Oatly's Strategic Review of Greater China: A Carve-Out as a Catalyst for Value Creation

In the ever-evolving landscape of global plant-based consumer goods, Oatly Group AB's strategic review of its Greater China business has emerged as a pivotal moment. The Swedish oat-milk pioneer, once a darling of the alternative dairy boom, is now recalibrating its approach to a market that has proven both promising and perilous. With a 6.4% revenue decline in Q2 2025 and a widening EBITDA loss in the segment, the company's contemplation of a carve-out—whether through a sale, spin-off, or strategic partnership—could unlock hidden value while sharpening its focus on core markets. For investors, this move represents a critical inflection point, one that could redefine Oatly's path to profitability and long-term resilience.

The Financial Crossroads in Greater China

Oatly's Greater China segment, which accounted for 15% of its Q1 2025 revenue, has become a drag on its financial performance. Despite a 37.6% year-over-year revenue jump in Q1 2025—driven by new foodservice contracts and retail expansion—the segment's revenue slumped by 6.4% in Q2 2025, with foodservice sales plummeting from 70% to 62% of total revenue. This decline was attributed to lapping the initial sell-in of a major customer and macroeconomic headwinds in China. Meanwhile, the segment's EBITDA loss widened to $0.6 million in Q2 2025, up from $0.4 million a year earlier, driven by lower gross margins despite cost-cutting efforts.

The company's decision to halt construction of its second Chinese factory in Ma'anshan and focus on optimizing its existing facility underscores the need for operational discipline. Yet, the broader strategic review—led by advisors like JP Morgan—hints at a more radical solution: a carve-out. By isolating the Chinese operations, Oatly could potentially attract a buyer with deeper local expertise, such as Genki Forest or other regional beverage players, to unlock value through operational efficiencies and market-specific insights.

A Market of Paradoxes: Growth and Challenges

China's plant-based beverage market is a paradox of explosive growth and entrenched challenges. Valued at $10 billion in 2024, the sector is projected to grow at a 17.7% CAGR, reaching $40 billion by 2032. Rising health consciousness, environmental awareness, and a shift toward veganism are driving demand. However, Oatly's struggles highlight persistent hurdles: high production costs, cultural preferences for traditional dairy, and a fragmented retail landscape.

Moreover, the global macroeconomic environment—tariff uncertainties, a softening Chinese consumer market, and a shift in foreign capital flows—has made it harder for international brands to justify long-term bets. Starbucks' recent sale of its China business to local private equity firms is a case in point. Oatly's potential carve-out aligns with this trend, reflecting a broader recalibration of risk and reward in a market where local players increasingly dominate.

The Carve-Out as a Value Creation Tool

A carve-out of Oatly's Greater China business could serve multiple purposes. First, it would allow the company to offload a non-core, unprofitable segment and redirect capital toward its stronger regions—Europe and North America—where it has shown resilience. In Q2 2025, Europe & International markets grew by 12.0% (5.7% in constant currency), while North America declined by 6.8%. By focusing on these regions, Oatly can accelerate its path to profitability, a goal it has reaffirmed for 2025.

Second, a carve-out could attract a strategic buyer with a deeper understanding of China's unique market dynamics. For instance, Genki Forest, a Chinese beverage company with a strong retail network, could integrate Oatly's premium oat-milk brand into its portfolio, leveraging economies of scale. Alternatively, private equity firms might see an opportunity to revamp the business through cost optimization and targeted marketing.

Third, the move could streamline Oatly's corporate structure, reducing overhead and administrative complexity. The company's current capital allocation is stretched thin, with a $55.9 million net loss in Q2 2025—largely due to convertible note losses—highlighting the need for leaner operations. A carve-out would free up resources for innovation in core markets, such as expanding into new product categories (e.g., oat-based cheeses or desserts) or enhancing digital retail partnerships.

Investment Implications: Why This Matters

For investors, Oatly's strategic review is a high-stakes experiment with clear upside and downside scenarios. On the upside, a successful carve-out could unlock $200 million in value—enough to fund R&D, reduce debt, or boost shareholder returns. It could also stabilize the stock price, which has underperformed peers like Danone and Nestlé in 2025.

On the downside, a failed carve-out or prolonged uncertainty could erode investor confidence. The company's revised 2025 revenue forecast (flat to +1% constant-currency growth) and lack of a definitive timeline for the review add volatility. However, the potential for a disciplined exit from a problematic market—similar to Starbucks' China divestiture—could ultimately be seen as a prudent move.

Conclusion: A Defining Moment for Oatly

Oatly's strategic review of its Greater China business is more than a financial pivot—it's a test of the company's adaptability in a rapidly shifting global landscape. By considering a carve-out, Oatly acknowledges that not all growth is sustainable and that value creation often requires tough decisions. For investors, the key will be to monitor the outcome of this review closely. A well-executed carve-out could transform Oatly from a struggling alternative dairy brand into a focused, profitable player. Conversely, hesitation or missteps could prolong its woes.

In an industry where plant-based innovation is king, Oatly's ability to pivot now may determine its legacy. As the company navigates this crossroads, one thing is clear: the next few months will be critical. Investors who keep a watchful eye on Oatly's Greater China strategy may find themselves positioned to capitalize on a pivotal moment in the alternative protein sector.