Introduction

China's auto industry stands at a historic crossroads.

Driven by industrial growth and technological progress, Chinese automobiles are increasingly venturing overseas and integrating into the global market. Along this path, their influence has steadily risen, becoming notably strong. Reports suggest that by the end of this year, the number of cars imported by EU member states from China may exceed the number exported for the first time.

It's worth noting that in our fixed impression, despite the booming overseas expansion of Chinese automobiles, especially their consistent sales record-breaking in recent years, Europe—the cradle of the automotive industry—has long been a market exporting automotive products and technologies, supplying advanced offerings worldwide and reaping substantial "profits" through trade surpluses.

Take 2022, for instance, when Europe enjoyed a €15 billion surplus in car exports to China. However, in just three years, the situation has fundamentally reversed. Reports indicate that the China-EU auto trade will see a deficit for the first time, with EU car imports from China expected to surpass exports by €2.3 billion (approximately RMB 19.09 billion).

Do not underestimate this reversal; it signifies not only a clear signal of China's auto industry's ascent but also a landmark event in the restructuring of global automotive power dynamics. In the future, the trade surplus of European car exports to China may become a relic of the past. Given this scenario, who can still claim that Chinese automobiles are not strong?

01 Leveraging the New Energy Revolution, China-EU Auto Dynamics Reverse

For a long time, the European auto industry has been synonymous with automotive excellence.

The meticulous craftsmanship of German engineers, the dynamic aesthetics of Italian design, and the unique charm of French automobiles have forged an unshakable brand perception among global consumers. Although the Chinese auto market is vast, it has long played the role of a "student"—exchanging market access for technology and production capacity for experience.

Looking back to the early 21st century, almost all mid-to-high-end cars on Chinese roads were European brands. German cars such as Volkswagen, Mercedes-Benz, BMW, and Audi dominated the Chinese luxury car market. In contrast, Chinese domestic brands were squeezed into the low-end market, struggling to survive. At that time, the European auto industry had full confidence in the Chinese market: technologically advanced, brand-strong, and with a mature supply chain, forming a comprehensive competitive advantage.

The turning point came with the wave of the new energy revolution. While traditional automotive giants were still meticulously refining internal combustion engines, Chinese automakers keenly seized the historical opportunity of energy transformation. With policy support, capital investment, technological innovation, and market cultivation working in tandem, China's new energy vehicle (NEV) industry achieved leapfrog development. Today, the dynamics have shifted.

The rise of China's auto industry is no accident; it is built on technological breakthroughs that collectively constitute a "dimensional strike" against Europe's traditional advantages.

Among these, China's breakthrough in battery technology is the cornerstone of the NEV industry's rise. Companies like CATL and BYD not only dominate the global battery market but also lead in next-generation technologies such as solid-state batteries and sodium-ion batteries. The average driving range of Chinese NEVs has increased from less than 200 kilometers a decade ago to over 600 kilometers today, with some high-end models even exceeding 1,000 kilometers. This metric now surpasses most European counterparts.

If electrification is the first half of the automotive industry's transformation, then intelligence is the key to winning the second half. Chinese automakers have invested and innovated far more than their European counterparts in intelligent cockpits, advanced driver-assistance systems (ADAS), and connected vehicle technologies. Companies like Huawei, XPeng, and NIO have transformed cars from mere transportation tools into "mobile intelligent spaces," achieving a qualitative leap in human-vehicle interaction. This all-encompassing intelligent experience precisely meets the core needs of young consumers.

Meanwhile, Chinese NEVs not only lead in technology but also boast significant cost advantages. Through vertical integration of the supply chain, large-scale production, and innovative business models, Chinese automakers have successfully lowered the price of high-end electric vehicles to a range acceptable to ordinary consumers. BYD's Dolphin and Seal series pricing strategies in the European market have put unprecedented price pressure on local European automakers.

Of course, the rise of China's auto industry is inseparable from a vast and efficient NEV supply chain. From upstream lithium mining and battery materials to midstream battery manufacturing and electric drive systems, and downstream vehicle manufacturing and charging infrastructure, China has formed the world's most complete and dense NEV industrial cluster.

The advantages brought by this cluster effect are multifaceted: first, research and development collaboration, where companies at all links of the supply chain can quickly respond to technological changes; second, cost advantages, as the industrial cluster reduces logistics and collaboration costs; third, accelerated innovation, as the complete supply chain provides rich application scenarios and iteration opportunities for technological innovation.

In contrast, although the European NEV supply chain is also under development, its dispersed industrial layout, high labor costs, and inconsistent technical standards make it difficult to form a cluster effect comparable to China's. European automakers have to rely heavily on Chinese batteries, electric drive systems, and even intelligent cockpit solutions, further exacerbating their dependence on the Chinese supply chain.

