In the 5th century BC, the famous Chinese general Sun Tzu wrote in his famous book The Art of War: “Every battle is won before it is ever fought.” In the 21st century AD, the Chinese car industry is proving him correct all over again.
In America, Donald Trump is throwing his toys out of the pram with massive tariffs against China in an attempt to turn the clock back 40 years to when America ruled the roost. In Europe, the EU has also been adding tariffs onto Chinese EVs in an attempt to protect its local car manufacturers. But it’s all a bit late; the war is already over.
Western car manufacturers have spent the last couple of decades trying to exploit China for their own financial gains, but what they were actually doing was helping China develop its car industry to become the world’s largest. And now it’s threatening to squeeze them out of existence.
Having spent a week in China last month – visiting the enormous Shanghai motor show, covering 500 miles in a plug-in hybrid fuel economy marathon on Chinese roads and visiting a state-of-the-art factory that builds cars for Omoda and Jaecoo (and various other brands that are not sold in the UK) – it was enlightening to see, in person, how advanced the Chinese automotive industry has become.
We’re living in the past
Many people still see China as a looming threat to the future of the Western car industry, which was certainly true – about 25 years ago.
Back in 2000, the USA was the world’s largest automotive manufacturer, building about 12 million motor vehicles (cars, vans, buses, trucks, etc.). Europe produced a similar number, although that was a combined figure from a couple of dozen countries. Japan was also similar, with about 10 million vehicles. China built about 2 million vehicles, having recently overtaken the UK, and was about the ninth-biggest country by volume.
By about 2008/09, China had overtaken the USA and Japan to become the world’s largest vehicle-producing country, and has accelerated away every year since.
Last year, China built 31 million vehicles. America and Japan both built fewer cars than they did 25 years ago, while Europe was about the same. Global production was about 93 million vehicles, so China built one in every three vehicles worldwide.
China’s automotive industry now dwarfs the rest of the world’s. In addition to building a third of the world’s vehicles, it provides countless key components for the other two-thirds built elsewhere. Its growth over the last two decades has been astonishing and far beyond anything that the automotive industry has ever seen.
Even if Donald Trump’s tariff tantrum succeeds in returning automotive production to America’s highest-ever levels, that’s about 13 million vehicles a year (which it achieved in 1999). That would be 30% better than it was last year, but it would barely dent China, which exports very few cars to the USA anyway. The real victims of any resurgence in American car manufacturing would be Canada and Mexico.
The EV revolution is strengthening China’s position
The shift from traditional, fossil-fuel-powered cars to electric cars is so enormous that it’s more accurate to think of the EV industry as ‘Car Industry 2.0’. It involves rethinking almost every aspect of how cars are designed and built by manufacturers, how they are bought and used by customers, and how they are managed and taxed by governments.
There’s a narrative in certain circles that China’s strength is all about EVs, and that if we wind back EV targets and Net Zero ambitions, it will destroy that advantage. China was a long way ahead of the West in recognising that the era of petrol and diesel was coming to an end, with EVs the only viable replacement.
It’s true that China has carefully prepared its industry for the transition to EV power and has worked assiduously to gain dominance over the entire supply chain, from raw minerals to finished product, in a way that no-one has ever done in the fossil-fuel sector. Chinese car companies are also investing in EV development at a level that far outstrips similar investments from anyone else, and have been doing so for several years now.
But the idea that pushing back against EVs will stop China’s automotive influence in its tracks is no more than wishful thinking.
Of the 30-ish million vehicles China builds each year, about 10 million are EVs. While that’s far more than any other country in the world, it still means that China builds about 20 million fossil-fuel cars each year – which is more than double the next-best country in the world (America). And it has already demonstrated its incredible ability to scale up at speed. So if the world banned EVs tomorrow, China would almost certainly be able to grow its petrol car production faster than anyone else to replace those EVs.
In any case, most Western car companies have now moved past the point of no return in their shift to EVs. They have invested billions of dollars in development and manufacturing, made tens of thousands of people redundant, completely redeveloped their factories to build EVs and wound down most of their development in new petrol models. They urgently need these massive investments to start being repaid through sales of electric models.
It’s no longer all about cheap labour
Much of China’s industrial growth over the last few decades was built on cheaper labour than Western countries, and the car industry was no different. But, as with a lot of the tech sector development, this has evolved significantly and labour is no longer as big a differentiator as it once was.
On our recent trip to China, we visited a Chery Automobile factory to see cars from several different brands (including Omoda and Jaecoo cars bound for the UK) coming together. Strikingly, the first plant involved bare metal sheets being built up into complete body shells for a range of different cars of all shapes and sizes, but there were almost no humans involved in the process.
