How China is changing the structure of the automotive market. Analysis
The European and American car industries are losing to China — Chinese cars are no longer just copies of Western ones and have become a powerful competitor to recognized brands. Meanwhile, the crisis in the European automotive industry is only getting worse: on July 9, Volkswagen intends to discuss large—scale cuts at its enterprises - about 100 thousand people are at risk of losing their jobs. How China is changing the global car market, breaking stereotypes, and what concerns are doing to adapt to the new reality - in the Izvestia article.
The automotive industry is looking for a new business model
• The previous model of European car production was destroyed due to the conflict in Ukraine and the sanctions imposed against Russia. The loss of access to cheap energy from Russia was a blow to German automakers, which led to a sharp increase in production costs, and then duties imposed by the United States against European cars. Another disaster that rocked the industry in the first half of 2026 was the disruption of the supply chain as a result of the war in Iran and the closure of the Strait of Hormuz.
As early as 2024, the German automaker Volkswagen was considering the possibility of closing its factories in Germany and making large-scale cuts. There were several reasons: the rising cost of production due to the loss of access to cheap Russian energy resources, the reliance on more expensive electric vehicles and their unsuccessful debut in the Chinese market, despite the fact that the concern sold cars at a loss within the country and in fact the domestic market was subsidized by foreign sales.
• The German car industry's attempts to stay afloat are hampered by new EU measures against Russia. In particular, the 20th package of sanctions imposed restrictions on chips from the Chinese manufacturer Yangzhou Yangjie Electronic Technology, as the EU considered that its products were used in the Russian defense industry. But it turned out that the German car industry also depended on these chips, which now cannot supply chips from China, and the available stocks will last only until the end of summer 2026.
• In the electric car market, European and American models are significantly lower in price than Chinese ones. In February 2026, the average cost of a European electric car was €50,000 ($57.1 thousand), while a Chinese electric car cost about €32,000 ($36.6 thousand). In addition, the Chinese car industry surpasses the American one in terms of quality — in 2025, when Chinese BYD overtook Tesla and became the largest manufacturer of electric vehicles in the world, Tesla CEO Elon Musk called Chinese electric cars the most competitive.
• Chinese manufacturers develop and produce components themselves, regardless of suppliers, and offer the buyer more functionality for less money. China quickly realized that consumers were not ready to abandon gasoline engines, and brought hybrids to European markets that can run on both gasoline and electricity. While EU lawmakers are developing measures to protect their manufacturers, Chinese hybrid cars have already captured 11% of the EU's domestic market.
China sets the standards
• The old benchmarks of the automotive industry, such as German engineering solutions, American scale of production and Japanese reliability, are becoming a thing of the past. Now, the reliability of Chinese models entering the European market is comparable to that of Japanese ones. According to the crash test results, the Chinese ORA Funky Cat 400 Pro, Polestar 3, GWM Wey 05 and Zeekr X were recognized as the best in their class in the Euro NCAP safety rating, ahead of many Western competitors.
• "Chinese speed" has become a new benchmark in the automotive industry — European and American automakers, accustomed to developing new models for 5-10 years, are losing out to Chinese manufacturers, who can bring a new car to the market in a year and a half. The electric vehicle sector is growing fastest, as China has the resource base for battery production.
• The evolution of automotive brands in China is spurred by fierce competition in the domestic market, which forces us to optimize processes and build competencies. European car brands take advantage of China as a production site. In particular, Renault is developing and designing new cars in China, although it has not sold its cars there since 2021. In 2026, Renault introduced to the EU market an electric analogue of its Twingo subcompact, developed in 1997, which can compete in price with Chinese electric cars (the cost of the model in France in June starts from €19.49 thousand, or $22.273 thousand). It took only 21 months to create the model, despite the fact that it usually takes twice as long for a European manufacturer to do this, and the cost of production has been reduced by 40%.
• Automakers are learning how to bypass government barriers. In particular, the competitiveness of the European automotive industry has been declining due to EU requirements for an early transition to electric vehicles, despite the fact that the resources and production base for battery production are concentrated in China. European and American businesses have begun to shift production to China, closer to the resource base and cheaper labor: factories of the largest automakers Volkswagen, Mercedes—Benz, BMW, Stellantis, as well as factories of Tesla and the tire manufacturer Continental operate in China.
• Due to the presence of European and American brands, cars manufactured in China can be sold on world markets without paying import duties, which amount to 45.3% in the EU and 100% in the USA. Canada also had 100% duties on Chinese electric cars, but in 2026, under an agreement with China, they were reduced to 6.1% for a limited number of electric vehicles (up to 49 thousand). Renault bypasses European restrictions due to the fact that Twingo assembly takes place in Slovenia. And the purchase of the Leapmotor T03 model, produced by the Chinese startup Leapmotor together with Stellantis, is even subject to government subsidies in Germany.
• China offers more digital solutions and adapts faster to the customer. When promoting the Leapmotor T03 in Germany, the Chinese company assessed not only the market, but also its target audience — due to the deteriorating economic situation, European buyers have less money to upgrade the car. Leapmotor offered the Germans to lease a new car for €48.90 ($56) per month, which is comparable to mobile phone payments. After a three-year lease, the buyer will be able to buy the car for €11,139 ($12.7 thousand) or look for a new car. European manufacturers do not yet have a competitive business model, and the American market is protected from Chinese electric cars only by huge duties.
What to expect
• Due to supply chain disruptions, automakers will seek to strengthen process control and focus component production in their own hands. The solution that lies on the surface is to unite large manufacturers in order to reduce competition and ensure a full production cycle. BMW, Mercedes-Benz, Volkswagen and Stellantis have already admitted that they will not be able to create the software alone and are joining an alliance. Japanese manufacturers are following the same strategy: Honda, Nissan, and Mitsubishi have agreed to standardize electronics in their cars to compete with Tesla and the Chinese auto industry. This also indicates the increasing role of digital services.
• European car brands import Chinese technologies to the European Union, providing their facilities in Europe for the assembly of Chinese cars — Opel has already chosen this strategy and Volkswagen is considering it. At the same time, European automakers are also eyeing other Asian brands — for example, Skoda is considering the possibility of supplying the Indian crossover Kylaq in order to regain its position in the budget segment.
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