Although German and European legacy firms continue to benefit from brand reputation and technological prestige, the IAA 2025 signaled China’s intent to transcend its “budget” image, targeting both volume and the luxury-performance spectrum. Brands such as Xpeng presented a diverse range from sports coupes to 7-seater electric vans, while Aito and Forthing directed products at Europe’s lucrative upper segment. This rivalry is more than numbers: It offers Europe an opportunity to redefine itself as a shaper, not merely a competitor, in the new order of mobility by leveraging its regulatory influence, engineering heritage, and sustainability leadership to co-write industry standards. These developments constitute both a strategic and reputational challenge for established European actors.

Market Shifts and Strategic Displacement in Europe

Recent quarters have recorded declining sales among German premium brands in China: Mercedes reported a 14% drop, BMW 13.4%, and Audi 11% in the first half of 2025. In parallel, Chinese brands almost doubled their European market share—reaching 5.1% in H1 2025 and registering 5.9% in the EU by May, overtaking certain legacy European OEMs. Behind these figures stand China’s consolidated cost advantage, scaling, and technological sophistication, which now catalyze European innovation as much as they unsettle Western incumbency.

China’s Strategic Trajectory: From Minor Player to Rule-Setter

China’s trajectory in the automotive sector is unprecedented. From a baseline of just 5,200 passenger vehicles produced in 1985, national output reached approximately 31.3 million by 2024, accounting to 34% of global production. This ascent is rooted in decades of targeted industrial policy, joint ventures, and sustained investment in innovation. In 2025, China’s trajectory is not simply defined by manufacturing capacity but as a to rule-setter, actively shaping market norms, technological standards, and global power structures through rapid expansion and innovation.

China’s Leadership in EVs, Batteries, and Supply Chains

The global automotive sector is undergoing an epochal shift from internal combustion engine (ICE) paradigms toward electrification. In 2024, more than 17 million EVs were sold worldwide, which is a 25% increase year-on-year, thus representing 21% of global car sales (IEA). China now accounts for nearly two-thirds of these sales (11+ million units; ~65% market share). Europe’s EV market held steady (~20% share) despite subsidy reductions; US sales rose above 1.6 million (about 10% of new car sales). China’s strategic pivot to EVs in the mid-2000s was not only about energy security and competitiveness; it was a pre-emptive move to become a rule-maker in electrification, using scale and subsidies to leapfrog entrenched Western rivals.

Recent industrial measures, such as a 2024 “trade-in” scheme targeting the replacement of ICE vehicles with EVs, catalyzed nearly 40% year-on-year growth in Chinese EV sales (notably, PHEVs outpacing BEVs). China’s battery dominance is even more pronounced. In 2024, domestic firms controlled 77% of global battery manufacturing capacity and 75% of lithium-ion production, a cornerstone of the EV value chain (with battery costs comprising up to 40% of vehicle value). Chinese-developed battery cells have achieved up to 2,000 km range, thus placing the country as standard-setter in both materials and application.

Chinese suppliers have become systemic actors across global automotive supply chains. By 2023, their global share exceeded 15% of supplier revenues, up from 10% in 2018. Firms such as CATL, Weichai Group, and HASCO feature in the global top 20, with revenues of $39.96bn, $34.3bn, and $22.2bn, respectively. Major OEMs (GM, VW, Toyota) are increasingly dependent on Chinese components for both cost-competitiveness and technological leadership.

Yet, the automotive transition is not only an industrial matter but also a security one. Control over raw materials, rare earths, and batteries places strategic autonomy at the forefront of European policy debates. European suppliers face not just production slowdowns and falling profit margins, but systemic vulnerabilities in supply resilience, heightened by resource shortages and uncertain adoption trajectories. The European Association of Automotive Suppliers has also warned that recurring disruptions now undermine entire manufacturing ecosystems. Managing these dependencies has become a diplomatic and security imperative for policymakers, political pundits, and diplomats focused on triangular US–EU–China dynamics.