Mary Barra, CEO of General Motors, got a question at a recent panel that almost every auto CEO has grappled with in the past year: Why is your company doing so poorly in China?

Less than a decade ago, China was an easy source of cash for GM, an “automatic” $2 billion-a-year dividend for investors, says David Whiston, an analyst with Morningstar. The U.S. auto giant sold millions of Buicks and Chevrolets in China— and, for more than a decade, sold more cars in China than in its home market of the U.S.

It’s a different story now. GM’s China business, primarily a joint venture with state-owned automaker SAIC Motor, is now losing the carmaker millions of dollars a quarter, as EV players like Elon Musk’s Tesla and local competitors like BYD and Geely muscle out GM’s tried-and-true models.

“When you have more than 100 domestic Chinese OEMs [original equipment manufacturers] entering the market, most of which are losing money…it has become a race to the bottom with pricing and the level of subsidies,” Barra said to editor-in-chief Alyson Shontell at the Fortune Most Powerful Women Summit in Laguna Niguel, Calif., in October.

To be sure, subsidies play a role. But so does GM’s failure to adapt to a rapidly changing Chinese market that’s quickly embracing electric cars.

In a December security filing, GM put a number on how much its flailing China business will cost: $5 billion in write-downs and restructuring charges. (On Jan. 28, after this story was originally published, GM reported an almost $3 billion net loss for the final quarter of 2024, which it blamed on China restructuring costs).

GM is not alone. All the legacy car giants missed the EV transformation in China and are now struggling to catch up. But GM’s China struggles could signal something else for the once globe trotting automaker: As the massive U.S. market hesitates to embrace electric cars, can American carmakers stay relevant in a global market that’s going in the other direction?

GM has been in China for more than a century. In 1924, Pu Yi, China’s last emperor, imported two Buicks into Beijing’s Forbidden City. Buick became the car of choice for Republican China’s political and business elite, driving around the streets of interwar Shanghai. In the 1930s, the brand boasted that one in six Chinese cars was a Buick.

GM was frozen out of China after the Communist takeover in 1949. But decades later, GM was one of many foreign automakers to make its way back to the country as it reopened to the outside world. In 1997, GM launched its joint venture with SAIC Motor. By 1999, its factories were starting to roll out Buicks for the Chinese market.

Chinese consumer flocked to the storied U.S. brand; as many as 80% of all Buicks were sold in China. “The Buick has a royal bloodline,” one Chinese salesman told the Wall Street Journal in 2004. “It stands for luxury and safety and an earlier era of America.”

In fact, Buick’s survival as a brand is due to China. When GM was frantically trying to slim itself down amid the 2008 financial bailout, Buick survived because of then-CEO Fritz Henderson’s “passionate belief in Buick’s China appeal,” as Obama’s bailout chief Steve Rattner recounted to Fortune in 2009.

In addition to its joint venture with SAIC Motor, GM and SAIC also have stakes in a joint venture with Wuling Motors, making small, ultra-affordable micro-EVs for thrifty Chinese drivers.

Yet GM’s China sales have sunk dramatically from their peak in 2017, from 4.04 million vehicles down to 1.8 million in 2024.

Chart shows GM vehicle sales in the U.S. and China, and market shares

China’s changing car market overtook GM’s ability to adapt. In 2019, Tesla opened its factory in Shanghai, the first to be wholly owned by a foreign carmaker, and started churning out EVs for the Chinese market. Chinese consumers flocked to “new-energy vehicles,” a category that includes both plug-in hybrids and battery electric vehicles. Dozens of EV startups popped up across the country, spurred, at least initially, by generous production subsidies from Beijing and other provincial governments. By 2022, BYD—which has existed for just a quarter of GM’s life span—sold more than 1 million cars for the first time and sold 4.3 million cars in 2024, putting it in the same range as Honda or Ford. Xiaomi, best known for smartphones, debuted its first EV a year ago; it has already sold 140,000 cars.

The Financial Times, citing estimates from several investment banks, projects that EV sales in China will overtake sales of traditional gas-powered cars next year.

GM is fighting an “uphill battle” in China, says Dan Ives of Wedbush Securities: “They’re caught between a rock and a hard place, because they’re very entrenched in China. They have lots of resources, decent market share, but they’re not going to invest more assets and resources, because it’s good money going after bad.”

The U.S. automaker is now introducing EVs to the China market, but a fierce price war has eroded margins throughout the industry. Legacy carmakers, like GM and its partner SAIC Motor, are stuck with costly relationships with suppliers. GM’s models also lack the digital bells and whistles now common in China-made EVs.

“They do offer EVs, but are they as competitive as BYD, or Geely, or some of what the other startup brands are putting out there? The answer is, to be honest at this point, no,” says Eugene Hsiao, an autos analyst with Macquarie.

It’s not just GM that has lost as BYD, Geely, and other Chinese companies have gained. Carmakers like Honda, Nissan, and Mitsubishi are suspending production at some of their China plants as they can’t sell enough cars to justify keeping them open Volkswagen and Stellantis are signing new partnerships with local players to gain expertise in EV manufacturing and software design.

