Jeep Maker Stellantis Downshifts Ambitions in China

“It is the intention to stay in China and fix it,” he told investors in March 2021.

But Mr. Tavares has since decided to shrink Stellantis’s factory footprint in China, facing stiff domestic competition and complications with a local partner that built and distributed Jeep SUVs in the country. Rising geopolitical tensions also stoked concerns for Mr. Tavares that Stellantis might be booted out of the country, he has said.

“I’m only making red ink, so if I move out of China, I’m only improving my financials,” Mr. Tavares said in an interview in September. Rather than exiting altogether, he has decided on a strategy that hinges largely on importing cars for sale, he said.

Stellantis’s strategic shift underscores challenges faced by other foreign auto makers in China, which has served as an important growth driver since its car market was opened to foreign investment decades ago.

In recent years, local Chinese brands have rolled out improved vehicles and garnered more attention from local buyers, especially in the country’s fast-growing electric-vehicle market. That rise in competition has put pressure on foreign car brands, especially ones that appeal to mainstream consumers and don’t compete in China’s large luxury-car market.

Global car makers that have long been among the top sellers in China, including

Volkswagen AG

and

General Motors Co.

, have lost ground in recent years.

Instead of building Jeeps in China, Stellantis will import the vehicles, Mr. Tavares has said. That shift would subject the company to tariffs, which could make it harder for the Jeep brand to compete on price against rivals that build domestically and don’t incur tariffs.

Stellantis finance chief

Richard Palmer

said last month that the new strategy would require Jeep to target a narrower slice of the Chinese market. “We’re not going to be a volume player,” he said on an investor call.

Chinese-owned brands accounted for 48% of the country’s vehicle sales in 2022, through October, the latest available data. That percentage is up from 44% a year earlier and 38% in 2020, according to the China Passenger Car Association.

Meanwhile, as electric vehicles take off in China, global auto makers largely are playing catch-up to surging Chinese brands that have moved quickly to roll out EVs, including

BYD Co.

,

XPeng Inc.

and NIO Inc. Electric vehicles in China accounted for 23% of overall sales in November, according to research firm EV-volumes, compared with 6% in North America.

Mr. Tavares has said a major factor in the strategic shift was the demise of Jeep’s joint venture with Guangzhou Automobile Group Co. Stellantis in July disclosed plans to end the venture. Mr. Tavares blamed a lack of progress in its plan to take a majority share in the venture, which filed for bankruptcy in late November.

The end of the joint venture capped a nearly decadelong effort by Jeep to emerge as a major player in China through localizing car-making operations in the country. In 2014, the brand’s then-owner Fiat SpA forged the joint venture with Guangzhou Automobile to build Jeeps there. Fiat eventually set a goal of tripling Jeep sales in China by 2018, to 500,000 vehicles annually.

By the end of 2019, however, the company had hit barely half that target, selling 229,000 vehicles in the year, or about 1.1% of the total market share in China, according to investor filings. Through November this year, Stellantis sold about 80,000 vehicles in China, according to research firm Wards Intelligence.

Stellantis continues to manufacture models in China for two of its other brands, Citroën and Peugeot, using joint partnerships. Mr. Tavares has discussed the possibility of also winding down those partnerships, telling reporters in October that he is making a profit on imported Jeeps and luxury cars from its Alfa Romeo brand. No decision has been made at this time, the company said.

The decision to wind down production in China by Stellantis effectively limits its presence in one of the few growth markets in the world, analysts say.

But the size of the investment needed for Stellantis to catch up to the surging Chinese brands as well as

Tesla Inc.

in the capital-intensive EV market would be substantial, with an uncertain payoff, said Charles Coldicott, associate partner at research firm Redburn.

“Stellantis is saving itself a lot of bother down the road,” Mr. Coldicott said.

Mr. Tavares has made clear it is no longer the company’s intention to have a substantial manufacturing footprint in China.

“Now, is it smart from a strategic standpoint?” he said. “That’s an open question.”

