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Competing against Chinese electric vehicles in China is no easy task. Just ask the CEO of Volkswagen.

The German automaker “cannot keep up at the top of the table at the moment” in China’s EV sector, VW chief Oliver Blume told FAZ in a Friday interview.

VW had long been China’s best-selling automotive brand, but last year it was overtaken by Chinese rival BYD, which sells both EVs and plug-in hybrids but no longer produces traditional cars. BYD, backed by Warren Buffett’s Berkshire Hathaway, also beat Tesla for the first time in global sales of electric vehicles in the fourth quarter of last year, although Elon Musk’s carmaker reclaimed the crown in the first three months of this year. 

With sales of traditional vehicles declining in China, carmakers more focused on EVs have been gaining market share at the expense of legacy automakers. VW, with its local partners, still sells traditional vehicles in China, in addition to a relatively small number of EVs compared to BYD.

The intense competition in China’s EV space is having ripple effects both within and outside the country. Last month, Bloomberg reported that Tesla planned to reduce production at its Shanghai plant, with the carmaker facing ever stiffer competition from Chinese rivals offering more affordable EVs with all manner of features.

Chinese EV makers ‘extremely good’

Across the globe, legacy automakers have been taken aback by the prices at which Chinese EV makers—which are rapidly expanding exports—can offer their vehicles. In the U.S., trade groups and lawmakers are warning about Chinese EV makers possibly gaining market entry through Mexico and want already tough protectionist measures to be strengthened. In the EU, the European Commission is looking into whether Chinese EV makers have an unfair advantage thanks to government subsidies, and could recommend higher tariffs.

“If there are no trade barriers established,” Musk said earlier this year of Chinese automakers, “they will pretty much demolish most other car companies in the world. They’re extremely good.”

“No one can match BYD on price. Period,” Michael Dunne, CEO of Asia-focused car consultancy Dunne Insights, told the Financial Times in January. “Boardrooms in America, Europe, Korea, and Japan are in a state of shock.”

Interestingly Australia, which has no legacy automakers to protect, is putting up no roadblocks to Chinese EV makers, which are quickly expanding there.

In Japan last month, Nissan and Honda, facing the looming threat Chinese EV giants, announced a once unthinkable partnership to develop electric vehicles together. 

“The rise of emerging players is becoming faster and stronger,” Honda president Toshihiro Mibe told the Financial Times. “Companies that cannot respond to the changes will be wiped out.”

Similarly, Ford said in February it’s open to cooperating with rivals to lower EV production costs, with GM signaling a similar willingness. Both cited the rising threat from China.

As for Volkswagen, it said it might collaborate on mass-market EVs with French rival Renault, also with Chinese up-and-comers in mind.

As for competing on EVs within China, said VW chief Blume, his carmaker “shouldn’t have utopian expectations.”

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