“They’re caught between a rock and a hard place.”
Dan Ives, Wedbush Securities

As China’s economy matures, its consumers are finding that the foreign premium in quality is going away—or at least isn’t worth as much anymore. “It was kind of ridiculous for a while that the foreign brands owned 70% of the Chinese market,” says Philippe Houchois, an analyst at Jefferies.

But Bill Russo, who used to lead Chrysler’s efforts in China, thinks Chinese carmakers have realized something about cars in the 2020s—they’re basically phones on wheels. “Chinese consumers expect the EV to be a smart device. The Chinese companies have that idea. They’re demonstrating it, and they’re dominating it.”

Western officials and CEOs, however, blame something else: China’s use of subsidies, and “overcapacity.” Over the past few years, a host of officials in the U.S. and Europe have complained that Beijing is using subsidies to promote manufacturing, which in turn leads to more production than China’s consumers can reasonably ingest. Domestically, that leads to price wars and disappearing margins as companies struggle to survive; internationally, it leads to below-market-price exports undercutting local manufacturers.

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“I’m a free trader. Give me a level playing ground and let’s compete based on our product and how well we serve the customer,” Barra said in her October Fortune interview, without commenting specifically on Beijing’s policies.

The subsidy narrative is “half accurate,” says Christopher Beddor, deputy China research director at Gavekal, a financial research firm. “The Chinese EV market would not be where it is today, would not be as competitive, if it wasn’t for those original subsidies. You can’t go back in time and remove those subsidies.”

But complaining about subsidies now is missing the point: China’s car market has moved toward EVs, and companies need to adapt. “The argument is that Beijing attempted a classic infant-industry approach, and now you’re mad at them because it worked,” Beddor says. “Is it a race to the bottom in terms of pricing? Yes, that’s what you expect in a competitive market.”

Hsiao points to Tesla as the example that undermines the argument that the subsidies benefit only Chinese companies. Beijing helps Tesla through subsidies, both on the production and the consumption sides. “If you make the commitment, Beijing is happy to give you subsidies as well,” he says.

GM’s very public struggles in the world’s largest car market aren’t, for now, threatening its global business.

GM posted $140 billion in revenue for the first three quarters of 2024, an 8% year-on-year jump. Profits are up, too, jumping more than 10% in the same period. GM is doing especially well in the U.S., its home market, ending the year in first place in overall sales. (On Jan. 28, GM reported full-year revenue of $187 billion, a 9.1% jump from the previous year).

Investors, too, are unfazed by GM’s China struggles. Share buybacks and surprisingly resilient earnings helped push the carmaker’s shares up 50% in 2024, as the broader S&P 500 rose by just half that much.

“A weakening China business does not directly hurt GM’s prospects for success in the U.S.,” Whiston says. He also notes that the China joint venture, not GM, is paying the $5 billion restructuring charge.

And GM is sticking to its ambitious—by U.S. standards—EV strategy. The company still hopes to get rid of traditional cars by 2035, and expects to make money on its battery-powered EVs by the end of the year. It’s now the second-largest seller of EVs in the U.S., behind Tesla, thanks to models like the Chevy Equinox.

For now, GM is promising to stay in China. “GM is working closer than ever with our joint-venture partner SAIC to restore the business in China to make it profitable and sustainable,” the automaker said in a mid-December statement.

“We think it’s a market, after we restructure, we can still participate in an appropriate way, and it can be a business that has growth for General Motors,” Barra said in October.

Yet analysts note the company—particularly under Barra’s tenure—has a history of cutting its losses. “GM has a tendency to walk away from fights,” Houchois says.

Barra in 2017 sold GM’s Europe-focused divisions, Opel and Vauxhall, which the carmaker had owned for over 90 years. GM more recently shuttered Cruise, its robo-taxi division, after an accident forced a months-long pause in operations. The decision saves GM about $1 billion a year.

In early 2023, Tesla CEO Elon Musk warned legacy carmakers that the only thing keeping them alive was protectionism. “Chinese car companies are the most competitive car companies in the world,” the billionaire said. Without trade barriers, “they will pretty much demolish most other car companies in the world.”

The U.S. is turning inward as the global market becomes more competitive—and that’s likely to accelerate under President Donald Trump, who hopes to use tariffs to boost domestic manufacturing. While that may protect U.S. manufacturers in their home market, it means losing out on the dynamism of overseas markets. Beddor calls China a “fitness center,” since “if you can make it there, you can make it anywhere.”

And protection can only work for so long: Just look at U.S. Steel and its long decline from international relevance in the face of competition from Asian manufacturers.

“The idea of falling behind should be anathema to the U.S.,” Russo says, complaining that he’s been warning about the innovation and dynamism of China’s car industry for over a decade. “We should rise to it like we rose to Sputnik. We shouldn’t back away and [complain about] government support.

“Hiding in the basement is not a strategy,” he says.

This article appears in the February/March Asia issue of Fortune with the headline “Running on fumes.”

GM’s 100-year-old China business can’t keep up with the EV boom there