Global carmakers desperately want to become more Chinese

ANY doubts that China has become the heartland of the global car industry are quickly dispelled by a visit to the country’s main motor show.

This year, the event in Beijing was twice as large as in 2024 – it moves to Shanghai on alternate years – with around 180 new cars on display.

The noisy and crowded show, which concluded on Sunday (May 3), demonstrated once again that foreign carmakers are lagging behind their Chinese rivals in the race for the industry’s future.

Yet, the show also illustrated the extent to which foreign carmakers are looking to remake themselves in the image of their ascendant Chinese competitors.

At events to launch new models, Western executives from Volkswagen (VW) and Mercedes switched effortlessly between English and Mandarin.

VW opted to round off its show with an interpretive Chinese dance set to electronic music; Mercedes went for a Chinese rap.

To stem their loss of market share, carmakers around the world are looking to become more like their Chinese competitors – and not just when operating in China.

Renault chief executive officer Francois Provost admitted that China now leads the industry in technology, speed and competitiveness.

To match them, increasingly rattled car bosses are adopting Chinese practices and partnering Chinese companies.

Done judiciously, this may help them close the gap. But further down the road, potholes lurk.

Slowing the pace of China’s blistering rise is vital. The market share of foreign companies in China has almost halved in five years – to around 30 per cent in 2025.

Moreover, in 2023, China passed Japan to become the world’s largest exporter of cars.

In 2025, over eight million of its vehicles went abroad, nearly a third more than the year before.

Schmidt Automotive Research, a consultancy, said that over the past five years, Chinese brands in Europe have gone from almost nowhere to nearly 8 per cent of all sales.

Incumbents are additionally under siege in markets, from Mexico to Malaysia.

Chinese cars are cheap. They are also packed with whizzy technology.

Often in partnership with Chinese tech giants, the country’s carmakers have developed software that has become an increasingly important source of differentiation.

Among the latest examples is the integration of voice-controlled artificial intelligence systems.

The pace of innovation is stunning.

Ola Kallenius, CEO of Mercedes, said that “China speed” has become the “drumbeat” of the industry.

The legacy industry’s product-development cycle – around 40 to 80 months for new models – now looks painfully slow.

Production processes are designed around electric vehicles (EVs), combined with deep vertical integration and a greater willingness to improve vehicles, after they are released via software updates.

This means it takes 24 months at most to produce vehicles in China.

The technology integrated into foreign cars is often two years or more behind Chinese offerings.

Incumbent carmakers have begun overhauling their businesses in response.

China being used to hasten innovation

VW CEO Oliver Blume said designing cars in Europe for the world has “had its day”.

The carmaker has started developing vehicles at a vast new research-and-development facility in Hefei, at a pace 30 per cent faster than in Europe.

These will be sold not only in China, but also some overseas markets.

Kallenius, with Mercedes also having expanded its R&D presence in China, argued that the speed of innovation in the country will have to spread around the world.

Even Renault, which does not sell cars in China, is now using the country to hasten its innovation. Its latest Twingo model, though designed in France and manufactured in Europe, was developed in China to save time and money, as well as glean know-how.

To help them catch up in EVs, foreign carmakers have also sought the assistance of Chinese companies.

VW, which is launching 20 new models in China in 2026 alone, has allied with Xpeng, a Chinese carmaker, and Horizon Robotics, an autonomous-driving startup.

Toyota, which will make electric versions of its upmarket Lexus brand at a new factory near Shanghai starting in 2027, is working with Huawei and Tencent, two Chinese tech giants that develop software for cars.

It is also collaborating with Momenta, a rival to Horizon Robotics, and Xiaomi, a gadget-maker with a growing EV business of its own. BMW and Nissan have likewise teamed up with Chinese companies.

Rumours of more tie-ups abound.

Mercedes reportedly plans to use vehicle architecture from Geely, one of China’s biggest carmakers, to develop small EVs in the country independently of its European operations.

Even American carmakers are starting to buddy up with the Chinese. Ford is said to be talking to Geely about sharing technology and making vehicles in Ford’s European factories.

Not a “magic formula but a mindset”

Will efforts to become more Chinese work? Pedro Pacheco of Gartner, another consultancy, warns that China speed is not a “magic formula, but a mindset” that will be very hard to match.

It is the result of a culture of long working hours, and an industry that has been built from the start around software-infused EVs.

Restructuring legacy carmakers that have relied for decades on petrol power and mechanical engineering will be tough.

Blume added that VW will never be as fast as a Chinese startup because it will never compromise on safety and testing. If it gets this wrong, the damage to its reputation could be serious.

Patrick Hummel of UBS said that nothing is wrong with embracing Chinese technology, supply chains and production methods and exporting them globally.

This is as long as foreign carmakers are not “pushed to the passenger seat”, he added.

But as Tu Le of China Auto Insights, another consultancy, puts it – by relying on technology from Huawei and other Chinese companies for its new cars, what does Toyota now offer?

Felipe Munoz, an industry analyst, noted that Chevrolet’s attempts to rekindle sales in South America by putting its badge on EVs from its joint venture with SAIC risks promoting a rival at the American marque’s expense.

SAIC is another Chinese carmaker that has a presence of its own on the continent.

That indicates the long-term risks that come with seeking the assistance of Chinese companies that are increasingly competing with the legacy carmakers abroad.

Xpeng is expanding rapidly in Europe and Xiaomi has plans to arrive in 2027, for example.

The risk exists that foreign incumbents are not provided with the latest and best technology by potential rivals, whose activities they are now funding through licensing fees.

Moreover, relying too heavily on partnerships risks creating a dependency that cannot be broken.

Philippe Houchois of investment bank Jefferies said that foreign carmakers may intend to move away from Chinese partnerships in the future.

But that could prove difficult, unless legacy companies can transform into successful software-makers, a task at which they have so far failed.

Blume maintained that VW’s goal is to become a “leading tech player worldwide”. But its Cariad software division has struggled.

Therein lies the challenge. To avoid falling irrecoverably behind Chinese competitors in EVs, incumbent carmakers may have little choice but to strike partnerships.

In doing so, however, they run the risk of ceding expertise in the areas that will define the future of the car industry. This would leave them at the mercy of the competitors they fear the most. ©2026 The Economist Newspaper Limited. All rights reserved