Chinese EV Market – a chance for German automotive suppliers?

Original article by Valeria Gampert

The market for electric vehicles in China is both incredibly big and still growing. While this might not be a surprise to most people in the West, the number of different manufacturers is far greater than most will expect. The Top 10 Selling Electric Vehicles in China in January to May 2025 do contain world-famous brands like BYD and Tesla, but also names that are far lesser known in the West, like Geely, Wuling, Xiaomi and Li Auto.

Electric car market in China – Trends and Turmoil

The entire EV market in China is estimated to be around USD 357 billion in 2025 and expected to reach USD 788 billion by the year 2030, thus more than doubling in the span of five years. In comparison, the German EV market size is expected to reach only USD 52 billion in 2025. The growth of the Chinese EV market was built upon direct subsidies in the past but with the end of most of these programs by the Chinese government, the growth is expected to be generated by other sources.

While these new sources are being explored and developed, a heavy price war has broken out in Chinese EV market with only 4 of approximately 129 EV-only brands turning a profit in 2024, although some more might start to make profits this year. Experts expect a consolidation in the EV market down to around 15 companies by 2030 with most not being able to survive the hard competition and diminishing prices.

A new kind of customer

While it is true that most direct EV subsidy programs were first heavily reduced and ultimately ended in the last few years, the purchase tax exemption for New Energy Vehicles of up to 30,000 yuan (about USD 4,178) until end of this year and up to 15,000 yuan until 2027 remains in place, cushioning the transition period after the subsidies ended. These tax exemptions allow one of the greatest untapped customer bases to enter the EV market in force, the Tier 2 and 3 city and rural populations, especially in the west and north-east of China. These customers are very price sensitive, reacting highly positive to both cost savings from tax exemption as well as the falling battery prices creating cost parities between small EV and ICE (internal combustion engine) cars.

Additionally, the push for expanding the network of charging stations around the nation makes an EV purchase increasingly feasible for more and more people. As of 2022, 57% of chargers remained concentrated in 15 cities, but the increase of charging stations especially in the western and more rural regions could make EVs more competitive in the eyes of potential customers there. Thus, both the private sector as well as the government increasingly invest in the development of charging stations outside of the major cities. But China is large and even while installing more charging stations than the rest of the world combined, the countryside and lower-tier city will only slowly gain sufficient coverage in the next few years, making the adoption of EVs outside the tier-1 cities a slower but steady process.

Nevertheless, this customer base, price-sensitive but very large and mostly untapped, is a driving factor for the entire Chinese EV market growth, with cheap plugin vehicles like the BYD Qin-L dominating, fulfilling both price as well as reach needs.

The woes and wins of German car brands in China

With such a growing but price sensitive new customer base and an ever-increasing competition in the luxury segment, it is not surprising that German car manufacturers are struggling in the Chinese EV market, being outpriced and in some technologies outclassed by Chinese brands. Steadily losing both market share and profit in what is not only the largest automobile market in the world, but to many of them, also their most important market.

But it is not all doom and gloom for German car manufacturing in China. The ID. series from Volkswagens joint venture with SAIC was the best-selling EV among all foreign-Chinese joint ventures in China in 2024, selling more than 130,000 cars, which marks a year-on-year increase of 23.8%. While this was less than the overall EV sales increase of 25% according to the China Association of Automobile Manufacturers (CAAM), leading to a loss of overall market share even for the bestselling German EV series, it does show, that there still is a huge growth potential for German car manufacturers in the EV market, if they can keep the prices low and the technology on par. With prices starting at 17,800 USD, the ID. series are not the cheapest EVs in their segment but still competitive and with a focus on implementing and improving new technologies, the ID. series may very well remain a success story. Volkswagen and SAIC seemingly agree, announcing several new models for 2026.

Trouble down the line – The situation of the automotive supply industry

However, with the general struggles of the big German car manufacturers in China, also came the problems for German automotive suppliers. Mainly a loss in global market shares from 26% 10 years ago to 23% now, while individual suppliers faced much deeper losses. The winners are clearly Chinese automotive suppliers, growing from essentially non-existent just 20 years ago to a market share of 12% last year and being the main benefiters of last years slight global automotive suppliers’ revenue increase from 1.14 trillion euros to 1.15 trillion euros in an otherwise very stagnant market.

The reason for the struggles of the German suppliers seems obvious, their main customer, German car manufacturers are suffering a crisis and bringing their problems unto their suppliers. The dependance of German suppliers on German car maker is high and in the context of the Chinese market even more so. In a recent poll of German suppliers only 18% sold to Chinese car makers at all.

A new chance with new partners?

With the Chinese EV market said to double in the next five years and Chinese car brands continuing to gain global market shares, German automotive suppliers might need to overthink their relationship with Chinese car manufacturers, finding new customers in a quickly changing market. It will not be easy to satisfy the increasing demand for ever faster innovations by the Chinese consumer base and many suppliers have to regain past flexibility and speed, as well as a certain amount of risk-tolerance inherent to the Chinese market to compete, but it might just be essential to the future of many suppliers. After all the Chinese EV market is expected to grow rapidly and regaining shares in this market will just be getting harder with time. There are however already some success stories from German suppliers, for example several German companies supplied parts for the Xiaomi SU7, the car that took Chinese social media by storm, including Bosch, ZF and Schaeffler.

The opportunities for suppliers undoubtedly remain, they just must be realized. Partnerships with Chinese firms, allowing German companies to catch up in certain key technologies, “in China, for China” concepts with local design, development and production centers, which are better suited to create products tailored to Chinese tastes as well as a strong focus on new technologies, which are far more in demand among Chinese car-buyers and thus Chinese car manufacturers than European ones, are not only strategies that might help German car brands navigate the hard Chinese market, but might also allow German suppliers to deepen business relations with Chinese car manufacturers and grow with them. Partnerships and Joined Ventures allow Chinese and German Companies to innovate together, profiting from each other’s expertise instead of racing against one another, but it also provides German manufacturers with more understanding of the Chinese business world as well as contacts with both new customers as well as suppliers and thus creating a better groundwork for success.

Finding their way into the Chinese EV market this way may provide them the demand they are missing from their traditional customers, the big German car manufacturers. A chance to reduce risk by diversification and an opportunity to profit more actively from the biggest automobile market in the world at the same time.

But there might also be an additional option.

An opportunity born out of a bad situation

The amount of innovative EV designs, technologies and brands in China is incredible, but so is the sheer number of EV manufacturers competing in an increasingly hard market, trying to retain their razor-thin margins in an escalating price war. This situation is unsustainable, particularly following the end of government subsidies.

Market consolidation is unavoidable in the next few years and it shouldn’t be too surprising to witness even larger EV companies declaring bankruptcies, carve-outs or mergers, especially given that the current tariffs on Chinese EVs in many of the world’s biggest economies effectively close them to Chinese car manufacturers. This sweeping restructuring of the Chinese EV market might very well cause a great number of patents, intellectual property, technology and production capability to become available to purchase.

If prepared for such an event, German automotive suppliers might be able to capitalize on the current problems facing the automobile industry as a whole. It most likely will not be easy to compete with domestic companies in the acquisition of these assets, but for properly prepared foreign companies this should be quite possible.

The innovations and new technologies developed by Chinese EV companies might make this strategy quite worthwhile. The next few years are very likely to significantly change the face of the EV market and the automobile market as a whole and perhaps the German car industry may be able to buy their way back onto the winning lane.