Write to Ryan Felton at [email protected]

“It is the intention to stay in China and fix it,” he told investors in March 2021.

But Mr. Tavares has since decided to shrink Stellantis’s factory footprint in China, facing stiff domestic competition and complications with a local partner that built and distributed Jeep SUVs in the country. Rising geopolitical tensions also stoked concerns for Mr. Tavares that Stellantis might be booted out of the country, he has said.

“I’m only making red ink, so if I move out of China, I’m only improving my financials,” Mr. Tavares said in an interview in September. Rather than exiting altogether, he has decided on a strategy that hinges largely on importing cars for sale, he said.

Stellantis’s strategic shift underscores challenges faced by other foreign auto makers in China, which has served as an important growth driver since its car market was opened to foreign investment decades ago.

In recent years, local Chinese brands have rolled out improved vehicles and garnered more attention from local buyers, especially in the country’s fast-growing electric-vehicle market. That rise in competition has put pressure on foreign car brands, especially ones that appeal to mainstream consumers and don’t compete in China’s large luxury-car market.

Global car makers that have long been among the top sellers in China, including

Volkswagen AG

and

General Motors Co.

, have lost ground in recent years.

Instead of building Jeeps in China, Stellantis will import the vehicles, Mr. Tavares has said. That shift would subject the company to tariffs, which could make it harder for the Jeep brand to compete on price against rivals that build domestically and don’t incur tariffs.

Stellantis finance chief

Richard Palmer

said last month that the new strategy would require Jeep to target a narrower slice of the Chinese market. “We’re not going to be a volume player,” he said on an investor call.

Chinese-owned brands accounted for 48% of the country’s vehicle sales in 2022, through October, the latest available data. That percentage is up from 44% a year earlier and 38% in 2020, according to the China Passenger Car Association.

Meanwhile, as electric vehicles take off in China, global auto makers largely are playing catch-up to surging Chinese brands that have moved quickly to roll out EVs, including

BYD Co.

,

XPeng Inc.

and NIO Inc. Electric vehicles in China accounted for 23% of overall sales in November, according to research firm EV-volumes, compared with 6% in North America.

Mr. Tavares has said a major factor in the strategic shift was the demise of Jeep’s joint venture with Guangzhou Automobile Group Co. Stellantis in July disclosed plans to end the venture. Mr. Tavares blamed a lack of progress in its plan to take a majority share in the venture, which filed for bankruptcy in late November.

The end of the joint venture capped a nearly decadelong effort by Jeep to emerge as a major player in China through localizing car-making operations in the country. In 2014, the brand’s then-owner Fiat SpA forged the joint venture with Guangzhou Automobile to build Jeeps there. Fiat eventually set a goal of tripling Jeep sales in China by 2018, to 500,000 vehicles annually.

By the end of 2019, however, the company had hit barely half that target, selling 229,000 vehicles in the year, or about 1.1% of the total market share in China, according to investor filings. Through November this year, Stellantis sold about 80,000 vehicles in China, according to research firm Wards Intelligence.

Stellantis continues to manufacture models in China for two of its other brands, Citroën and Peugeot, using joint partnerships. Mr. Tavares has discussed the possibility of also winding down those partnerships, telling reporters in October that he is making a profit on imported Jeeps and luxury cars from its Alfa Romeo brand. No decision has been made at this time, the company said.

The decision to wind down production in China by Stellantis effectively limits its presence in one of the few growth markets in the world, analysts say.

But the size of the investment needed for Stellantis to catch up to the surging Chinese brands as well as

Tesla Inc.

in the capital-intensive EV market would be substantial, with an uncertain payoff, said Charles Coldicott, associate partner at research firm Redburn.

“Stellantis is saving itself a lot of bother down the road,” Mr. Coldicott said.

Mr. Tavares has made clear it is no longer the company’s intention to have a substantial manufacturing footprint in China.

“Now, is it smart from a strategic standpoint?” he said. “That’s an open question.”

Write to Ryan Felton at [email protected]