China's dominance in automotive electronics and electrification is pushing European, American, Japanese, and South Korean automakers to respond. European brands, in particular, are increasing investments and partnering with Chinese firms—an approach widely interpreted as "if you can't beat them, join them."
European automakers' strategy, driven in part by external pressures, comes with risks. Firstly, regaining their position in China may prove tougher than expected. Secondly, benefits from free trade may not extend as easily to other markets, potentially lowering returns. Finally, there's a "Trojan horse" risk that could further challenge their market position.
According to supply chain experts, China represents around 30% of total revenue for Germany's "Big Three" automakers—Volkswagen, Mercedes-Benz, and BMW. Yet, their transition efforts face lukewarm reception from local consumers compared to Chinese brands, compounded by the ongoing EU-China trade frictions.
Dynamics between German and Chinese automakers
Collaborative aspects | Areas of tensions |
● German automakers, such as Volkswagen, are forming joint ventures with established Chinese brands to strengthen local partnerships. Volkswagen, in particular, has maintained a leading sales position for 40 years, building strong ties with Chinese counterparts. | ● Europe's EV trade disputes with China could prompt retaliatory measures, potentially impacting German automakers first. |
● As Chinese automakers advance in electronics and electrification, German brands are ramping up investments to solidify partnerships in China. | ● Chinese brands lead in EV and electronics innovation, presenting a challenge for German automakers. |
● The German government and automakers encounter internal opposition to Europe's EV trade measures against China. | ● German brands face challenges in China, where local EV regulations favor Chinese companies, reducing German influence in the shift from internal combustion to electric vehicles. |
Source: Automotive supply chain specialists, compiled by DIGITIMES, November 2024
If you can't beat them, join them?
Despite these challenges, the Big Three are strengthening partnerships with Chinese manufacturers to align with government expectations and regain influence in the Chinese market.
China's supply chain has established dominance in production costs and innovation, leaving Germany's Big Three at a disadvantage despite their local integration efforts. Chinese brands benefit from a robust ecosystem, from semiconductors to software, backed by government support and subsidies.
Chinese authorities are leveraging their momentum by raising intelligent driving standards and implementing formal regulations. Chinese automakers are likely to lead in setting these standards, with foreign brands expected to follow suit.
Industry insiders point out that geopolitical factors are also influencing the market, with Chinese automakers steadily advancing. Friendly foreign brands may still access the market, though in a shrinking proportion, making German automakers' continued investment in China a calculated risk.
If Chinese brands' technologies are still developing, this progress may slow down, as safety, stability, and reliability are paramount in the automotive industry.
With free trade fading, German automakers can no longer "copy-paste" strategies globally. While they once benefited from open markets, rising costs are now a reality as China enforces its own standards and protectionism rises amid geopolitical tensions.
Vehicles designed in Germany, manufactured in China, and sold in Europe face a 20% tariff due to EU-China EV trade tensions. EVs exported to the US may incur a 100% tariff, with additional component tariffs expected if Trump returns to the White House.
Stellantis has partnered with China's Leapmotor to re-enter the European market, aiming to gain market share by undercutting other European brands. However, foreign media have raised concerns about a possible "Trojan horse" risk, as Leapmotor could dilute the influence of Stellantis's other brands, which have recently declined in China.
Industry sources suggest that significant geopolitical shifts warrant extended observation. Trump's campaign promises may diverge from actual policy, affecting US-China-Europe relations and presenting both risks and opportunities amid the uncertainty.
Germany's Big Three automakers have invested over CNY80 billion (approx. US$11.15 billion) in China in the past year. In September, Mercedes-Benz announced an additional CNY14 billion investment with partners. In April, BMW committed CNY20 billion to factory upgrades and innovation in Shenyang, following a prior CNY10 billion investment in a high-voltage battery plant.
Volkswagen's total investment in China has surpassed CNY44 billion. In July, it allocated CNY20 billion to expand its Hefei facility, acquired nearly 5% of XPeng for about CNY5 billion by the end of 2023, and invested around CNY19 billion in a joint venture with Horizon Robotics.
Article translated by Levi Li
