This Is a Knife Fight’: Inside China’s Ruthless EV Blitz Upending the World
China has so much excess capacity to manufacture inexpensive, feature-laden electric vehicles and hybrids that it threatens car companies—and car stocks—everywhere.
- China has massive auto overcapacity and can make roughly twice as many cars as it sells, leading to a global glut of inexpensive hybrids and EVs.
- The Chinese auto industry is plagued by overcapacity, brutal competition, and weak profits, with only a handful of Chinese auto makers turning a profit.
- To protect their domestic industries, European regulators will use quotas, tariffs, local sourcing requirements, joint ventures, and localization rules.
China is upending the global auto industry.
The country has so much excess capacity to manufacture inexpensive, feature-laden electric vehicles and hybrids that it threatens car companies—and car stocks—everywhere.
The numbers are astounding, and growing: China is exporting 10 million vehicles this year, up from one million in 2020—and it’s just getting started. With roughly 100 auto makers operating at just 50% capacity, China sees foreign markets as a solution to years of chronic overbuilding.
The result is that auto workers from Wolfsburg, Germany, to Detroit may ultimately get caught in the maelstrom as car makers ditch models, and factories reduce production or close plants altogether.
Investors face hazards of their own. European car makers look uninvestible, at least for now. The Japanese, export giants of the past, face intense competition. U.S. car companies face similar hazards, but stocks of some, and some auto suppliers, do have appeal. Among the most promising: onetime giant General Motors and Lear, a global maker of seats and electrical systems. Even with the industry set on its ear, cars everywhere will still need parts.
European auto makers face the strongest floodwaters. China’s share of European auto markets hit 10% in 2025, up from essentially zero in 2020. By 2030, that number could be closer to 17%. That’s why some European car companies are trading for as little as three or four times year-ahead earnings, versus 14 for the Stoxx Europe 600 index. They’re unlikely to improve anytime soon.
The outlook isn’t much better for Japanese car makers. They sell far more cars abroad than in Japan, pitting them against China more often. They aren’t winning. Chinese car makers recently started outselling Japanese brands in Europe.
The American market is in better shape because the domestic industry is protected for now from Chinese exports by tariffs and safety requirements. General Motors and Ford Motor also get most of their profits by selling big sport-utility vehicles and pickup trucks, whereas Chinese auto makers are focused on smaller vehicles.
With the still-healthy U.S. vehicle market the last best hope for non-Chinese car companies, everyone is focused on milking profits there. Volkswagen’s Audi just announced its first U.S. plant in Georgia.
The Chinese aren’t upending the world automotive industry with shoddy, low-end cars, but rather through excellence. Ford CEO Jim Farley’s 2025 trips to China were “the most humbling thing I’ve ever seen….Their cost, their quality [are] far superior to what I see in the West.”
Phone maker Xiaomi was once thought of as the Apple of China. But where Apple decided against moving into cars, Xiaomi put the pedal to the metal and started selling EVs in 2024. It sold some 430,000 over the past 12 months. That makes it bigger than Ford Motor in China and almost half the size of Tesla there.
Xiaomi’s SU7 EV Max looks a lot like a Porsche Taycan, can go from zero to 60 miles an hour in a sizzling 2.5 seconds, and has a longer range and better tech features than the German luxury sports sedan. It costs $45,000. That compares with $100,000 and $240,000 for various Taycan models, meaning that buyers are paying at least an extra $55,000 for Porsche’s prancing pony shield.
The SU7 has been devastating for Porsche. The German auto maker’s Chinese sales dropped by a third in the first half of 2026, leading to a $7 billion write-off at Volkswagen, Porsche’s main owner, and a restructuring plan at Porsche that contemplates cutting 25% of its workforce. Volkswagen is planning its own layoffs to compete.
For investors, meanwhile, Xiaomi’s market win has been anything but. Its Hong Kong–traded shares have dropped 32% in 2026, while sales, operating profits, profit margins, and earnings estimates have all declined.
Xiaomi’s problems are legion: Competition among the country’s EV makers is intense, and government subsidies have disappeared while costs and global protectionism have risen.
