China’s automotive industry isn’t unstoppable - and Europe can’t pretend it is

For the past few years, it has felt as though we have got used to viewing China’s automotive industry as an unstoppable force: new brands appearing constantly, vast plants, extremely short development cycles, cars packed with technology, and pricing that European manufacturers struggle to match.

That industrial edge is real. I have seen it first-hand. I have been there, toured factories, I drive Chinese cars every week, and-out of professional necessity as well as personal curiosity-I have tracked how quickly the country is changing. With that in mind, playing down what China has achieved would be irresponsible.

China’s automotive industry: strength alongside fragility

Even so, it is just as mistaken to feed a story of permanent success-as if every brand sold millions, every plant ran flat out, every car was better, and every manufacturer made money. As I wrote a few days ago, these cartoon versions of reality that Europe is increasingly producing are useless. They are poor guides.

For China, this is not a foregone conclusion-and for Europe, it is even less so (we will come back to that). The figures point to a much more complicated picture (they always do…). Starting with the cars themselves.

What the numbers say in 2025–2026

It is worth remembering that in 2025, 55.7% of Chinese dealerships were loss-making, and 81.9% sold cars for less than the price they paid the brands. They were squeezed by sales targets, built-up inventories and a price war that shredded margins. Beijing had to step in.

That is the retail end of the chain. At plant level, there is also excess installed capacity, with facilities running far below what they could produce. According to S&P Global China Ratings, the average utilisation rate of Chinese car factories has hovered around 60% since 2018.

China has built the ability to manufacture more cars than its domestic market can currently absorb. In the first half of 2026, domestic sales fell 20.4% to 8.8 million units. Over the same period, exports rose 70.6% to 4.28 million. It is still not enough.

This is not just an automotive problem. In fact, rather than being a cause in itself, the slowdown in the car sector looks more like a symptom of something bigger: cooling momentum across the Chinese economy. Growth came in at only 4.3% in the second quarter of 2026, below the 4.5% to 5% range Beijing set for this year.

Leaving aside the pandemic-distorted period, that was one of the weakest quarterly growth rates since these data started being published in the 1990s. A Financial Times piece captures the moment China’s economy is going through (behind a paywall). Production keeps moving, but domestic consumption and investment are no longer keeping pace.

The property crisis makes this worse. In June, prices for new homes fell for the 37th consecutive month, down 0.15% versus the previous month. Property investment dropped 18% in the first half of the year, and the sector has been sliding for almost five years.

Given that property sits at the centre of Chinese household savings, a downturn there hits savings, the broader economy and consumer confidence all at once. Buying a car is among the first decisions people postpone. That lack of confidence also helps to explain why incentives, discounts and price cuts no longer deliver the results they once did.

Why Europe cannot relax

And we should not kid ourselves: none of this is good news for Europe. The old line-"with others’ bad luck, I’ll be fine"-does not hold in a globalised economy. What is more, an industry with surplus capacity becomes even more aggressive in hunting for new markets, putting extra pressure on prices and margins. Africa and South America are two clear examples. Rising Chinese exports to these regions also threaten European manufacturers operating there.

Just as important, China’s domestic market has long been the golden goose for Europe’s car industry. Volkswagen is a case in point: it led sales in China until 2023, when BYD overtook it. It returned to the top this year, but it now feels less like healthy market leadership and more like a "breath-holding" contest with BYD to see who can last longer. It is worth following everything we have written about Volkswagen’s crisis.

Under normal conditions, all of this would be more than enough reason to approach China with greater pragmatism: acknowledge its industrial strength, yes, but without overlooking margin destruction, overcapacity, weakening domestic demand, and a growing reliance on exports. And it would also push that perspective into concrete action in Europe-we will get to that too.

Japan in the late 1980s: a useful comparison

Those of you with a few more miles on the clock will remember another giant that seemed to have the world at its feet at the end of the 1980s: Japan. Back then, it looked as if it would beat the rest of the world "10-0". It was in cars, in technology, in gadgets-in short, in almost every field.

We know what came next: a major crisis triggered by a property bubble. I understand that history never repeats itself exactly, but China shows similar warning signs-or at least enough signals to justify paying close attention.

And above all, we need to look harder at ourselves-at what we can do. Nothing is lost, but nothing is guaranteed forever either. Europe-caught between restrictions, red tape and constant policy shifts (just look at the erratic path on nuclear energy)-still behaves as though the rest of the world is waiting for us. It is not, and there are no vacancies. That is why we are falling dangerously behind.

Back to the car industry: we keep debating fines and unrealistic plans as though we were racing alone. I admit I envy Chinese pragmatism: Beijing’s plans for the automotive sector fit into half a dozen slides. In Europe, 80 pages are not enough even for statements of intent. Provincial in action, dazzled in analysis, and self-satisfied in judging ourselves-what a dangerous mix.