Of course, the success of Chinese automakers in the European market stems not only from product strength but also from precise market strategies. Unlike the early impression of "low price, low quality" associated with Chinese manufacturing, the new generation of Chinese auto brands in Europe has adopted vastly different strategies, including localized service network construction, differentiated brand positioning, and culturally integrated brand storytelling. Together, these strategies have woven a vast industrial network that has successfully captured the European market, the cradle of the automotive industry.

02 Europe's Anxiety: Can Protectionism Reverse the Decline?

Faced with the strong rise of Chinese automobiles, the European auto industry is showing obvious signs of anxiety.

A recent report by the German Association of the Automotive Industry (VDA) shows that Europe's share of technical patents in the electric vehicle sector has dropped from 50% in 2015 to 35% in 2024, while China's share has risen from 15% to 40% during the same period. This data change directly reflects the shift in technological advantages.

Driven by anxiety, Europe's responses have shown two trends: on the one hand, some European companies are calling for stricter protectionist measures, such as the "Made in EU" label system (requiring over 80% localization rate for vehicles), attempting to protect the local industry through trade barriers; on the other hand, European automakers are also accelerating resource integration, with Renault's cooperation plan with Ford being a typical example, aiming to reduce R&D costs and speed up electrification through alliances.

However, protectionist measures may be a double-edged sword. Overly strict localization requirements will drive up production costs and weaken the price competitiveness of European electric vehicles; while alliances between companies can share costs, they also face challenges such as cultural integration and decision-making efficiency. More importantly, whether European consumers will pay higher prices to "protect the local industry" remains a huge question.

Overall, the emergence of a trade deficit in China-EU auto trade reflects the deep-seated trend of global NEV transformation. Behind this transformation lies the competition between two different industrial development paths.

The transformation path of the European auto industry is "gradual," gradually transitioning to electrification while retaining the advantages of traditional fuel vehicles. The advantage of this path is stability, but the drawback is a slower transformation speed and vulnerability to being held back by vested interest groups.

The path of China's auto industry, on the other hand, is "leapfrogging," using the NEV sector to achieve overtaking on bends against traditional automotive powers. This path carries higher risks, but once successful, it can establish entirely new industrial advantages and competitive barriers.

At a deeper level, the trade deficit in China-EU auto trade is a microcosm of the global supply chain's restructuring. The past global division of labor system, with developed countries at the core and developing countries at the periphery, is undergoing change. Through independent innovation and industrial upgrading, China is transforming from a "executor" to a "designer" and "leader" of the global supply chain. This transformation is not only happening in the automotive industry but also simultaneously in multiple high-tech fields such as semiconductors, artificial intelligence, and biotechnology.

However, the emergence of a trade deficit in China-EU auto trade does not mean the beginning of a zero-sum game but may instead foster a new balance of cooperation and competition. The electric and intelligent transformation of the global automotive industry requires huge R&D investments and market cultivation, which a single country or region cannot bear alone. The complementarity between China and Europe in the automotive industry still exists.

For example, Europe still holds advantages in automotive design, chassis tuning, and brand operation; while China leads in electrification technology, intelligent experience, and cost control. The potential for cooperation between the two sides far outweighs the space for confrontation. In fact, many European automakers have already engaged in in-depth cooperation with Chinese companies in areas such as battery technology and intelligent cockpits.

For China's auto industry, the emergence of a trade surplus is merely a new starting point, not an endpoint. Chinese automakers need to confront the challenges in the European market: stringent safety standards, complex cultural environments, and mature consumer preferences are all topics that Chinese brands need to learn and adapt to over the long term. At the same time, Chinese automakers also need to be wary of the risks of trade protectionism and achieve true globalization through localized production, technological cooperation, and other means.

The first-ever trade deficit in China-EU auto trade marks a historic moment in China's auto industry's journey from a "manufacturing giant" to a "manufacturing powerhouse." Behind this transformation lies the persistence and accumulation of Chinese companies in technological innovation and industrial upgrading over decades; it is the relentless pursuit of the "automotive power dream" by countless engineers, designers, and industrial workers.

The temporary predicament of the European auto industry reminds us that no industrial advantage is eternal. Only through continuous innovation and embracing change can one maintain vitality in the fierce global competition.

Therefore, for China's auto industry, today's achievements are worth being proud of, but the challenges ahead are equally daunting. Amidst the unprecedented transformation of the global automotive industry, Chinese automakers need to maintain strategic focus, adhere to open cooperation, and jointly promote the green and intelligent transformation of the automotive industry with global partners.

The rise of China's auto industry is transforming from a follower to a leader, and this is just the beginning of a new round of global industrial transformation.

Editor-in-charge: Du Yuxin Editor: Wang Yue

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