Key Takeaways
China’s auto industry is out competing foreign competitors because of its agility, as it can produce new models in 18 months, compared to 5.4 years for its foreign competitors.
Substantially reducing vehicle-development cycles saves capital and lowers prices, leading to the production of the newest models.
Chinese automakers also save time and money by using standardized vehicle platforms and components across model lines to a greater degree than many global automakers.
Global automakers look for reliability and use exacting manufacturing processes, while China’s automakers release good-enough vehicles more quickly, often relying on simulations and artificial intelligence rather than actual testing.
The number of automakers in China is huge and they are producing a glut of vehicles, which they are trying to offload on the global market, causing them to often sell zero-mileage cars as used at substantial discounts.
China’s auto industry can now produce 54 million cars annually, almost double the 27.5 million cars produced the previous year.
BYD, Chery, and other Chinese car makers have reshaped global competition, developing new models in less than half the time it takes their foreign competitors. Due to their agility, Chinese automakers have obtained control of their home market, the world’s largest, from their foreign competitors and are expanding globally, according to Reuters. Currently, Chery is China’s leading exporter, but electric vehicle (EV) manufacturer BYD, China’s largest automaker, is expected to become a longer-term threat.
China’s automotive dominance is due to it being able to cut vehicle-development time by more than half, to as little as 18 months for an all-new or redesigned model. The average age of a Chinese electric or plug-in hybrid model on sale domestically is 1.6 years, versus 5.4 years for foreign brands. Historically, legacy automakers redesign their vehicles once every five years and their pickups once a decade.
According to Reuters, Chinese automakers’ development speed is the biggest factor in their cost and technological advantages over foreign competitors. Substantially reducing vehicle-development cycles saves capital, lowers prices, and ensures that the Chinese auto industry has the newest models during a technological transformation. Chinese automakers also save time and money by using standardized vehicle platforms and components across model lines compared to many global automakers.
Reuters reports that, in 2024, BYD and Chery both increased their sales by about 40% globally while Tesla saw its first annual sales decline due largely to its aging model lineup. That trend so far has continued this year. Last year, Musk noted that Chinese carmakers could “demolish” their competitors.
Chinese Automakers Increase Their Sales as Those of Competitors Decline
As Chinese automakers’ gain sales, their competitors’ sales have declined. According to Reuters, from 2020 to 2024, the top five foreign automakers in China — Volkswagen, Toyota, Honda, General Motors and Nissan — saw their combined passenger-car sales in China’s market decline from 9.4 million annually to 6.4 million. Over that time period, China’s top five Chinese automakers saw sales more than double to 9.5 million in 2024 from 4.6 million in 2020.
To benefit from the gains of Chinese automakers, foreign automakers are forming partnerships with them to gain insight into their operations. Global automakers have acknowledged the competitive threat from Chinese rivals, which is in stark contrast to Chinese automakers copying their foreign competitors a decade ago.
According to Reuters, Chinese engineers have decided that the global industry vetting processes are wasteful because of their quest for excessive quality. Instead of aiming for perfection, Chinese automakers release adequate vehicles faster, rely on simulations and artificial intelligence for testing, and make upgrades based on consumer feedback.
China’s Auto Industry Is Huge
Per Reuters, China has a huge number of automakers (169), and a large number of them (93) have market shares below 0.1%. Due to overcapacity, few Chinese automakers make a profit. China’s assembly lines can currently produce 54 million cars annually, almost double the 27.5 million cars produced last year. This oversupply has led automakers to lower prices and sell new cars as used — allowing them to be reported as sold twice, inflating sales numbers — at home and internationally.
Analysis
China’s auto sector has experienced explosive growth over the past several years, attributed to China’s centralized market approach, which provides the government with the ability to indiscriminately pick winners and losers. The speed at which Chinese auto manufacturers are able to produce market vehicles is impressive; however, for the majority of vehicles, their quality is still behind other global competitors, though they are gaining. One of the core issues that Chinese brands face, and one that does not seem to be going away anytime soon, is the national security threat that these vehicles pose, given that each Chinese-based company is legally required to report directly back to the Chinese Communist Party. This risk will likely limit sales in countries like the United States, but still pose a significant challenge to American and European car manufacturers on the global market.
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