Making sense of the Chinese new entrants

Surely nobody can be too surprised that the Chinese brands (excluding cars produced in China by global brands such as BMW, Dacia and Volvo, and brands that are ultimately owned by the Chinese, but are managed in Europe, such as Polestar) captured over 5% of the European market in 2025.   So many brands have arrived, with some such as MG, BYD and Chery Group making spectacular progress in a number of markets, that significant market share must follow.  There are however more diverse opinions about what will happen over the next five years, say to 2030.  Some believe that their initial success will fade as the result of poor ownership experiences with reliability, parts supply or collapsing residual values.  Others believe that the established OEMs will successfully fight back with shorter development cycles and new products that are more competitive in key areas where they are currently lagging, such as electrification and in-car technology.  Brussels seems to believe that they can turn the tide or at least slow the advance by tariffs and other regulatory measures that block market access or increase the costs.  I believe that all these views are naïve and that the Chinese brands will continue their advance, not only in Europe but in other global markets – including ultimately the USA.

Whilst there are some Chinese products that fall short of competitive quality standards, few of those make it to European shores now.  Prospective buyers who come into showrooms are sometimes surprised to find that material quality is better than the lower end products of the German premium brands, the cars are assembled to high standards and that they are reliable.  The only question that remains to be answered is whether they will remain as impressive when they are ten or fifteen years old?

The established OEMs are making progress on cutting the time it takes to bring a new product from concept to market – the latest Renault 5 was pushed through this process in three years rather than the four that it would traditionally have taken.  This is still not ‘China speed’ however.  For their first entry to the automotive sector Xiaomi brought their SU7 to market in 1,000 days or under 33 months, whereas Renault had the advantage of starting from an existing platform.  The lead held by the Chinese brands in BEV technology relative to almost all other brands is well understood, and is the consequence of the 2012 New Energy Vehicle strategy designed by the Chinese Government to enable their auto industry to leapfrog the global players.  They continue to push forward in this area, notably led by BYD, but are also very advanced in autonomous driving technology, and innovate in other areas such as AI-enabled voice control and infotainment (though Karaoke mode might not be for all tastes).  However hard the established brands try to close the gap, the Chinese will continue to advance, and that gap may never be closed.

Tariffs only make sense in terms of protecting a sector if there is some potential to close the competitive gap in the period for which tariffs are applied.  Protectionism without corrective action simply leads to laziness, poor products and an even larger competitive gap.  To be fair, the European industry (unlike the US) is pushing huge resources into product development and the rampant price inflation that we have seen since Covid seems to have slowed, but there is still a gap of one or two segments in terms of what you get for your money with a product from an established brand and that on offer from the better Chinese brands.  What matters to most customers is not the list price, but the monthly payment, so if residual values are not maintained, that will put pressure on the Chinese to support a competitive monthly finance payment.

Overall, however, in my view it is highly likely that the Chinese brands collectively will have a higher share than the Japanese or the Koreans, perhaps reaching 20% in some more open markets by 2030, i.e. double where they stand now.  The question then is how do you respond?

For the established OEMs, there is no medium or long term value in taking a defensive approach.  The best way to prevent defections of customers, dealers or staff to the new entrants is to have a competitive proposition.  Remove or reduce the pressures to defect, rather than trying to raise the barriers to leave.  For dealers, your business can only ever be as good as the OEM brands you represent.  At the margin, you can out-perform the network average, but it is far easier to be part of a winning team, than it is to mount a heroic defence.  Dealers therefore need to actively manage the brand portfolio they represent and question whether they are working with the best partners for the long term – which might include ditching some Chinese brands that are struggling, as not all will succeed.  For service providers and technology partners, you need to have a clear account strategy that makes the connections to the new OEMs, and maintains those even if they are not yet in buying mode.  Being able to start with a clean sheet of paper is a great opportunity, but at least for some the rate of growth will be high, and the demands on their service partners will change rapidly.  You need to prepare for this, and not think that once an account is won, that’s job done.

This is once in a lifetime opportunity to grow your business, but as a consequence also a period of high risk, as the total market will not grow to accommodate the Chinese.  The scale of risk is therefore also high.  There is (apparently) a Chinese proverb that fits the occasion – “if you ignore the dragon, it will eat you.  If you try to confront the dragon, it will overpower you.  If you ride the dragon, you will take advantage of its might and power.”

If you want to read more, a fuller Executive Briefing is available on the ICDP website here.  The topic is also covered extensively in our Research Programme, the outputs of which are exclusively available to programme members.  More information here.