In Depth: Foreign Carmakers Tap Local Expertise to Regain China Market Share

Foreign carmakers, once dominant in China, are now striving to catch up as rapid changes in the local market—especially a shift towards electrification—have seen them lose substantial market share to domestic competitors. Their failure to quickly adapt contrasted with the agility of Chinese brands, which capitalized on the New Energy Vehicle (NEV) boom to significantly expand their influence [para. 1][para. 2].

Homegrown Chinese auto brands reached a record 68.7% share of passenger car sales in China in the first four months of 2024, compared to just 38.4% in 2020, based on data from the China Association of Automobile Manufacturers (CAAM). Similarly, NEVs (including pure electric, plug-in hybrids, and fuel cell vehicles) made up 48.9% of total passenger car sales over the same period. The top three NEV sellers were local giants BYD, Geely, and SAIC Motor [para. 3][para. 4]. NEV sales in China are projected to rise 30% in 2025, hitting 16.5 million units and surpassing half of total auto sales, according to the China EV100 Association [para. 5].

In response, foreign brands have rushed to release new NEV models targeting Chinese consumers. For example, Toyota launched the bZ3X electric SUV via its joint venture (JV) with Guangzhou Automobile Group, Nissan’s partnership with Dongfeng introduced the N7 electric sedan, and GM’s JV with SAIC unveiled a new Buick plug-in hybrid. Notably, the development of these vehicles is driven by Chinese engineers, and they frequently source components like batteries and assisted driving systems from local companies [para. 6][para. 7].

The era when foreign brands could count on automatic consumer loyalty in China is over. As noted by Liu Wenbin, chief engineer for the bZ3X, international firms now recruit local professionals and invest heavily in in-country R&D. While still lagging Chinese frontrunners like BYD, foreign brands retain certain advantages, notably a well-established reputation for vehicle safety—a key differentiator following high-profile accidents involving domestic EVs [para. 8][para. 9].

Reflecting this shift, Toyota Motor (China) Investment restructured to prioritize Chinese leadership and reoriented its R&D systems toward local expertise, culminating in vehicles like the bZ3X, which incorporates Chinese-developed smart driving tech. Toyota’s local teams now oversee not only R&D but also production optimization, balancing costs and speed to meet stringent market and company standards [para. 13][para. 14][para. 15][para. 16].

Other major foreign carmakers—such as Volkswagen, Mazda, and GM—have followed suit by forming technology development partnerships and supplier relationships with top Chinese EV and autonomous driving firms. For instance, Volkswagen expanded its partnership with XPeng and Horizon Robotics to co-develop digital architectures and smart driving systems, while Mazda relies on Changan for EV platform development [para. 18][para. 19][para. 20][para. 21][para. 22][para. 23].

Despite losing ground, foreign brands still have valuable strengths. BYD and Geely, now ranking 6th and 10th globally by sales in 2024, present significant challenges. Firms such as Chery and Xiaomi are aspiring to join the global top 10 or even top 5 in the next two decades. However, foreign firms can attract consumers by emphasizing their legacy of safety and experience, particularly as new regulations for battery safety come into force in 2026 following incidents like the fatal Xiaomi SU7 crash [para. 24][para. 25][para. 26][para. 27][para. 28][para. 29][para. 30].

Looking forward, as the performance gap narrows in smart driving technology, the solid reputations of foreign brands may increasingly influence consumer preferences in China’s intensely competitive NEV market [para. 31].