'It's Europe vs China' as Chinese brands crowd Munich car show

 

Chinese and European carmakers are set to face off at next week's Munich car show, reflecting intensifying competition on the continent that has pitted incumbents such as Volkswagen against EV giant BYD and newcomers GAC and Changan.

This year's IAA Mobility, the continent's biggest biennial car show, comes as European automakers lose ground in China - the world's biggest market - in what some executives have described as a "Darwinian" price war.

At the same time, to escape pressure at home, Chinese automakers are expanding into Europe in search of profits. Above all, electric vehicle maker BYD (002594.SZ), opens a new tab, whose global sales soared to 4.2 million cars in 2024, up tenfold from 2019.

"It's Europe versus China," said Pedro Pacheco, vice president of research at Gartner. "The Chinese are trying to grow in Europe while the Europeans are trying to push back on EVs and software."

BYD will be joined in Munich by fellow Chinese brands Changan (000625.SZ), opens new tab, GAC (601238.SS), opens new tab and FAW's Hongqi brand, among others.

"China is not only back, but more present than ever," said Jan Heckman, divisional head at German auto lobby VDA, adding this year's IAA will have 40% more Chinese exhibitors compared to 2023.

According to JATO Dynamics, Chinese brands almost doubled their European market share to 4.8% between January and July 2025 year-on-year.

McKinsey estimates they could eventually match the share currently held by Japanese and Korean automakers, which stood at 14% and 9%, respectively.

New passenger car registrations show that Chinese carmakers nearly doubled their market share between January and July 2025 compared with the previous year.

TRADE WAR PUTS FOCUS ON EUROPE

Growth has come despite recently imposed EU tariffs on Chinese-made EVs.

"Tariffs will not stop the Chinese," said Xing Zhou, partner at consultancy AlixPartners. "As the USA is not accessible for political reasons, Europe is all that's left."

Hongqi, once favoured by Chairman Mao Zedong, will unveil its EHS5, EHS7, and EHS9 models and outline a European strategy.

Chery (CHERY.UL), China's top car exporter, will launch its Omoda and Jaecoo brands in Germany, while BYD will showcase its premium Denza brand and the Seal 6 DM-i Touring plug-in hybrid sedan.

Through July, BYD's European sales jumped 290% to more than 84,000 cars. Recent weak sales in China and production declines add additional pressure to grow faster in Europe.

Europe's automakers, including Mercedes-Benz (MBGn.DE), opens new tab, BMW (BMWG.DE), opens new tab and Renault (RENA.PA), opens new tab, are preparing a robust response.

"From a product perspective, this year's IAA is much more important for European and German automakers than it was two or four years ago," said Harald Deubener, senior partner at McKinsey.

BMW will debut its iX3 SUV, the first in its Neue Klasse EV lineup. Renault will launch the Clio 6 and Mercedes-Benz will present the GLC, the first in a new generation of EVs.

Volkswagen will launch its compact hatchback ID.Polo EV, which should start below 25,000 euros ($29,267) in 2026.

"What is particularly important is that it is not just niche models that are being presented, but genuine volume drivers," Deubener said.

Phil Dunne, a managing director at consultancy Stax, said European automakers have been slow to respond to the Chinese challenge.

"Western manufacturers have been a bit too complacent," he said. "They'll just have to get used to life with a smaller market share because the Chinese are here to stay."

It’s easy to be gloomy about European automakers facing intense competition from technologically sophisticated and lower-cost rivals like BYD Co. and Xiaomi Corp. But at least one Western manufacturer is aiming to convince customers and investors it can compete with the best that China or Tesla Inc. offer — and I reckon BMW AG might have found a sweet spot.

On Friday, the German automaker unveils the electric iX3 sport utility vehicle. Car launches are generally overhyped and quickly forgotten, but this one matters: It showcases the advanced hardware and software that will underpin future BMW models, both battery-driven and gasoline-powered.

Dubbed Neue Klasse, in homage to the mid-range models that saved BMW from financial ruin in the 1960s, its new technological building blocks will enable greater battery driving range, faster charging, and a much better user experience. The company says the iX3 can be driven as far as 800 kilometers (500 miles) before plugging in; a 10-minute charge delivers a range of more than 350km.

