The EV Transition: How Mitsubishi's Retreat from China Exposes Systemic Risks for Legacy Automakers

The recent collapse of Mitsubishi Motors’ Chinese operations—marked by the termination of its last joint venture and a complete withdrawal from engine production—has crystallized a broader crisis for legacy automakers in the electric vehicle (EV) era. This retreat, driven by declining demand for combustion engines and the meteoric rise of domestic EV brands like BYD, underscores systemic risks for traditional automakers that have failed to pivot decisively to electrification. As global markets accelerate toward decarbonization, the fate of companies like Mitsubishi serves as a cautionary tale for investors evaluating the long-term viability of non-EV-first automakers.

Mitsubishi’s exit from China, a market it entered in 1973, reflects a strategic miscalculation. The company’s joint ventures, including GAC Mitsubishi, peaked at 144,000 annual sales in 2018 but plummeted to 33,600 units by 2022, signaling a loss of relevance in a market now dominated by EVs [1]. By 2023, GAC had acquired full control of the joint venture, repurposing the plant for its Aion EV brand [2]. This shift mirrors a broader trend: Chinese automakers now account for over 60% of EV sales in their home market, with BYD alone delivering 3.52 million units in 2024—surpassing Tesla’s global output [3]. For foreign automakers, the lesson is stark: failure to adapt to local EV ecosystems risks irrelevance.

The systemic risks extend beyond China. Mitsubishi’s struggles are emblematic of a sector-wide challenge: the high fixed costs of legacy infrastructure and the difficulty of retooling for EVs. In 2025, the company reported an 84% drop in operating profit for Q1, partly due to U.S. tariffs and the financial burden of maintaining outdated production lines [4]. Meanwhile, EV-first firms like BYD and Tesla have leveraged modular battery platforms and localized supply chains to scale rapidly. BYD’s plug-in hybrid (PHEV) dominance, for instance, grew from 33.3% to 43.4% market share in 2024, outpacing even Tesla’s efforts in China [3]. This agility—rooted in software-defined architectures and vertical integration—creates a widening gap between EV pioneers and traditional automakers.

Mitsubishi’s new strategy, including a 2026 BEV launch based on the Nissan LEAF platform and partnerships with Foxconn, is a belated attempt to catch up [5]. Yet these efforts face headwinds. In Southeast Asia, where Mitsubishi is targeting growth, BYD has already begun to rival Honda and Mitsubishi in sales [5]. The company’s goal of 100% electrified sales by 2035 is ambitious but increasingly precarious in a market where first-movers like BYD are expanding global manufacturing hubs and R&D centers [6]. For investors, the key question is whether such late-stage pivots can offset the sunk costs of legacy systems and the reputational damage of delayed innovation.

The systemic risks for legacy automakers are not confined to production or technology. They also include geopolitical and financial vulnerabilities. Rising production costs in China, coupled with U.S. and EU tariffs on EVs, have forced companies like Mitsubishi to reorient supply chains toward lower-cost regions [2]. However, this strategy is fraught: shifting manufacturing to Southeast Asia or India requires significant capital and exposes firms to regulatory and infrastructure risks. Meanwhile, EV-first firms are leveraging these regions for localized production, undercutting traditional automakers on both cost and innovation.

For investors, the implications are clear. The EV transition is not merely a technological shift but a reordering of competitive advantages. Legacy automakers with high debt loads, rigid cost structures, and fragmented EV strategies—like Mitsubishi—face a higher risk of margin compression and capital flight. In contrast, firms that have integrated EVs into their core business models, such as BYD, are capturing market share and investor confidence. As the IEA projects global EV sales to reach 40% of total vehicle sales by 2030 [7], the divide between winners and losers in the automotive sector will only deepen.

Source:
[1] Mitsubishi Forced Out Of The Chinese Auto Market [https://carbuzz.com/mitsubishi-ends-china-operations]
[2] Mitsubishi Motors exits China market completely with termination of engine joint venture [https://carnewschina.com/2025/07/25/mitsubishi-motors-exits-china-market-completely-with-termination-of-engine-joint-venture/]
[3] Which brand won the battle for China's EV market? [https://autovista24.autovistagroup.com/news/which-brand-won-the-battle-for-chinas-ev-market/]
[4] What Forced Mitsubishi To Abandon China After Nearly ... [https://www.carscoops.com/2025/07/as-profits-fall-mitsubishi-runs-away-from-china/]
[5] BYD catching up to Honda, Mitsubishi in Southeast Asia [https://asia.nikkei.com/business/automobiles/byd-catching-up-to-honda-mitsubishi-in-southeast-asia]
[6] BYD distracted the world while Chinese EV peers staged a ... [https://restofworld.org/2025/chinese-ev-global-expansion-byd]
[7] Trends in the electric car industry – Global EV Outlook 2025 [https://www.iea.org/reports/global-ev-outlook-2025/trends-in-the-electric-car-industry-3]