Foreign carmakers lose ground in China as Chinese brands take the lead

Foreign carmakers losing ground in China is not a new development. Over recent years, Chinese brands have moved into the spotlight, propelled by the rapid advance of electric vehicles and by consumers who are increasingly open to home-grown manufacturers.

The outcome of this shift is historic: in the first half of this year, foreign manufacturers’ market share fell to 28% (including joint ventures with Chinese partners). To put the scale of the change into context, in 2020 those brands accounted for more than 60% of China’s car market, according to figures from the China Association of Automobile Manufacturers (CAAM).

German groups are among those hit hardest. For decades, China was the real El Dorado for brands such as Volkswagen, Mercedes-Benz and BMW, at times making up roughly 40% of these manufacturers’ global sales between 2019 and 2021.

Now, the picture looks very different. In the first half, Volkswagen’s sales in China dropped by 26%, while Mercedes-Benz, Audi and BMW posted declines of 28%, 19% and 20%, respectively, according to the Yicai website. And the strain is not confined to European marques: Toyota saw sales fall by 17%, Nissan by 15% and Honda by 35%.

The tide has turned

The shift to the electric car has been one of the main catalysts for this change, according to Wang Qian, deputy general manager at Chinese carmaker Dongfeng.

For decades, foreign manufacturers led the Chinese market thanks to their technological edge, with local partners handling production and distribution. Electrification has reshaped that balance.

Rather than continuing to follow European, American and Japanese manufacturers, Chinese brands have taken the technological lead in electric vehicles, helped by a more mature battery supply chain, competitive manufacturing costs and quicker development cycles.

Makers such as BYD, Geely, Li Auto, Xiaomi, Aito and Xpeng are now competing not only on price, but also on technology, range, software and driver-assistance systems-areas where foreign manufacturers, until only a few years ago, were widely regarded as the benchmark.

A new strategy

To regain competitiveness, foreign manufacturers are moving away from the approach of selling global models tailored for China and are instead focusing on cars developed from the ground up for that market.

Volkswagen is one example, with its ID. UNYX line-up, while Audi has even created a China-only brand-the AUDI, without the iconic four rings-designed specifically to meet the expectations of Chinese consumers.

This preference for Chinese-made cars is no longer confined to the domestic market. In Europe, for instance, Chinese manufacturers have been expanding their presence at a notable pace.

In the first half of this year, Chinese carmakers’ share of the European market reached 10.9%, and the plug-in hybrid sales podium already belongs to Chinese manufacturers.