Mitsubishi Motors plans to exit its Chinese vehicle production joint venture with China’s Guangzhou Automobile (GAC) in response to declining sales, according to Nikkei.

Mitsubishi had been struggling for several years in the world’s largest market where top local brands were enjoying strong demand for electric and hybrid vehicles. MMC sales in China fell 60% year on year to 39,000 vehicles in 2022, after peaking at around 140,000 units in 2018, despite the launch of the Outlander hybrid crossover in the final quarter of last year.

The GAC Mitsubishi Motors joint venture in Hunan province, the company’s only factory in China, stopped production earlier this year and was not expected to resume assembly of Mitsubishi vehicles.

According to the reports from Japan, Mitsubishi had started final negotiations with GAC to withdraw from the joint venture in which it holds a 50% stake together with Mitsubishi Corporation. The reports also suggested GAC Mitsubishi Motors would remain a corporate entity, but without Mitsubishi Motors and Mitsubishi Corporation as shareholders.

State owned GAC holds the other 50% and was expected to take full control of the joint venture. It would likely use the plant to produce EVs.

Other foreign automakers were also struggling to keep up with the rapid rise in demand for NEVs in China, including Mitsubishi’s main strategic partner Nissan Motor whose CEO Makoto Uchida recently said: “We are not at a level in China where we can make a profit due to extremely heavy discounting. We are considering our options, including reviewing our strategy such as our joint ventures in China.”

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South east Asia has become Mitsubishi Motors’ main production location outside of Japan with Thailand, Indonesia, Vietnam, Taiwan and the Philippines accounting for around 50% of the company’s global output and a third of global sales this year.

In this region, too, competition from Chinese manufacturers is rising rapidly, however.