Chinese cars are the ones to beat

Axios

25-06-2025

The spectacular rise of China's auto industry — seemingly overnight — has rattled industry leaders and policymakers, catching many off guard.
Why it matters: There's a dawning realization across the industry that China's ascendance is both an existential business threat and a national security risk.
The big picture: Disruption is nothing new for automakers, but they've never had to contend with the mountain of complex issues they face now — tariffs, geopolitical tensions, shifting regulations, broken supply chains, artificial intelligence, electrification.
The emergence of powerful Chinese rivals, though, is a more ominous and permanent threat, experts agree.
Foreign automakers' share of the Chinese market has collapsed, while everywhere else in the world — except the U.S. — brands like BYD, Geely and Chery are expanding, opening super-efficient factories and selling hybrids and EVs at prices no one else can touch.
Now China makes 70% of the world's EVs and plug-in hybrids.
Yes, but: China's auto industry has gotten so big, and so competitive, "it's starting to implode on itself" under the weight of aggressive price cutting, warns Bank of America analyst John Murphy.
If that happens, he said, China could lean more heavily on other markets, including North America, ahead of a likely consolidation.
What they're saying:"The Detroit Three (GM, Ford and Stellantis) used to think of China as their playscape — a land of endless growth and profits. Not anymore," China auto expert Michael Dunne, CEO of Dunne Insights, tells Axios.
Between the lines: Chinese carmakers have a 30 to 40 percent economic advantage over their competitors, says Terry Woychowski, president of benchmarking analysis firm Caresoft Global.
They're more vertically integrated than traditional automakers, producing most components in-house, for example. They also use common parts across more vehicles, enabling lower prices.
Government support — loans, land and incentives — surely helps, as well.
Chinese carmakers received $231 billion in government subsidies between 2009 and 2023, according to the Alliance for Automotive Innovation, which represents the U.S. industry.
Automakers have responded to the challenge in a variety of ways.
Keep driving down costs. Tesla, for example, is developing a more affordable version of the Model Y and aims to reduce production costs by at least 20%, per Reuters.
Partner. Volkswagen bought a stake in XPeng, and Stellantis bought a 20% stake in Leapmotor.
Buy the rights to Chinese technology. Ford licensed battery tech from China's CATL to develop a low-cost EV platform in the U.S.
Cut your losses. GM restructured its primary joint venture in China, taking a $5 billion write-off. It's also deepening ties with Korean partners, including Hyundai, while investing in a vertical battery supply chain outside of China.
How China took over the auto industry
Flashback: In the late 1990s, the Chinese government allowed foreign automakers to enter its emerging market if they formed a joint venture with a Chinese partner and gave them at least 51% control.
For years, the JV structure proved beneficial for both sides — Western carmakers pocketed billions of dollars selling cars to China's growing middle class, and fledgling Chinese carmakers got to learn from the world's best.
Then, in 2015, China introduced a sweeping industrial plan, "Made in China 2025," to upgrade its industrial base across various sectors, with "new energy vehicles" (NEVs) as a core pillar.
China spent the next decade lining up battery supply chains, including raw materials and processing, and perfecting its capabilities in vehicle engineering and manufacturing.
"Imitate, improve and increase" are three words that sum up China's strategy, according to Caresoft's Woychowski, whose company specializes in dismantling cars down to their smallest bits for benchmarking purposes.
A textbook example, he said, is the XPeng G6, which at first glance could be mistaken for a Tesla Model Y.
In 2022, Tesla stunned the industry by introducing a manufacturing process that used die-casting to produce large sections of the Model Y in a single piece, eliminating hundreds of welded parts. That saved labor, weight and engineering costs.
A year later, when XPeng launched the G6, it had already improved upon Tesla's giga-casting innovation.
Compared to the Model Y, said Woychowski, "they are much more refined castings. They are thinner, they are smaller, they are lighter, they are less expensive and they're stiffer."
The bottom line: Chinese efficiency is the industry's new benchmark.