That has left Xiaomi shares trading at 19 times earnings expected over the coming 12 months, while the company is expected to grow earnings at an average annual rate of almost 30% for the coming three years. That doesn’t make Xiaomi stock a buy. Profit estimates are falling. Wall Street expects Xiaomi to generate about $4.8 billion in 2027 operating profit; a year ago, that estimate was $10.6 billion.
That’s the story of the Chinese auto market in a nutshell. The industry has grown from an afterthought to an international behemoth. It’s a sickly giant, though, lousy for investors, plagued by overcapacity, brutal competition, and weak profits, and in need of a restructuring that isn’t coming.
China’s impact is being felt everywhere. In 2025, Chinese cars captured 20% of the Australian market. Three in 10 new cars sold in Mexico originate from a Chinese-owned plant.
In Europe, a cap on imports imposed in October is looking like too little, too late. America could be next if its auto industry isn’t careful.
“This is a knife fight. This is a wild environment,” says AlixPartners global automotive market lead Mark Wakefield. “Chinese car makers grew up as Spartan warriors…born into violence from Day One.”
China has become the world’s largest new-passenger-vehicle market over the past two decades. Auto makers there sold roughly 30 million cars in 2025, as much as they sold in the U.S. and Europe combined. The Chinese cars are attractive, technologically advanced— and cheap. An all-electric BYD Song SUV with plenty of power, range, and advanced driving features costs roughly $25,000, almost 40% less than a comparable Tesla Model Y.
“The blow-your-mind-away moment is the number of cars that you see, and then you’re like, ‘Wait a second, that car costs this amount?’ ” says Barclays analyst Dan Levy.
China’s journey to global dominance began decades ago, when it offered foreign auto makers market access in exchange for technology. Auto makers could sell into a huge potential market, but only through a joint venture with a local company. Tesla was allowed to own its own electric-vehicle capacity, but China benefited by gaining a technologically advanced EV supplier base.
“Tesla gave them the blueprint,” adds Levy. Chinese auto makers make gasoline, hybrid, and all-electric cars. But the industry has leapfrogged Western companies by focusing on technologically advanced hybrid and electric cars.
Chinese auto makers develop new models in half the time it takes Western counterparts, and build their cars with low-cost labor at facilities supported by national and local government.
Chinese brands now account for roughly 70% of that nation’s domestic sales, up from 35% a decade ago. Western brands have gone from selling roughly 15 million cars a year in China to 10 million while the overall market grew 50%.
An investor might think that market swing has benefited Chinese auto makers’ stocks. It hasn’t. The five largest Chinese auto makers are worth a combined $130 billion. That’s roughly what Ford and General Motors are worth together, and a 12th of Tesla’s market capitalization.
The problem is basic economics. China has massive overcapacity. It can make roughly twice as many cars as it sells. That is a disaster in high-fixed-cost manufacturing industries, says Wakefield. No surprise, then, that only a handful of Chinese auto makers turn a profit, and the ones that do, such as BYD, are less profitable than GM.
The solution to China’s dilemma is obvious: Cut capacity. That isn’t likely to happen. Capacity and jobs matter too much to local governments. That leaves China looking to export markets to fix its capacity problems. The 10 million vehicles it will export this year is a big number. The entire global light-vehicle market is roughly 80 million to 90 million units annually.
European regulators will protect the domestic industry with a mix of ever-strengthening quotas, tariffs, local sourcing requirements, joint ventures, and localization rules. That will give European auto stocks some relief. But Volkswagen and its peers are just starting their restructuring journeys, says Citi analyst Mike Ward, a process that America essentially completed during the 2008-09 financial crisis, culminating in the bankruptcy of both GM and Chrysler.
European auto makers fetch valuations that reflect these challenges. Volkswagen stock trades for 3.5 times earnings, Stellantis trades for four times earnings, and BMW trades for seven times. Even so, they probably aren’t worth buying in the early days of a massive restructuring.
Chinese auto makers will arrive some day in the U.S. President Donald Trump said as much in January, announcing, “Let them come,” at an event in Detroit.
To truly penetrate the U.S. market, Chinese auto makers must build American plants and distribution networks and staff them with American workers. That will take years.
For now, a bevy of barriers keeps the Chinese out. Tariffs on imported Chinese vehicles are essentially 100%. The Commerce Department’s connected vehicle rule also bans Chinese software.
