China Shows Its Cards. But We Can't Read Them

Welcome to Issue #98 of The German Autopreneur.

For 40 years, it was one of the world's most successful partnerships. German engineering meets Chinese ambition. Together they brought cars to China. Earned billions.

Today everything's different. German automakers are losing ground in China. Market share dropped from 24% to 15% in just five years.

Behind closed doors, executives say: “China is lost.”

But is that really true?

Beatrix Keim has a different perspective. She's THE China expert of the German auto industry. Over 30 years at VW, BMW, Jaguar Land Rover. Nearly two decades of that time in China itself.

Her first trip to Beijing was in 1991. Back then, the city was full of bicycles. Two metro lines. Food ration cards still in use.

She watched the entire transformation unfold.

And she says something that changes how you see the situation:

"China plays poker with us. But they show their cards. We just need to learn how to read them."

This week, we'll look at what that means. Why Europe underestimated China's strategy. And why there's still a path forward. If we finally learn to see what's been visible all along.

Why We Lost

1984: Volkswagen became one of the first Western automakers to form a joint venture in China. With Shanghai Automotive Industry Corporation. SAIC in short.

The rules were clear: Market access in exchange for technology transfer. 50-50 partnership. The German expats had one job: Train Chinese colleagues so well that you're no longer needed.

Was that naive?

Beatrix says no: "Technology transfer was the price of market access. Everyone knew that."

The real naivety was somewhere else. German automakers underestimated the ambition. They thought China wanted to catch up. In reality, China wanted to overtake.

But initially, the partnership worked perfectly.

The VW Santana became a symbol. "It runs and runs and runs." Just like the Beetle in Germany.

From China's north to south. West to east. Everywhere you saw VW. And everywhere it worked.

Beatrix remembers: "When you said you worked for VW in China, you didn't need to explain anything else. That was pride."

For almost 40 years, VW was number 1 in China. Market share hit over 40% at times.

But beneath the success was a critical mistake. They looked at China through European eyes.

Here's an example:

In Europe, we go to the hardware store. Buy materials. Fix things ourselves. That's DIY culture.

In China, if something breaks, you have it fixed. They want convenience, not work.

German automakers built cars for the 50-year-old German engineer obsessed with build quality.

China is a market of 30-year-olds who grew up with WeChat and Alipay.

They don't want a mechanical masterpiece. They want a smartphone on wheels.

Beatrix puts it bluntly: "The mistake was focusing only on engineering excellence in the drivetrain. Not on design and the customer's digital expectations."

While German manufacturers were proud of their engines, China was pushing digitalization forward.

The result: BYD overtakes VW. Xiaomi builds a car in 3 years that competes with Porsche. Chinese brands control 69% of their own market.

How China Got Here

It started in 2012.

That's when Xi Jinping took power. That's the real turning point.

He cleaned up. Fought corruption. China positioned itself as a strong player.

At the same time, something was happening in the background that many didn't take seriously: The Five-Year Plans.

Beatrix says: "That was naive. Not the joint ventures themselves. But underestimating how strategically long-term China thinks."

China has worked in 5-year plans for decades. The economy is state-directed. Much more than in Europe or the US.

And in these plans, the EV strategy was written in stone.

Why EVs?

Not because of climate. For strategic reasons.

China couldn't compete with combustion technology. Western manufacturers were too far ahead.

So they focused on something new. Alternative mobility. Batteries. Software.

And pumped hundreds of billions of dollars into the industry.

Beatrix puts it this way: "China acts as a whole system. State and economy together. For us, that's not how government works."

That was the disadvantage for Western automakers.

But now something's shifting.

Why German Manufacturers Can Come Back Now

The current situation is brutal. Many in the industry are pessimistic.

But Beatrix is optimistic.

She gives 5 reasons:

1. The New Five-Year Plan

The direction is set: Focus will shift starting 2026. Away from mobility. Toward quantum technology, bio-manufacturing, military.

In the new plan draft, EVs are no longer prioritized as a "strategic emerging industry." It's now considered "established."

That means fewer subsidies. Less state protection.

The Chinese auto market is overheated. Too many players fighting in a brutal price war. Many manufacturers sell under 200,000 cars per year. That's not profitable.

Beatrix puts it this way: "The revolution is eating its own children right now."

Many Chinese manufacturers won't survive. The market will consolidate.

That's an opportunity for European OEMs.

2. Quality Becomes Important Again

The new theme in the Five-Year Plan: Quality, safety, stability.

There were too many accidents. The market grew too fast. Immature technology. Improper use.

Starting in 2026, new standards will become mandatory.

This will enforce exactly the quality that many Chinese startups neglected in their rush to market.

3. German Automakers Are Massive Employers

VW employs nearly 100,000 people in China. BMW and Mercedes thousands more.

And China is still in an economic crisis. Unemployment is high.

Beatrix says: "The government can't afford to put these people on the street."

That's political leverage.

4. New Models Are Coming

German automakers have learned the lesson: Developing cars in Germany for China doesn't work. They're too far from local preferences.

So now they're developing in China for China. Cheaper and closer to the customer.

They're working with local partners to catch up on digital technologies.

Dozens of such models will hit the market in the next few years.

5. Mutual Dependence

Beatrix says: "China needs trade. The domestic market isn't enough."

Decoupling makes no sense for either side. China needs Europe. Europe needs China.

My Take

The cards were always on the table.

The Five-Year Plans were public. The EV strategy too.

But European automakers underestimated them. Didn't take them seriously. Ignored them. Maybe just didn't understand them.

Why? Germany and China are separated by almost 8,000 kilometers. But the cultural distance? Far greater.

They operate completely differently. And that intercultural understanding is still what's missing most.

That's the core problem. Not the technology. Not the strategy. The understanding.

But there's hope.

Beatrix believes that in 5 years, the German auto industry will be better positioned in China than today.

Not with 50% market share anymore. But as a stable, profitable player in a consolidated market.

Not everyone will make it. Beatrix is blunt: "I don't think Skoda will survive in China."

But for the major players, the cards are good. They just need to play them right.

And most importantly: Finally learn to read China's cards. Because they're still on the table.

That's all for today.

Feel free to reply to this email with your thoughts.

Until next week,
Philipp

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After 10 years at Mercedes-Benz, I quit in 2020. In 2024, I started writing "Der Autopreneur". It became Germany's largest newsletter on automotive transformation. Now it’s also available in English.

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