China launches global offensive on the German automotive market and ‘threat’

A Volkswagen saw net profit fall by 30.7% in the first half of this year, to EUR 3,103 million, with sales in China falling by 31.6% and cancelling growth in South America and other markets.

Mercedes-Benz, for its part, recorded a 6% fall in profits to EUR 2,519 million, also penalised by a 30% decrease in sales in China, while BMW saw the net result drop by 28.5% to EUR 2,872 million after sales on the Chinese market fell by more than 30% in the second quarter.

Behind this crisis is a transformation begun over a decade ago in the Asian country.

For years the main growth engine of the German construction companies, China has prepared the transition to electric vehicles through an industrial policy that has secured a dominant position throughout the value chain, from access to critical raw materials to the manufacture of batteries.

By 2025, more than half of the cars sold on the Chinese market were new - energy vehicles — electric or hybrid. In the same year, China exported a record of 7.09 million vehicles, consolidating itself as the world's largest car exporter.

“ Traditional brands are bringing analog toys to a digital park,” he summarized to Lusa Tu Le, founder of the consultant Sino Auto Insights. “It’s not just an automobile anymore. It is a technological platform ", said.

The new Chinese models offer standalone parking, artificial intelligence powered voice assistants, advanced assisted driving systems and batteries that, in the latest models, announce autonomys over 700 kilometres and charges of about 15 minutes.

“The period in which China was copying is over. Innovation is taking place here,” said Lusa Jochen Sengpiehl, Volkswagen’s former marketing director in China.

For the German manager, the speed of innovation is forcing traditional manufacturers to change their strategy.

“We can no longer do everything alone,” he admitted, referring to the partnership established by Volkswagen with Chinese manufacturer Xpeng.

Carlos Martins, director of the Portuguese plant Sodecia in northeastern China, considers that the main competitive advantage of Chinese manufacturers lies in the speed of execution.

“ European companies have very heavy structures. Here they manage to develop and put new products on the market much faster,” Lusa explained.

The pressure on foreign manufacturers increased after Tesla entered the Chinese market in 2019.

Tu Le recalled that the “catalyst” that forced Chinese brands to make a qualitative leap was the opening of Tesla’s factory in Shanghai in 2019. Local production gave the American construction company access to the same subsidies and tax incentives enjoyed by Chinese competitors.

“ It was the silure effect,” Lusa noted, in a reference to fish that is one of the largest predators in European and Asian rivers, threatening the survival of several local species. “There were many fat and lazy fish in the lake, but the entrance of a silurus forced them to strengthen themselves.”.

Brands like BYD, Xiaomi, Xpeng, Li Auto or Aito are now preparing an international offensive, including on the European high-end segment.

Xiaomi intends to enter Germany in 2027 and become one of Europe’s top five ‘premium’ brands by the end of the decade. The company recruited engineers from BMW, Porsche and Tesla and bet on autonomous driving as the main distinguishing factor.

Li Auto also prepares to enter Europe with model i6, while Xpeng wants to export not only electric cars, but also humanoid robots and flying cars.

In the first half of this year, Chinese brands have already gained 9% of the sales of new cars in continental Europe and 15% in the UK.

Consultant AlixPartners estimates that this quota could reach 16% in the European Union by 2030.

“If it were Mercedes-Benz, BMW or Porsche, you would be worried,” Tu Le said.

Not everyone shares that vision.

In a speech at the opening of the Beijing car shop in April, Burkhard Weller, president of the German Automobile Dealers Association, considered that European consumers’ loyalty to ‘premium’ brands will remain an important barrier.

But even European manufacturers recognize that competition has changed in nature.

“ In no other region of the world the transformation of the automobile industry is as fast as in China,” said Oliver Blume, executive president of Volkswagen.

“ The Chinese market has become a center of high performance for us. We have to work harder and faster to be able to keep up with him,” he said.