Why the Chinese will never take over the auto industry

Once out of China, they lose all of their advantages.

4w ago

T​he Current Chinese Auto Industry

W​e have heard from countless sources that China is going to take over the auto industry. They seem poised to do it too. In 2020, China manufacutered over 25 million cars. That is more than the US, Japan, South Korea and Germany combined. The combination of lackluster labor laws and a crazy high import tax on foreign vehicles gives Chinese automakers a significant leg up in serving the nearly 1.5 billion people that live in China. China taxes all new car imports between 25-47%, and then charges a 17% VAT on top of that. That means that your 50k Range Rover now costs over 80k, and that similar car from a Chinese maker is looking a lot nicer. In fact, it looks just like the Range Rover you wanted. H​owever, this blatant disregard for intellectual property and insane tax on foreign cars will prevent these automakers from ever expanding out of the Chinese market.

T​he Landwind X7. The body of a Range Rover with the name of a BMW

T​he Landwind X7. The body of a Range Rover with the name of a BMW

H​ow they shot themselves in the foot.

N​early every major automaker has sued a Chinese company for violating their intellectual property rights at some point in the last 20 years. However, Chinese courts have nearly always sided with the Chinese companies, preventing the automakers from obtaining proper compensation for the theft of their designs or technology. However, these firms lack of original designs make it impossible for them to ever export their cars outside of China. That is because for many of the cases that foriegn automakers brought to Chinese court, the reasoning was that the brand or car that was stolen was "not a distinctive brand in China" that requires protection. However, that excuse does not apply in the rest of the world. In countries with sound legal systems, the courts could force these Chinese companies to fairly compensate the owners of the intellectual property or make them stop importing those cars altogether.

In 2020, Elon Musk sued the Chinese automaker Xpeng for allegedly stealing Tesla's autopilot source code. One of his former employees admitted to uploading Tesla's autopilot source code to his iCloud account, and this is where Tesla believes that Xpeng got it. While Elon is probably out of luck of recouping anything from the Chinese courts, if Xpeng ever tried to sell a car in the US, Tesla would be able to find out if the source code is the same or similar enough to prove it was stolen through discovery (a legal process where they basically get to look through everything), and then Xpeng would be back to square 1 in terms of building a self driving car, with their reputation ruined forever.

T​he next problem that Chinese cars will have is the stigma around Chinese goods will cripple the Chinese auto industry. People, as a general rule, avoid buying cars with reputations of being unreliable. You can't suggest a Alfa Romeo or a Jaguar to someone without them saying "but its going to break down all the time". Chinese goods have a reputation of being cheap, hastily assembled, and not long lasting. People's preconceived notions about the quality of Chinese products, true or not, will slow the adoption of Chinese cars across the world.

F​inally, we have all heard about a "trade war with China", but don't worry, I'm not going to get political. However, no matter the administration, the US and most other countries would not allow their cars to be taxed at such a high rate without similar taxes being put on Chinese cars. This would increase the price of Chinese cars to be comparable to cars from other countries. The lack of a price gulf combined with peoples belief about Chinese goods will make adoption nearly impossible.

W​hy it may not matter

W​while everyone thinks that China is attempting to break into the global market, I'm not sure they need or want to. China has a larger population than North America and Europe combined, so Chinese firms may decide that the costs and difficulty of exporting cars is too great. They can still be immensely profitable and large companies without those two markets, and they don't have to deal with the legal trouble of exporting.

W​hat do you think? Would you ever buy a Chinese car? Or is the supremacy and legacy of the current automakers too strong for Chinese companies to overcome?

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Comments (5)

  • No offense to the people of China, but they are pathetic at making cars. Half of them are stolen designs, and the other half are just plain bad.

      1 month ago
  • reputations change. Look at Japan.

    What China is doing is steeling IP. Once they get up and running, and build sufficient funds on the domestic market, nothing prevents them from making different models (using stolen tech) for export. Models that will look different enough so they won't be challenged.

    For example, China already sells cars to parts of Asia and Russia. US and EU automakers already largely left Russia. I don't see that as "China shot themselves in the foot".

    Being a one-party state, they are able to play a strategic game with a long horizon. They know exactly what they're doing. The faster the West wakes up the better.

      1 month ago
  • Agreed. The free market always will decide the winners and losers.

      1 month ago
  • Even good chinese cars have foreign input to it's development, take the NIO ES8, brilliant car but co-developed with Bosch and powertrain developed by TATA, and as much as people like calling MGs Chinese cars, they are still primarily developed and designed in the UK which basically still makes them British, they should really learn to become independent if they want to dominate the auto industry and that added to what you typed makes it really difficult for them to do so.

      1 month ago