Shanghai Auto Show: Insights into China's Automotive Market

The Shanghai Auto Show is set to showcase the latest developments in China's automotive industry, where local manufacturers and technology giants are vying for dominance in the electric vehicle (EV) sector. This competition raises questions about the future role of traditional German automotive brands in the market.

China continues to hold the title of the largest automotive market globally, with approximately 31 million vehicles sold last year. However, the landscape is becoming increasingly competitive. Local manufacturers have significantly advanced in the EV market, led by industry frontrunner BYD, which has expanded its offerings to include high-tech features and advanced driver-assistance systems, often at no additional cost.

In addition to established automakers, tech companies like Xiaomi and Huawei are entering the automotive sector, leveraging their expertise in software and connectivity to transform vehicles into sophisticated mobile devices. This influx of innovation is contributing to rapid advancements in vehicle technology, lower prices, and oversupply issues.

According to automotive expert Philipp Seidel from Arthur D. Little, the oversupply in the Chinese market is putting immense pressure on manufacturers and suppliers to expand globally and seek export opportunities. This trend is expected to intensify in Europe, particularly if the U.S. market continues to restrict access for foreign brands.

German automakers have been experiencing a decline in market share in China over the past few years. Companies like Volkswagen, Mercedes-Benz, BMW, and Porsche are facing challenges as domestic EV startups aggressively capture market segments. In response, these brands are increasing their investments in China and launching models tailored specifically to Chinese consumers. For instance, Audi has introduced a new brand identity, moving away from its traditional four-ring logo to appeal to the local market.

Despite these efforts, the downward trend remains a concern. In the first quarter of this year, BMW reported a 17 percent drop in sales in China, while Mercedes-Benz saw a decrease of around 10 percent, and Volkswagen reported a 7 percent decline. All three manufacturers heavily rely on the Chinese market, with Volkswagen's sales in China accounting for nearly 30 percent of its global deliveries.

Electric vehicles have seen a surge in popularity in China, attributed to government incentives, tax reductions, and streamlined registration processes. By mid-summer, the share of EVs in new vehicle sales surpassed 50 percent for the first time. Local manufacturers offer a diverse range of affordable models, some priced under EUR10,000, while EVs in Germany often come with a higher price tag, compounded by slower infrastructure development and inconsistent policy support.

Trade tensions between China and Europe are evident, particularly in the automotive sector, where the EU has imposed significant tariffs on Chinese EVs, citing alleged state subsidies. This move has been criticized as protectionist by Beijing, which has threatened retaliatory actions. German manufacturers and industry associations have voiced concerns over the EU's tariffs, urging negotiations and exploring alternative solutions, such as establishing minimum pricing for Chinese EVs.

Currently, Chinese automotive brands have minimal presence in the German market. In 2024, homegrown brands accounted for just 1.0 percent of new registrations in Germany, with most coming from MG Roewe. Even prominent players like BYD managed only about 2,900 new registrations, translating to a mere 0.1 percent market share.

The Auto Shanghai 2025 event is poised to be a significant platform for unveiling the future of the automotive industry, with over 100 new models expected to debut, including several world premieres from German manufacturers. Experts suggest that Volkswagen's new product launches could provide insights into their global strategy, potentially influencing future models and features available in Europe.

Furthermore, German suppliers like Bosch will showcase their latest innovations, with a focus on autonomous driving technologies, an area where Chinese manufacturers aim to take the lead.