The Wheel Reverses: How China Dropped Western Cars

In 2021, Porsche was at its peak and Volkswagen reigned supreme in China. Four years on, the German car industry's biggest market turned its back: Chinese buyers are defecting to domestic brands in droves. BYD overtook VW, Xiaomi sold 410,000 cars in a single year, and Western brands' market share crashed to historic lows — near the 30% mark. What happened? And why is the world's largest EV maker heading to Szeged, a city in southern Hungary?

1. The numbers do not lie: the collapse of Western brands

2024 was a watershed for the Western car industry in China. Porsche, which in 2021 sold 95,671 cars in China — its biggest market worldwide — managed just 56,887 units in 2024. That is a 28% collapse in a single year, and the third straight year of decline (CnEVPost, 2025-01-13). In 2025, the slide continued: Porsche sold just 42,000 cars in China, a 26% drop year on year and almost 60% down on the 2021 peak (Yicai Global, 2026-01-19).

Porsche was far from alone. Mercedes-Benz sales fell by 27% in China in Q3 2025, to 125,100 units (CBT News, 2025-10-08). Across 2025 as a whole, Mercedes sales in China were down 19% (RTE, 2026-01-16). BMW took a 13.4% hit in China in 2024, and sales fell another 17.2% in the first quarter of 2025 (AA.com.tr, 2025-04-10).

2. The Chinese resurgence: BYD, Xiaomi and the rest

While Western brands were on the back foot, Chinese manufacturers charged ahead. The biggest winner was BYD (Build Your Dreams) — a company that did not even make China's top ten carmakers in 2020, yet by 2024 overtook the Volkswagen Group as the country's biggest seller (Automobility, 2025-01-22).

BYD sold 3,484,525 passenger cars in China in 2025, grabbing a 27.2% share of the NEV market — more than twice the share of its nearest rival (CnEVPost, 2026-01-12).

"[Chinese manufacturers'] products are more competitive and more affordable, even in the premium segment. That is why these foreign brands are slowly losing steam."

— Paul Gong, head of China auto research at UBS (AP/Yahoo Finance, 2025-12-14)

Xiaomi — yes, the Chinese tech giant best known for phones — delivered its first car, the SU7 saloon, in April 2024. Nine months later, it had already delivered 136,854 vehicles; in 2025 it broke through 410,000 (Electrive, 2026-01-05).

3. Why did this happen? Technology, price and the information problem

The Western carmakers' rout in China is not down to a single cause, but to a convergence of mutually reinforcing factors. Here are the three that matter most.

First, the technology shift. Chinese consumers today are no longer simply buying a "car" — they want a "smartphone on wheels". Chinese EVs come with the latest self-driving systems, giant touchscreens, AI voice assistants and smart-device integration.

Second, the price war. Chinese manufacturers offer comparable or better technology at far lower prices. The Chinese government gives NEV buyers a 20,000-yuan (roughly $2,800) trade-in subsidy, and that support represents a proportionally larger saving on cheaper, Chinese-made models (AP/Yahoo Finance, 2025-12-14).

Third, the machinery of state support. The Chinese EV industry's success would have been unimaginable without government subsidies. For decades, Beijing backed domestic manufacturers with free land, near-unlimited cheap state credit, and battery R&D grants. BYD, for example, started as a battery maker in 2003 and, on the back of government support, built one of the world's biggest fully vertically integrated EV ecosystems. It was precisely these market-distorting subsidies that prompted the EU to impose countervailing duties on Chinese cars — a topic later instalments will explore in more detail. Western manufacturers were not merely behind on technology or market nous; they were competing in a game where a slice of the rival's state budget was directly subsidising its production.

4. The complications: is it really just nationalism?

One of the most common explanations for the upheaval in the Chinese car market is consumer nationalism. That is not entirely wrong, but nuance is everything.

There is indeed a strong guochao (国潮, or "national tide") trend in China — a wave of pride in and preference for domestic brands. By 2024, domestic brands had grabbed a 76% share of the FMCG market — up from a far lower level a decade earlier (Bain & Company – Kantar Worldpanel: China Shopper Report 2025).

But nationalism alone does not explain why millions of Chinese consumers pick BYD or Xiaomi over Porsche. The decisive factors are value for money and technological superiority. In this context, consumer nationalism is more of an accelerant than the primary driver.

That reading is borne out by Tesla — an American company — still ranking fifth in the Chinese NEV market on 4.9% (CnEVPost, 2026-01-12).

5. What does this mean for Europe and Hungary?

The Chinese car industry's European offensive is taking its most tangible form in Hungary at BYD's Szeged plant. The 300-hectare, €4–5 billion investment is the largest industrial investment in Hungary's history, and will create 8,000–10,000 new jobs (Hungary Today, 2025-02-18). The investment is not without controversy, however: pressure on local infrastructure, the working conditions of Asian guest workers brought in for construction, and the opacity of the subcontracting chain have all made repeated headlines in Hungary and internationally. These issues carry not just ethical weight but business risk — BYD's reputation in Europe hinges partly on how it handles them.

The Chinese car industry's European offensive is a comprehensive strategic challenge for European carmakers. The market-share losses Western brands have suffered in China will be felt in Europe too. Chinese manufacturers — now armed with local production capacity — are entering the European market with lower costs, more advanced technology and aggressive pricing.