Foreign carmakers, who have long dominated China’s automotive market, are facing a harsh reality as the rise of homegrown electric vehicle (EV) manufacturers begins to eclipse their success. For decades, companies like Volkswagen, Ford, and General Motors reigned supreme, selling millions of vehicles and generating enormous profits. Now, China’s local EV producers, including industry leaders BYD and Xpeng, are transforming the landscape of the world’s largest car market.
Volkswagen, the world’s second-largest automaker, is among the most impacted. On Monday, the German auto giant issued a stark warning, revealing plans to close factories in its home country in an unprecedented move aimed at reducing costs. This development follows Volkswagen’s recent struggles in China, where deliveries have dropped by over 25% compared to three years ago, with sales falling to 1.34 million vehicles in the first half of 2024. The company also lost its position as the top-selling car brand in China to BYD last year, marking the end of a decades-long reign.
Volkswagen’s CFO, Arno Antlitz, acknowledged the uphill battle, stating the company has “a year, maybe two” to turn things around, or face continued losses. The company’s challenges in Europe have exacerbated the situation, as sales in that region are down by 500,000 cars compared to pre-pandemic figures.
Volkswagen is not alone in facing these steep challenges. Ford and General Motors are experiencing shrinking market shares as Chinese consumers increasingly choose local brands. According to the China Passenger Car Association (CPCA), foreign automakers’ share of car sales in China plunged from 53% in July 2022 to 33% in July 2024.
In addition to declining sales, profits are also under pressure. Toyota’s income from its Chinese joint ventures fell by a staggering 73% in the second quarter of this year, while GM’s joint ventures in China have posted consecutive losses. GM’s once-booming sales in China have halved since peaking at over 4 million in 2017.
Mary Barra, GM’s CEO, recently voiced concerns about the unsustainable price war in China’s EV market, noting that the level of competition has led to a “race to the bottom.”
The brutal EV price war has not only affected international automakers but also taken a toll on several local companies, forcing some to close or restructure. Meanwhile, foreign players like Mitsubishi, Honda, and Hyundai have had to shutter factories or lay off employees to stay afloat.
A New Era of Competition: The Tesla Effect
The shift toward electric vehicles in China started to gain momentum in 2019 when Tesla began producing its Model 3 in Shanghai. This development was described as a “miracle” by analysts, as it revolutionized consumer perceptions of electric vehicles. Once seen as a niche product, EVs have since become “the new cool,” with Tesla’s success providing a halo effect for local brands like BYD, Nio, and Li Auto.
China’s EV market has exploded, with the International Energy Agency forecasting sales of electric and plug-in hybrid vehicles to reach 10 million in 2024—nearly half of the country’s total car sales, a significant leap from just 1.1 million in 2019.
Generational shifts have also played a role in the rise of Chinese brands. Younger consumers, who grew up with homegrown tech platforms like Alibaba and WeChat, have shed the skepticism their parents had toward Chinese-made products. As a result, Chinese EV brands are now more widely accepted, further diminishing the appeal of foreign automakers.
China Takes the Lead in Global Car Exports
Chinese automakers are not just dominating at home—they are aggressively expanding overseas. China’s car exports surged more than 60% last year, surpassing 4 million vehicles, making the country the world’s largest car exporter. Many of these exports are electric, with BYD leading the charge, planning to open plants in countries like Thailand and Hungary to capitalize on global demand.
In response, foreign automakers are looking to form partnerships with Chinese EV makers in hopes of regaining lost ground. Volkswagen, for example, recently bought a 5% stake in Xpeng for $700 million and formed a strategic partnership to co-develop vehicles. Stellantis, the parent company of Citroen and Peugeot, took a 20% stake in Leapmotor, a Chinese EV startup, and will begin selling Leapmotor vehicles in Europe.
The Future of Global Automaking: Shifting to China
As Chinese automakers continue their rise, experts are pointing to China as the new global center of the automotive industry. The success of local EV companies has caught many foreign brands off guard, leaving them scrambling to adapt to a rapidly evolving market.
“The new center of the world’s automotive industry is China,” said Michael Dunne, CEO of Dunne Insights, an EV consultancy. “Global automakers were caught flat-footed on EVs, lulled into complacency by years of success selling gasoline-powered vehicles.”
The question now is how these once-dominant players can compete with China’s rapidly advancing EV market, both at home and abroad.