Why the big car companies are losing China | Business Beyond

The Volkswagen ID.3 costs about $35,000 in Germany after rebate and less than half as much in China due to a price war caused by fierce competition and slowing sales of foreign carmakers. Chinese car companies are on the rise globally with easier market entry outside of China.

In 1978, China emerged from isolation and turned to Germany for vehicles. Volkswagen seized the opportunity by establishing a joint venture with Shanghai Volkswagen Automotive Company in 1984, dominating the Chinese market as personal incomes grew.

In 2001, China initiated research and development projects for battery-EVs alongside fuel-cells and hybrid vehicles. In 2008, Wan Gang became China’s minister of Science and Technology with a clear vision for electric vehicles. The ministry introduced consumer subsidies for EVs, connected EV companies to taxi fleets and government deals, leading to the emergence of an entire supply chain for electric vehicles by 2015.

When Tesla entered the Chinese EV market, it raised the standards for quality and production. This forced Chinese suppliers to meet Tesla's specifications, improving their own products' quality. The introduction of Tesla also changed the perception of electric vehicles in China from cheap to luxury, leading to a significant increase in sales.

Software Challenges for Traditional Carmakers Traditional carmakers like Volkswagen, Toyota, and Honda faced challenges with electric vehicles due to battery costs and software issues. When Volkswagen rolled out the ID.3 in 2021, its operating system was buggy and slow compared to Chinese car companies that were already doing remote updates. Foreign carmakers also experienced recalls over software issues.

Chinese Tech Companies' Superior Software Chinese tech companies excelled in software development for electric vehicles, offering more advanced features such as remote updates, fun apps like selfie-cameras and karaoke. The focus on digital connectivity of the cars became crucial for Chinese consumers who prioritize software quality over powerful engines when driving in urban areas.

The Chinese car market is overcrowded, leading to a price war among carmakers. Volkswagen's sales increased in August due to lower prices, but its overall market share continues to decline as customers buy fewer non-electric models. Japanese carmakers like Toyota and Honda have also experienced significant losses.

BYD Overtakes Volkswagen in China Chinese carmaker BYD has overtaken Volkswagen as the number one brand in China, teaching big car companies a lesson about not resting on past accomplishments and underestimating Beijing's industrial policies. Western automakers were surprised by Chinese automakers' seriousness and success.

Volkswagen's Response to Losing Position Volkswagen is investing more in Chinese tech, setting up new joint ventures with Chinese software maker Thundersoft and carmaker XPENG to develop two new models by 2026. This sets them apart from other struggling carmakers like Toyota, showing their eagerness not to lose their position in the Chinese market.

Global Expansion of Chinese Carmakers The crowded Chinese market is pushing domestic carmakers to look globally. BYD unveiled five new models for the European market at an auto show in Munich, indicating that they are betting on digitally connected cars being desired globally. The unfolding trends indicate that the preferences of the global consumer may be influenced by those of the growingly influential Chinese consumer.