Representing more than €10 billion ($11.7 billion) of investment and around five years in the making, BMW’s big reset looks to have been well calibrated for an era when autos are evaluated more for their software chops than horsepower.

Motoring journalists, who already tested prototypes, have been impressed by the responsive driving dynamics and futuristic cabin — instead of the usual instrument cluster, a panoramic display stretches across the entire windscreen.

BMW also appears to have adopted a cleaner exterior design language: There’s no sign of the hideously oversized grilles that blighted some recent models, thank goodness.

It’s rare for BMW to make such a big splash; the company prioritizes long-term thinking while its executives try to avoid controversy or theatrics. Almost half of BMW’s shares are controlled by the billionaire Quandt family, whose calmness and low profile couldn’t be more different than Elon Musk’s grandstanding; his outlandish promises and ever-evolving Master Plans fuel Tesla’s stock price while BMW remains overlooked by many investors and occasionally scorned.

The Munich-based company was criticized a few years ago for refusing to join the stampede for EVs even as European rivals were vowing to go all-electric by the end of the decade. BMW’s management insisted that providing customers with a choice of electric, hybrid, gasoline, or hydrogen-powered vehicles would be essential for years to come because the transition would happen gradually and at different speeds globally. BMW learned this lesson the hard way: It was an early leader in EVs, but demand for its quirky i3 hatchback, launched in 2013, proved disappointing.

Its factories were duly equipped to produce several powertrain variants on the same production line, while its current EVs are styled to look similar to their combustion engine equivalents to avoid putting off customers. “A dependency on a single technology can be damaging to an industry,” Chief Executive Officer Oliver Zipse told investors in July. “Putting all your eggs in one basket is just poor asset allocation.”

BMW’s stubbornness has been proven right: While Mercedes-Benz Group AG, Porsche AG, and Volvo Car AB have watered down their electrification ambitions amid several high-profile EV flops, BMW has stuck to its philosophy of technological openness and continues to expect EVs to contribute more than 50% of its sales in 2030.

It now offers EVs in all key segments, and these have proven a hit — even before the arrival of the latest Neue Klasse tech. In the first half of this year, EVs made up one-quarter of BMW’s deliveries in Europe, where its battery-powered models were outsold only by Volkswagen AG and Tesla.

Following a Slow Start, BMW's Electric Vehicles Have Become a Hit

As a share of total deliveries BMW sold more EVs than German rivals last year

Source: Bernstein Research

Note: Porsche's EV sales share has since increased following the launch of the electric Macan

Admittedly, BMW is struggling in China, where it’s downsizing its dealer network following a loss of market share. It’s also facing a financial hit from US tariffs, albeit one it can offset by exporting vehicles more cheaply from its US factory to Europe (as these are expected to be subject to zero tariffs instead of 10%)

Nevertheless, BMW has coped far better with these headaches than some of its peers. While Porsche has repeatedly cut earnings guidance this year and is poised to be ejected from Germany’s blue-chip DAX Index, BMW has stuck by its forecast for its automotive activities to achieve an operating margin of between 5% and 7% in 2025 – not bad under the circumstances, although below its usual target of between 8% and 10%. With the heavy investments for Neue Klasse now behind it, and the batteries in its upcoming EVs set to cost far less than prior models, BMW’s margins should improve in the coming years.

Yet this resilience and its entreaties that investors differentiate among European automakers (rather than tar them with the same brush) have received only a lukewarm response from investors.

BMW's Stock Has Outperformed European Rivals in 2025

Its financial resilience and technological prowess are helping, up to a point

Source: Bloomberg

Note: Shows % change year-to-date

While the company’s shares have outperformed its peers this year, BMW’s €56 billion market capitalization isn’t much higher than its €45 billion of automotive-related net financial assets, and it’s just a sliver of Tesla’s more than $1 trillion valuation. This probably won’t change until BMW proves it can still charge premium prices for its new products when high-tech models like Xiaomi’s YU7 SUV cost comparatively little.

Nevertheless, BMW has earned the right to take a big risk with the Neue Klasse and has clearly thought very carefully about it. Europe’s auto industry can’t avoid a reckoning — but I’m confident BMW can.