
Further competition in the EV market could come from Chinese manufacturers like BYD Co. Ltd., which is establishing manufacturing in Mexico and could leverage the United States-Mexico-Canada agreement to sell duty-free or low-tariff vehicles in the United States. While the Detroit Three currently have a presence in the Chinese market through various strategies, the report suggests that exiting China from a profit and strategic standpoint makes sense to focus on North American trucks and EV investments over time.