The entire assembly, from stamping and cutting panels, to glueing and welding the panels together, to the completion of an entire car body, was conducted by machines. The only humans involved were those maintaining the machines and quality inspectors to check over the completed bodies.
Once the cars progressed to final assembly, the process involved a lot more people, with skilled workers installing all the various car components using specially designed tools. But even here, several steps were fully automated and carried out robotically, such as selection and mounting of the wheels and tyres for each car as it passed along the production lines.
Final quality control was done using AI-powered automated cameras on robotic arms, allowing precise analysis of every component in far more detail than possible with a human eye. It’s all incredibly impressive stuff, and far from the continued outside perception of unskilled workers in low-tech factories producing sub-par products.
Dozens of Chinese car brands you’ve never heard of
We can divide Chinese car brands into three groups – the Western car brands that are now Chinese-owned, Chinese brands that export cars to the rest of the world, and Chinese brands that sell exclusively or mostly within China.
Well-known British brands like Lotus and MG are both Chinese-owned, along with LEVC (the former London Taxi Company) and Maxus (formerly LDV). Aston Martin is also partly Chinese-owned. Other European brands like Volvo and Polestar are wholly Chinese-owned, while others like Mercedes-Benz and Smart are partly owned by Chinese companies.
Then we have Chinese brands that now sell cars and vans in markets around the world. Here in the UK, we have BYD, Farizon, GWM (Ora and Haval), Jaecoo, Leapmotor, Omoda, Skywell and Xpeng, while other countries get additional brands that don’t build right-hand drive cars.
And then there’s a whole A-Z of car brands you’ve probably never heard of, like: Aion, Aiqar, Aito, Aiways, Arcfox, AUDI (not Audi, but bizarrely owned by the same company), Avatr, Baojun, Beijing, Bestune, Changan, Chery, Deepal, Denza, DFSK, Doda, Dongfeng, Enranger, Exeed, Fengon, Firefly, Forthing, Foton, GAC, Geely, Hongqi, Hyptec, iCar, IM, JAC, Jetour, Kaicene, Karry, Lepas, Li Auto, Livan, Luxeed, Lynk & Co, Maextro, M-Hero, Nio, Onvo, Qingyuan, Rely, Rising Auto, Roewe, Rox, Sehol, Seres, Stelato, Tank, Trumpchi, VGV, Voyah, Wey, Wuling, Xiaomi, Yangwang, Yiwei and Zeekr. Some of these are planning to come to the UK in the next few years, so you may see them soon.
On top of all of the above, several of the largest Chinese car manufacturers have joint ventures with Western car companies and build Western-brand cars for local and/or export sales. These brands include Audi, BMW, Buick, Cadillac, Chevrolet, Citroën, Cupra, Dacia, Honda, Mercedes-Benz, Mini, Peugeot, Smart, Tesla and Volkswagen.
Some of the UK’s new cars that are built in China
Some Western brands are under real threat
With Chinese manufacturers on a roll and eyeing up big expansion plans around the world, several Western manufacturers are under enormous pressure. We face the very real possibility of well-known brands either scaling back their line-ups, merging with rivals or even folding altogether in coming years.
Global motor vehicle production may be approaching 100 million vehicles, but many factories at Western car companies are running well under capacity. As the enormous overhead costs of running a factory are spread across fewer vehicles, those vehicles become more expensive to build, which pushes prices up, which hurts sales and reduces factory output further. As car companies in Europe and America try to reduce costs by shedding staff or closing unprofitable plants, unions have been fighting back to protect jobs, leading to strikes and other actions that further harm output and profitability.
Attempts to rein in China’s expanding car industry through tariffs seem unlikely to achieve their goal. At best, they may lead to a modicum of production reverting from China to the West, including some Chinese companies setting up factories in Europe. Superficially, that would seem to help Western companies.
But there’s more to it than just tariffs – European and American car companies have factories all over the world, so it’s not surprising that Chinese companies would want to establish factories close to major international markets. BYD opening factories in Hungary and Turkey, for example, is only going to mean even greater competition for Western car companies.
With dominance in global automotive production, investment levels that dwarf the rest of the world, and a government that co-ordinates every move to eliminate obstacles and ensure successful outcomes, China has become the automotive world’s only real superpower. A dysfunctional America and an increasingly disjointed Europe have been relegated to regional powers.
Western governments are belatedly gearing up for a trade battle with China without realising (or maybe preferring not to acknowledge) that the war is already over. Sun Tzu’s words of wisdom continue to prevail, 2,500 years after they were written.