Fair play? The German car market amid increasing competition from China-based manufacturers

This summer's European Soccer Championship, which Germany will host, provides a perfect occasion for those who enjoy the stereotype that Germans are crazy about soccer, beer, and cars. One of the main sponsors is a car company, as always, but this time there's an important difference: The official car sponsorisn't a German brand but instead BYD, a manufacturer headquartered in China.

There's much more going on here than just a marketing commitment. In late February, the BYD Explorer No. 1, a gigantic, 200-meter-long ship loaded with more than 3,000 battery electric vehicles (BEVs) manufactured in Shenzhen, China, arrivedat the port of Bremerhaven in Northern Germany. Was it part of the flood of cheap electric cars from China that European Commission President Ursula von der Leyen warned about during a speechin the European Parliament half a year ago? Are vehicle imports like this an unprecedented threat to the German car industry, as some analystshave suggested?

Well, among the largest automotive markets worldwide, China has the highest market share of BEVs (Figure 1) after several years of significant growth. In 2023, about 24% of new passenger car registrations in China were BEVs. An additional 11% were plug-in hybrids. The growth seems to have slowed down a bit though, with a year-to-year growth of +2.5 percentage points from 2022 to 2023. The current combined BEV and plug-in hybrid sales share already outpaces the 2025 target set by China's New Energy Vehicle Development Planand it seems the 2024/2025 targets in the dual-credit policyfor passenger cars are not demanding enough to push for any faster BEV uptake.

Figure 1. Market share of battery electric vehicles by automotive market. Sources: European Environment Agency and Dataforce (Europe and UK) and MarkLines (China, India, USA).

In Europe and the United Kingdom, BEVs were about 16% of all new cars sold in 2023; plug-in hybrids made up an additional 8% of new registrations. It's likely that BEV sales will largely stagnate in the region in 2024, before manufacturers have to comply with more stringent EU CO₂ standardsfor 2025.

So, China has the ball, in soccer speak. But how strong is the play of China-headquartered manufacturers in Europe specifically? In the absence of a long-term historical time series for the entire European market, we'll use Germany, Europe's largest vehicle market, as a good proxy.

China-headquartered manufacturers significantly increased their market share in Germany in recent years. Volvo, which has been owned by Geely since 2010, is the most popular "Chinese" car brand in the country, and others such as BYD and Polestar are seeing particularly high growth rates. Nevertheless, China-headquartered manufacturers account for only about 3% of all new passenger car registrations in Germany (Figure 2).

Figure 2. New passenger car registrations in Germany by location of brand ownership. Source: KBA.
Note that assignment of location of brand ownership can vary over time.

Also, this isn't the first time that manufacturers headquartered in Asia have entered the German car market. In the 1980s, it was manufacturers based in Japan and in the 1990s, it was manufacturers based in South Korea, and they were each able to acquire a 6%-8% market share over time. This never turned out to be a disadvantage for Germany-based brands. About half of new cars sold in Germany are from Germany-headquartered manufacturers-it's not any different today than it was 50 years ago. What happened in the 1980s and 1990s was that mostly U.S.-headquartered manufacturers like GM, Chrysler, and Ford were squeezed out. GM and Chrysler have largely withdrawn from the European market.

So then, do Germany-headquartered manufacturers have nothing to worry about? Well, the picture is more nuanced when we drill down. While brands based in China account for only about 3% of all new car sales in Germany, for BEVs their market share is already at 8% (Figure 3). Tesla alone accounts for another 12% of the BEV market, and Germany-headquartered manufacturers sell only about 41% of all BEVs in their home market.

As Figure 3 also shows, in China, Germany-headquartered manufacturers account for a much higher market share of all cars sold (17%) than China-headquartered manufacturers do in Germany (3%). But while the BEV market is quickly gaining importance in China, German brands made up only 7% of BEV sales in China in 2023. Again, Tesla alone accounts for about 15% of all new BEV sales in China. So, Germany-headquartered manufacturers tend to run behind the ball when it comes to electric vehicles, in their home market and in China.

Figure 3. New passenger car registrations in Germany (left side) and China (right side), by location of brand ownership and vehicle type. Sources: KBA and MarkLines.

This might be worrying, but there's no reason for Germany to panic yet. Just like import restrictionsweren't successful in keeping brands from Japan and South Korea out of Europe in the 1980s and 1990s, it seems unlikely that similar measures today, like the recent movefrom France, will have any lasting effect. China-headquartered manufacturers could always avoid any tariffs by opening up local manufacturing in Europe, as BYDis already doing. Instead, if German politicians stop thinking about synthetic e-fuels as some kind of magic lollipopand back up the European Union's already finalized 100% phase-in target for zero-emission vehicles for 2035, without trying to insert any regulatory loopholes, they'd help provide the investment security that Germany-based car manufacturers need. This would help the automakers to develop and market attractive electric vehicles and provide a good chance of Germany gaining back ball ownership in the future.

There's no question that Germany-based manufacturers will increasingly feel the pressure. Premium brands BMW and Mercedes already got hit by surprise when Tesla sales skyrocketed some years ago. Now it's up to mass-market brands, in particular VW, to better prepare to compete with affordable, right-sizedBEVs manufactured by China-based companies. German brands have a strong asset in their extensive dealer and service network across Europe. That's a unique selling point that has aided Europe-based manufacturers in the electric busmarket even though China-based manufacturers are strong competitors these days.

All in all, we still see plenty of hope that automakers headquartered in Germany could maintain a strong leadership role in their home market. For the European Soccer Championship at least, it turns out that none of the German brands wanted to bid for sponsorship. It's rumored thatthey were worried the German national soccer team is so weak that it might not make it beyond the preliminary rounds of the championship. In that case, the German audience would likely lose interest in the games and not appreciate the role of the key sponsor. That's a rational economic decision, and by no means a safe victory for BYD. The game is certainly not over yet.

Authors

Peter Mock
Europe Managing Director / Regional Lead

Zifei Yang
Program Lead

Uwe Tietge
Research Lead

Ilma Fadhil
Associate Researcher

May Al-Ali
Research Fellow

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