Western automakers will battle China’s domestic rivals this week, launching new software and intelligence features on vehicles produced with local partners as they attempt to make a comeback in the world’s largest automotive market.
This year, the country’s annual car show in Shanghai offers the first real test of the overhauled strategy. Volkswagen, Toyota and others have adopted the “China for China” play to bring back consumers who have moved from home-made brands to more affordable, high-tech packaged electric vehicles.
Mercedes-Benz launched its electric CLA model in China later this year, an operating system whose central “brain” was developed alongside a local research and development team. This car improves driving range and charging speed, and improves higher autonomy.
“We are now very confident in our technology and intelligence,” said Magnus Östberg, chief software officer at Mercedes, in an interview.
“It’s going to be a battle of numbers — it has the longest range,” Östberg said. “But I think we’re very, very solid and will be in the front row in competition with the CLA.”
Rival BMW will launch a Neue Klasse electric vehicle produced in China starting next year, with the involvement of local R&D and design teams and local technology partners Alibaba and Huawei.
Li Yanwei, a member of the China Automotive Dealer Association’s expert committee, said:
Their market share in China was 31% in the first two months of the year, less than half of the 64% they held in 2020, and according to a consulting vehicle in Shanghai, Geely and BYD have overtaken Volkswagen’s longtime position as a bestselling brand.
Sales of electric vehicles and plug-in hybrids account for 45% of new vehicle sales in China.
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While some Western automotive executives have admitted that it is unlikely to regain control in China, automakers are keen to rebuild their position, especially as the escalating economic war between Beijing and Washington puts more pressure on the industry.
To this end, many people are turning to partnerships with Chinese companies, absorbing their technological know-how and responding more quickly to Chinese consumers. It reflects strategies learned from Western rivals in the 1980s.
For example, Audi displays the first production model of the new China-only sub-brand without the iconic 4-ring logo. The model uses a vehicle platform developed jointly with Chinese partner SAIC, targeting young local consumers. The company also has 18 other models on the trade show.
“Last year we took important steps to ensure future success in China,” Audi CEO Gernot Döllner said in a statement. “In Shanghai, 2025, we show Audi will deliver in China.”
UBS auto analyst Paul Gong said it will be used to serve as a sales channel for models created by foreign automakers, including joint ventures with global automakers and their Chinese partners. But now, “there are more and more cases where Chinese automakers offer model designs,” he said.
Examples include the Mazda EZ-6, an electric sedan built on partner Changan’s own development powertrain architecture, and the Toyota BZ3X, a $15,000 electric SUV developed using China’s state-run GAC EV platform, sharing more than 40% of GAC’s AION V models and components.
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Toyota (particularly the luxury Lexus brand) has earned 1.8 million Chinese sales in 2024, falling only 8% from its peak in 2021.
Still, the world’s largest automaker has entrusted far more power to Chief Engineers in China’s region, increasing local R&D resources, and leaning even further towards joint venture partners FAW and GAC.
“The Japanese will be Chinese people who make cars for Chinese people, not Chinese,” Chief Financial Officer Miyazaki Yoazaki said in November. “We want to take it a step further in that direction. There’s a car like that and we can show people in about two or three years.”
Before this week’s show, Toyota’s Chinese division said that Japanese parents will be able to pursue “Chinese thinking using Chinese thinking through the Chinese mindset.”
One area where Toyota maintains stronger control in China is using the Lexus brand. In February, the company announced plans to build a battery and EV factory in Shanghai to produce a Lexus model. It is China’s third site and is entirely owned by a foreign automaker.