Another barrier is safety. European and Chinese rules assume that a passenger is wearing a seat belt when an air bag goes off. American rules don’t. That means the air bag in an American vehicle needs to be bigger and more costly.
But relying on protectionist laws and big SUVs and pickups isn’t a long-term strategic plan. Ford and GM need to keep lowering costs. Ford is trying to do that in Europe, forming a joint venture with Chinese auto maker Geely. The deal improves Ford’s capacity utilization, while Geely gets local manufacturing.
American auto makers also need to build cheaper EVs. U.S. sales of all-electric cars plummeted after the $7,500 federal purchase tax credit expired in September 2025. But EV sales are expected to double by the end of the decade, and including hybrid, electrified vehicles could make up almost half of all new cars sold then.
Younger car buyers in the U.S. are also more apt to go electric. And the Chinese, when they come, will do so with an array of hybrid and electric vehicles that cost less and offer more features.
U.S. car makers know full well that they have to improve before that happens. Ford’s Universal Electric Vehicle platform is designed to produce an all-electric midsize truck for $30,000 that will hit the market in 2027. GM’s fourth-generation EVs will use new battery chemistries and fewer drive-unit parts to lower costs in 2028. It recently announced plans to build hybrid electric vehicles in Lansing, Mich.
GM also plans to cut new-car development time in half, partly by using artificial intelligence. “The faster we can iterate, the better your car will get,” says GM Chief Product Officer Sterling Anderson.
Lower-priced cars represent the ultimate protection from China. The average price for a new car in the U.S. is $50,562, according to automotive data provider Kelley Blue Book, up about $13,000 from prepandemic levels. The average EV price is $55,879. If new-car buyers are to consider a domestic electric, there must be more affordable options.
Ford and GM remain investible today in a way their European and Chinese counterparts just aren’t. Of the two, GM looks like the better bet right now because of how it allocates capital.
Since Paul Jacobson became chief financial officer in late 2020, GM has repurchased some $30 billion in stock. Shares outstanding have fallen from 1.4 billion to less than 850 million—and more buybacks are coming. The auto maker is doing it without adding any debt. GM has consistently generated $10 billion or more in annual free cash flow in recent years.
Buying back stock makes perfect sense, given GM’s combination of low valuation and strong free cash flow. It’s expected to generate cash flow of $11 billion in 2027. That would purchase about 130 million shares at current levels. Retiring that stock would drive 18% earnings-per-share growth in 2027 even if net income was flat.
GM also reports roughly $87 billion in plants and equipment on its books. The entire company, adjusting for debt and the financing company, is valued at about $55 billion. It’s as if GM is buying its car capacity—forgetting all of its other assets—for 60 cents on the dollar. Anyone building a new-car plant in the U.S. won’t get that discount.
Ford isn’t likely to pursue a similar buyback path. Dual-class voting shares and Ford family ownership mean that the company prefers dividends to buying back shares. Currently, the stock yields 5.1%.
Parts companies, in theory, should be agnostic to who sells the cars as long as they supply everyone.
Investors still need to be careful. Take Aptiv, which supplies safety and electronics systems. Its parts are in more than half of the top 20 cars in China. That didn’t stop a 17% drop after the company reported second-quarter earnings. A weakening Chinese market affected production schedules for all car companies, and Europeans are exporting fewer vehicles to China.
Power and data-connection company TE Connectivity avoided an Aptiv-like outcome, growing its calendar-year third-quarter car business 6%. TE, which makes high-voltage cables for EVs, serves other industries including data centers, which is a tailwind for growth, according to Baird analyst Luke Junk. He rates shares Outperform and has a $250 price target, up 12% from recent levels.
A favorite parts stock of Citi’s Ward is Lear. He rates shares Buy and has a $179 price target, up more than 50% from recent levels. “They stick to their knitting,” says Ward. “They make seats and generate cash.”
Like GM, Lear consistently buys its own stock. Shares outstanding dropped from 58.7 million to 49.3 million over the past three years. Free cash flow in 2027 is expected to be $600 million, about 10% of Lear’s market value. The S&P 500 index free-cash-flow yield is closer to 4%.
Picking car stock winners won’t be easy. The storm is just beginning. American, European, and Japanese car makers need to up their game to escape the floodwaters.
