| Thanks for reading Hyperdrive, Bloomberg's newsletter on the future of the auto world. Read today's featured story in full online here. China's electric vehicle boom is yielding lopsided economic gains, with manufacturing hubs that rely on foreign carmakers falling behind cities home to hugely popular domestic brands led by BYD. No city exhibits how quickly the tide can turn better than Guangzhou, where auto manufacturing accounts for about a quarter of economic output. The capital of Guangdong, China's wealthiest province, was the country's biggest car producer for five years running, buoyed by state-owned Guangzhou Auto's joint ventures with Toyota and Honda, as well as a Nissan plant. That all changed last year, when production plunged 20% to 2.5 million cars, as Chinese drivers eschewed foreign brands. The slump saw Guangzhou lose its No. 1 position to nearby Shenzhen, where EV juggernaut BYD is headquartered. There, output soared more than 65% to 2.9 million vehicles. The cities' contrasting automotive fortunes have rippled through their respective economies: Guangzhou's 2.1% growth in gross domestic product last year was the slowest of China's 19 biggest cities by output and less than half the pace of expansion for Shenzhen. In the EV transition, "some places, and people, will inevitably be left behind," said David Hart, a senior fellow for climate and energy at the Council on Foreign Relations. The move to cleaner cars — one that will arguably be more comprehensive than other industry shifts — will have winners and losers not just geographically, but also among companies and occupations, he said. The change is hitting at a particularly sensitive time. China's economy is coming under increasing strain as the effects of US President Donald Trump's wide-ranging tariffs spread across sectors. Punitive duties on made-in-China EVs implemented by both the US and Europe already were crimping the outlook for exports. With Chinese consumers strongly favoring domestic brands, officials in cities that rely on foreign automakers are under pressure to mitigate the economic fallout. When slumping sales spurred Toyota to plan production cuts in Guangzhou last year, local authorities protested on concerns they'd miss their GDP targets, according to a person familiar with the situation, who asked not to be identified because they're not authorized to speak publicly. After Toyota threatened to cut exports of Japanese-made key components to Guangzhou, the city's deputy mayor flew to Tokyo to try to persuade Toyota executives to maintain production, the person said. It didn't work — or at least, not to the degree Guangzhou officials must have hoped. Output at the GAC-Toyota joint venture tumbled 23% in 2024, according to company filings. Toyota representatives in Japan said the company "hadn't received any protests from the Guangzhou municipal government regarding the issue at hand." Representatives for GAC and Guangzhou city officials didn't respond to requests for comment.  A GAC plant in Guangzhou. Photographer: Qilai Shen/Bloomberg The strain in Guangzhou has been building for a while. Zhang, a 55-year-old who worked at an American electronics manufacturer that served Honda and Tesla, said orders at his company started drying up about five years ago. His employer froze wages and began laying off staff. Facing an uncertain future, Zhang, who asked to be identified only by his last name due to privacy concerns, said he quit to become a driver for ride-hailing service Didi. His brother who worked for a Japanese auto-parts supplier also has been trying to find another job in the industry after he was laid off three years ago. But with no one hiring, he now drives for Didi, too. Guangzhou's difficulties also involve a degree of plain bad luck. Toyota and Nissan, which has a joint venture with Dongfeng Motor, were trailblazers for hybrids and EVs in the early 2000s. But their early success with models like the Prius and Leaf have been usurped by Chinese carmakers such as BYD. Meanwhile, several EV players that Guangzhou supported have faltered. The most high-profile is China Evergrande NEV, which in 2019 claimed it could rank alongside Tesla within a few years. Now, it's ceased production and is teetering on the brink of bankruptcy. Its 80-hectare factory in Nanshan district lies largely abandoned. The city's role as provincial capital has made it less nimble than nearby Shenzhen, whose designation as a special economic zone relieves it of the bureaucratic burdens involved in getting industries up and running. BYD set up shop in Shenzhen as a battery maker in 1995, before establishing an auto business in 2003 and releasing its first car two years later. Last year, revenue topped $100 billion, leapfrogging Tesla. Guangzhou has managed to notch one major win, via US-listed EV upstart Xpeng, which has an equity tie-up with Volkswagen. Xpeng set up its first factory in Zhaoqing, a growing manufacturing center in Guangdong. In 2023, a second factory started up in Guangzhou, supported by a 4 billion yuan ($550 million) investment from a government fund. "Guangzhou is a city with a strong pragmatic spirit," Xpeng's founder He Xiaopeng said in early March, adding that he hoped more entrepreneurs "can be created" there.  