China builds a third of the world's cars

In Wolfsburg, Volkswagen is preparing to cut around 50,000 jobs in Germany by the end of the decade. Half a world away, the car-carrier ships leaving Chinese ports sail fuller every quarter. The two facts belong to the same story. The country that builds more cars than any other has stopped being only the world's biggest market and become its biggest exporter — and the cost base it built at home is now resetting the price of a car everywhere else.

This is not a story about one clever company or one cheap model. It is about where the industry's centre of gravity now sits. For a century the firms that set the terms in cars were American, then Japanese, then German. The pricing power has moved. Whoever can build a competent electric car for the least money decides what every rival must charge, and on that measure the gap now runs in China's favour.

01The scale that changed the maths

Start with the numbers, because the scale is the argument. China built 34.5 million vehicles in 2025 and sold 34.4 million, both records, and more than a third of all the cars made on earth [1]. It has been the world's largest vehicle exporter since 2023, when it passed Japan [2]. Five years ago those exports were a rounding error in global trade; in 2025 they reached around 7.1 million, more than the entire annual output of most carmaking nations. The line on the chart does not bend. It climbs.

Exports are only the visible edge. The deeper advantage is the home market that funds them. Chinese buyers took 27.3 million vehicles in 2025, and domestic brands now account for roughly seven in ten passenger cars sold inside China — 69.5 per cent, up from barely a third a decade ago. Foreign marques, which once owned that market, have been pushed to a record-low share of around 30 per cent. A maker that moves 27 million cars at home before it ships a single one abroad carries a scale advantage no tariff easily erases.

02Why the cars cost less

Scale is half the answer. The other half is the supply chain beneath it. China now accounts for around three-quarters of the world's electric-car sales [3], and it makes most of the parts that matter: roughly three-quarters of all lithium-ion cells, plus the bulk of the refining of the lithium, cobalt and graphite that go into them [4]. When the most expensive component in an electric car, and the raw materials below it, are produced next door rather than shipped across an ocean, the whole vehicle costs less to build before a single worker is paid.

The gap that opens up is not marginal. Analysts put the cost of building a small electric car in China at around 10,000 euros below a comparable European model — the product of lower research and capital spending, cheaper labour, and that supply chain measured in minutes rather than sea lanes [5]. Newly built Chinese plants are also among the most heavily robotised anywhere. None of this is a single subsidy line a rival can point to and protest; it is an industrial base assembled over fifteen years. That is the uncomfortable part for the incumbents: you cannot tariff your way around a cost structure, you can only try to match it.

03The incumbents' squeeze

The pressure shows up first in the accounts of the firms that used to dominate. Volkswagen's operating profit more than halved in 2025, to 8.9 billion euros, and its operating margin fell to 2.8 per cent — a long way from the 8 to 10 per cent the group says it wants back by 2030 [6]. It has lost its long-held lead in China, slipping behind BYD in 2024 and then behind Geely in 2025, and it plans to cut around 50,000 German jobs by the end of the decade. At Porsche, once the group's profit engine, operating profit all but vanished, falling 98 per cent. Stellantis tells a similar story: it cut its margin guidance into the mid-single digits and is rebuilding around a 60 billion euro recovery plan.

The business model that carried us for decades no longer works in this form.

Oliver Blume, Volkswagen

The mirror image of that squeeze is the rise of the firms doing the squeezing. BYD sold 4.6 million vehicles in 2025, enough to rank sixth in the world and to put three Chinese makers inside the global top ten for the first time; more than a million of those cars went overseas. SAIC, the largest of the state-owned groups, became the first Chinese carmaker to build 100 million vehicles in all. In Europe — the incumbents' fortress — BYD has overtaken Tesla on registrations, and its sales in the opening months of 2026 ran at roughly three times the year before.

04No one is exempt

It is not only the Germans feeling this. Japan's carmakers, long the global benchmark for building an ordinary car cheaply and well, are being passed too: in 2025 Chinese companies overtook Japanese ones in worldwide vehicle sales for the first time in more than two decades [7]. Three Chinese makers entered the global top ten that year; Nissan fell out of it. Inside China, Japanese brands have slipped to around a tenth of the market they once helped define. Korea's makers are squeezed from a different angle — Kia booked record sales in 2025 yet watched profit fall as tariffs and competition bit. The companies with the most to lose are the mass-market generalists, the very firms whose old advantage was affordability.

05Europe becomes the battleground

Europe matters because it is where the two worlds now collide head-on. Chinese brands roughly doubled their share of the EU market into 2026 [8], and they did it while paying duties: Brussels imposed extra tariffs of up to 35.3 per cent on Chinese-built electric cars from late 2024, on top of the standard 10 per cent [9]. That the cars still sell, and still turn a profit, points straight back at the cost gap already described. Washington went further than Brussels, lifting tariffs on Chinese EVs above 100 per cent; Canada and Turkey added their own. The duties reshape who sells what, and where. They do not close the gap that creates the pressure.

06When rivals become partners

The clearest sign of where power sits is who now needs whom. For decades, Western carmakers entered China by taking a local partner and handing over technology in exchange for access. The flow has reversed. Stellantis has bought into Leapmotor and agreed a European joint venture with Dongfeng to sell and build electric cars; Volkswagen is developing models with the Chinese startup XPeng. The incumbents are now licensing Chinese electric-car know-how to defend their own home turf. At the same time they are fighting back on cost: SEAT's Spanish plant at Martorell has started building the affordable Cupra Raval and an electric Volkswagen Polo, and Volkswagen and Stellantis have each staked out multi-year plans — an 8-to-10 per cent margin target, a 60 billion euro turnaround — to claw the maths back.

None of this means the contest is settled, and the picture is not one-sided. Western firms still hold powerful franchises and deep engineering benches: Skoda has just posted record European sales and climbed to one of the region's best-selling brands, and premium marques remain hard to dislodge. China's own market is brutal — a price war that has crushed margins even for domestic players and pushed weaker brands to fold. The advantage is structural, not absolute. What has changed is the direction of the pressure, and the fact that the cheapest competent electric car in any segment is now likely to be Chinese.