News

Whilst European car manufacturers are battling for market share in China, the competition has long since shifted to other regions. Emerging markets are becoming the new battleground, and Chinese manufacturers are already leading the way there. “Emerging markets are the real new markets,” says Thorsten Fischer, Managing Director and Head of Portfolio Management at Moventum AM. “The Germans should not be chasing every bit of market share they lose in China. Whilst the Chinese domestic market is currently shrinking significantly, competitive pressure has long been mounting outside China.”

China was once the driving force behind German industry’s growth; today, the country has become a risk. This is because the market is reaching its limits: the working-age population has shrunk by around 13 million since 2021, urbanisation is levelling off at around 950 million inhabitants, and car sales are on the decline. “The tailwind provided for decades by demographics, urbanisation and a growing middle class is waning,” explains Fischer. At the same time, Chinese manufacturers have emerged as strong competitors and are battling for a shrinking market with steep price discounts.

This is putting pressure on European manufacturers’ business in China. Sales in China have recently fallen by double figures at VW, BMW and Mercedes, and by around 60 per cent at Porsche. Furthermore, local production is declining at many brands. The strategy of ‘producing in China for China’ is becoming increasingly difficult.

The next major opportunity lies beyond China and Europe. Of the approximately four billion people worldwide who belong to the middle class, around half live outside China and the industrialised nations. “India, Latin America, South-East Asia, the Middle East and North Africa are likely to become the key growth markets in the coming years,” says Fischer.

Car manufacturers from the People’s Republic have long since entered this competition. Chinese electric car exports have multiplied since 2019 and now total more than 50 billion US dollars over a twelve-month period. Sales are growing particularly rapidly in Latin America, the Middle East and Asia. In many places, Chinese manufacturers are displacing established Japanese and Western brands through aggressive pricing, modern internal combustion engines and new powertrains. Affordable models appeal to a broad range of buyers. By building factories in Latin America and Asia, they are circumventing trade barriers. In the electrified vehicle segment, Chinese manufacturers are already achieving market shares of around 85 per cent in markets such as Brazil and Thailand.

Audi, Smart and Mini are trying to keep up: they are among the few European brands that have managed to increase their production in China and are making greater use of it as a base for exports. Smart and Mini demonstrate that the combination of European brands, Chinese manufacturing and electrification can be a viable model.

Tariffs and protectionism could therefore prove to be a strategic own goal for Europe. European manufacturers are expected to protect domestic production, but at the same time must keep pace with the costs, development cycles and technologies of their Chinese competitors. “Using Chinese factories as an export platform for emerging markets could make more economic sense than further isolationism,” says Fischer.

For investors, this means that the global car market is shifting from China as a sales market to China as a production and export hub. For European manufacturers, long-term success is increasingly being determined in the emerging markets. Fischer therefore sees the winners as those companies that combine strong European brands with Chinese cost structures, battery technology and development speed. Fischer: “For investors, it is therefore becoming less important who wins in China – but rather who uses the competitive advantages gained in China to succeed in the global growth markets.”