The Xpeng headquarters in Guangzhou. Photographer: Qilai Shen/Bloomberg While Guangzhou is the most high-profile example of a city that's taken an economic hit due to a slow pivot to EVs, it's not alone. Changchun, the capital of Jilin province, is home to state-owned manufacturer FAW, which has joint ventures with Toyota and VW. The city was the second-biggest car producer in 2020, trailing only Guangzhou, before slipping to fifth in 2023. Last year, auto-manufacturing output fell 3.8%, official statistics show. With the sector's headwinds likely to persist, JVs between Chinese firms and foreign manufacturers are forecast to reduce capacity by another 10 million vehicles by 2030, putting the $20 billion profit pool that these ventures used to enjoy at risk, according to Paul Gong, UBS's head of China autos research. "These cities all face their own problems," Gong said. "For Guangzhou, the failure of the Japanese brands has had an impact" that's only partially been offset by the increase in production from Xpeng and GAC-owned EV brands, he said. "For a province like Jilin, its reliance on joint ventures with foreign automakers is even greater." In a nod to the importance of revitalizing the sector, Guangzhou last year appointed Sun Zhiyang, an auto industry veteran who worked for state-owned FAW for two decades, as mayor. Officials declined to make Sun available for an interview. Guangzhou is also investing in future-facing technologies such as autonomous driving. Two of China's listed self-driving technology companies — WeRide and Pony.ai — are headquartered in the city, thanks in part to lobbying efforts and incentives offered by officials. Pressure is piling on GAC, in particular, given it accounts for 75% of Guangzhou's overall auto output. "If GAC loses, Guangzhou loses," former Chairman Zeng Qinghong said at a car show held in the city in November. After deliveries tumbled 20% last year, GAC pledged a refresh. Under a new chairman, the company plans to launch 22 new-energy vehicles in three years. It's also collaborating with Huawei on a new intelligent-car brand. Meanwhile, Toyota, Honda and Nissan are accelerating their shifts to EVs and cutting internal combustion engine production in China. Honda has halved engine capacity at a key plant in Guangzhou, Kyodo reported in March. In December, Honda started EV production at a factory with capacity for 120,000 vehicles a year that's run by its JV with GAC. Parts of that facility, such as welding, are 100% automated, and many workers have been replaced by robots, according to Chinese media reports. For Zhang, that adds to the difficulties of finding employment in the sector. His position at the American contract manufacturer afforded him and his wife a comfortable lifestyle and supported their children through university, but they now wrestle with making ends meet. "The job used to have good pay with benefits, like company housing for couples," he said. "Those days are gone." — By Linda Lew  The Yantian International Container Terminals in Shenzhen, China. Photographer: Qilai Shen/Bloomberg China retaliated against the US after new tariffs imposed by President Donald Trump, announcing it would raise the tariff on US goods to 84%, escalating the trade conflict between the world's two largest economies. 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 Jun Seki, chief strategy officer for Hon Hai's EV business. Photographer: Annabelle Chih/Bloomberg Hon Hai wants Japan's carmakers to know it's willing to assemble electric vehicles for them in arrangements similar to how it makes PlayStations for Sony and iPhones for Apple, and expects to announce partners in the near future. While Foxconn, as the Taiwanese company is also called, is well known as the world's largest contract manufacturer and the owner of Sharp, more work needs to be done to raise its profile as a potential builder of cars, according to Jun Seki, chief strategy officer of the Taiwanese company's EV business. "What we want to have is more awareness in Japan," Seki said in an interview. "Foxconn is famous as smartphone builders and also for the acquisition of Sharp, but nothing else." | 
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