The problem for the US and, more particularly, European carmakers is that demand for their internal combustion cars in China is diminishing. Their own EVs don’t compete with China’s on price and quality. China’s global EV market share is estimated at 76 per cent and rising, and imposing significant and increasing stress on the global auto industry.

China started developing a conventional domestic auto industry in the 1990s, authorising joint ventures with the big US and European car companies to get access to their technology.

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GM has been operating in China since 1997. It soon realised that it had no competitive edge against an established and sophisticated sector in that market and took the bold step of leap-frogging its existing technology with an all-in bet on EVs.

Using substantial subsidies – probably close to $375 billion over the past decade or so – and mandating electric vehicle use by government agencies and businesses, China has developed an industry that leverages both the size of its domestic market and its dominance of the supply chains for EVs, particularly the minerals needed for their batteries. It helped that Tesla, whose Shanghai Gigafactory is its largest production facility, shared its intellectual property.

There was a mad scramble by Chinese companies to conform to the government’s wishes and get access to the subsidies. Hundreds of companies, from property developers to telcos, added an EV manufacturing start-up to their operations. Even today, there are still more than 50 Chinese EV manufacturers.

That meant significant overcapacity, price discounting, intense competition and some consolidation. However, it has produced a very efficient and innovative industry with a cost advantage estimated at between 25 and 30 per cent over non-Chinese competitors, a leading edge in car technology and a charging infrastructure that is far more ubiquitous than anywhere else.

The charging infrastructure also helps generate China’s EV take-up, while its absence in other countries impedes EV purchases and the development of domestic EV industries with the scale and economics of scale to compete with the Chinese.

The US industry has sheltered behind its tariff walls – the Biden administration slapped a 100 per cent tariff on Chinese EVs and has shut access to American EV incentives for cars with Chinese components – so the more open European market is bearing the initial brunt of the Chinese assault on the global industry.

Even though Europe has imposed tariffs of up to 35 per cent on Chinese EVs, citing the government subsidies and overcapacity in China, the cost advantage the Chinese auto companies have over the Europeans is such that, even with the tariffs, they can still generate far larger profit margins in Europe than in their home market.

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Europe’s carmakers were historically geared towards exports, but the impact of initially the pandemic on their supply chains and inflation, and then the war in Ukraine on their energy costs – a particular problem for German companies – has seen the costs of their vehicles rise significantly in Europe’s weak economies.

Their former Chinese profit centres are no longer as profitable, if profitable at all; they are facing tariffs on their exports from Europe to the US once Donald Trump is in the White House and, from next year, they will face European Union limits on their carbon emissions or pay hefty fines.

The demand for internal combustion-powered autos from European consumers, who have been battered by inflation and meagre economic growth, is weak – about 20 per cent below pre-pandemic levels – and some of that demand is being absorbed by the Chinese companies that can significantly undercut the price of European EVs and offer better technology as well.

It’s little wonder that the industry is in crisis, with not just Volkswagen but Ford’s European business Stellantis, Mercedes-Benz, BMW, and their suppliers all experiencing lower profits and contemplating plant closures and job losses.

Even with their tariff walls, the US carmakers are being hit, withdrawing from their once extensive international operations and shifting their focus away from smaller vehicles to larger cars, especially SUVs and commercial vehicles. Despite the tariffs, Ford’s chief executive, Jim Farley, has described China’s EV industry as an “existential threat” to the US car industry.

The US carmakers also face the risk that Trump might actually follow through on his threat to impose 25 per cent tariffs on Mexico and Canada if they don’t act to stop the flow of illegal immigrants and the smuggling of fentanyl into the US.

Given the extent to which the US industry is now integrated with the Mexican and Canadian industries and their component suppliers, that would cause chaos for the American companies.

There is no relief in sight. China has such scale and cost advantages in EVs and such dominance of their supply chains that even Tesla is conceding that it is too hard to compete in the lower-priced segments and is focused on pursuing Elon Musk’s autonomous vehicle ambitions.

For the legacy car manufacturers in the US and Europe that have dominated the industry since its inception, 2024 has been a horrible year. It may be a watershed year, with worse to come, given the big structural advantages the Chinese companies have developed in 21st-century technologies over an industry geared to those of the last century.

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