As everyone knows, China has emerged as one of the automotive industry’s leading nations. Not only is it a major market and manufacturing and supply chain hub, it has also become the epicenter for the industry’s cutting-edge innovations.

The rapid development of intelligent, connected electric vehicles has given rise to a range of highly capable and competitive Chinese automakers with roots in both the private and State sector, challenging the foreign players.

Some pundits would say, “China is done with foreign automakers” and “China is an existential threat to foreign automakers.” But is it really?

By now, most people understand that the rapid development of China’s automotive industry over the last decade was driven by the Chinese government’s vision and commitment to build up a “new energy vehicle” industry. In this context, “new energy” refers to electrification.

Less than a decade before this policy was put in place, the internet businesses had begun to take root in China. New business models, mostly in the consumer sector, had started to emerge and Chinese consumers had quickly become used to the digital buying and consumption experience. Internet companies had already grown used to deploying customer data for adoption in their business models.  

At the same time, technologies continued to evolve along the way with much more capable sensor technology, software and new materials.

The convergence of these trends in a huge market with major manufacturing capabilities led to significant vibrancy in the Chinese market.

With their ability to anticipate and interpret central government policies normally, better and faster than foreign companies, Chinese businesses were swift to adopt and invest into the “new lanes” that they could see coming. Compared to the non-Chinese players, they generally had more confidence in the Chinese government’s ability to deliver. Compared to foreign automakers, Chinese businesses understood much better on how to get support from local governments who would align themselves with the central government’s policies to support growing businesses.

Foreign automakers were generally slower to react, not only because of their incumbent position in the internal combustion engine business, but also because of their lack of sensitivity to the then-already very prevalent consumer internet phenomenon in China. Most of them were blindsided because they tended to limit themselves to their own business and leisure circles. Also, the gap in understanding the realities on the ground in China between the local team and people in the global headquarters was normally significant, causing slow responses to rapid changes in the Chinese market.

The rise in market share and consumer mindshare of Chinese automakers implied the decline in both measures for foreign players. And this happened only within a span of a few years.

By now, foreign automakers have largely woken up to the fact that they are lagging behind, and that the Chinese are “genuine competitors”, a notion they had not quite accepted before.

Along the way, two patterns of development have emerged. One is that an increasing number of Chinese automakers have started going abroad, some through exports and others by building or acquiring plants overseas.

The other is how non-Chinese automakers have been forming new partnerships with Chinese companies for the purpose of leveraging the Chinese companies’ capabilities in the intelligent, connected vehicles sector. For example,  Toyota will use BYD’s plug-in hybrid DM-i platform to diversify its plug-in hybrid electric vehicle lineup for the Chinese market, according to reports in May 2024. Similarly, Jaguar Land Rover will use Chery’s electrification platform to produce a new range of vehicles under the Freelander brand, as announced in June 2024.

While previously Sino-foreign partnerships in the auto sector were largely driven by regulations and policies, these “new corporate relationships” were driven by the need for new capabilities that are required for competing in the new automotive industry.

For some of such partnerships, non-Chinese and Chinese partners will team up to tap into the international markets beyond China. For instance, through their 2023 partnership, between Stellantis and Leapmotor, Stellantis will be selling Leapmotor’s vehicles in international markets, starting with Europe. Chery’s joint venture with the Spanish company Ebro-EV Motors in April 2024 enables local production of electric vehicles in Barcelona and expands exports through localized manufacturing in Europe.

This is taking place because the Chinese automakers have developed know-how and capabilities that are relevant in the intelligent, connected electric vehicles sector. Chinese players treat vehicles as dynamic digital platforms, benefiting from China’s unique ability to integrate internet companies, artificial intelligence labs, chip designers, cloud providers, and semiconductor manufacturers — enabling faster product iteration and deeper user engagement. For example, Xpeng designed its cars to be smart, intuitive, and constantly improving. It’s not simply about adding a screen or voice assistant but about building a car that can learn, evolve, and interact. Leading Chinese EV makers are now moving beyond functional interaction toward context-aware intelligence, emotional responsiveness, and AI-powered virtual assistants — transforming vehicles into intuitive companions and integral nodes within the user’s digital ecosystem.

These partnerships could make sense as the non-Chinese side would bring familiarity with certain markets and industrial environments as well as some technologies that may be relevant in these markets, while the Chinese side could contribute its technologies, manufacturing skills, and business model innovations.

While turbulence will continue to manifest, we are entering into a new world of multipolarity in which the United States and China continue being the two largest economic powers. While attempts to contain China will continue, its influence in this new world will continue to increase. For many Global South countries, as they develop, they would likely look to China for inspiration for their own industrial development model. The auto sector would be a prime sector for many. For Europe, as its relationship with the US becomes less certain, some of these countries may also gravitate to the Chinese auto capabilities over time. The US currently restricts Chinese vehicles from entering into its market. However, I believe at some point during President Donald Trump’s second term, there is a chance that he may open the US market up for Chinese automakers but with certain ownership and investment requirements.

Non-Chinese automakers who could anticipate this are beginning to prepare for it by leveraging the capabilities of Chinese automakers. By making use of each other’s capabilities, these companies can continue to compete not only in the Chinese market but also in markets beyond China. To this end, “China” won’t simply only be the Chinese market, but it will also include the rest of the world where Chinese capabilities have increasingly higher relevancy.

The author is founder and CEO of Gao Feng Advisory Company, a strategy and management consulting firm with roots in China.

The views do not necessarily reflect those of China Daily.