Once the pinnacle of innovation, German car manufacturers now risk being overtaken by Chinese automakers, who are adopting the latest technologies at a much faster pace. The willingness to innovate and embrace disruption seems to come more easily in a new market unencumbered by a long-established history.
At the end of last year, German premium car brand Audi removed its iconic four-ring logo in China—originally dating back to the early 1930s—replacing it with the brand name ‘Audi’ in letters. For years, the luxury marque has championed the slogan ‘Vorsprung durch Technik’ (progress through technology), yet it is increasingly Chinese car manufacturers that are leading the way in technological advancements.
Stuart Dunbar, a partner at Scottish investment firm Baillie Gifford, believes the future of the automotive sector is becoming increasingly centred on China. “China has transitioned from a market follower to a market leader in innovation, with vehicle models that prioritise software and digital technology,” he said in an interview with Investment Officer.
Baillie Gifford, renowned for its early investments in Tesla and Nvidia, follows a strategy of identifying ‘game changers’ capable of disrupting industries. Under its investment philosophy ‘Dare to Disrupt’, the firm seeks growth stocks worldwide that will drive significant transformation over the next five to ten years.
Dunbar sees particular opportunities in China’s automotive sector due to trends such as autonomous driving, battery storage for EVs, and the relatively low valuations of Chinese equities. “It’s a prime opportunity to invest in the disruptors of the future,” Dunbar noted. “Moreover, Chinese automakers are better at meeting key customer demands: higher quality at a lower price.”
Software supremacy over hardware
Another crucial customer requirement where Chinese manufacturers excel is technological software updates. “Traditional European automakers remain too focused on hardware, whereas customers increasingly value software,” Dunbar explained. “Tesla may have reached its peak in vehicle sales, but as a data provider, it will continue to dominate the market for years.”
Chinese companies, by contrast, are placing such a strong emphasis on software that Tesla rival Nio equips its vehicles with advanced chips, cameras, and sensors, launching its base software as a ‘minimum viable product’. According to The Wall Street Journal, Nio then develops the software remotely over time to unlock the full potential of its vehicles.
Smart mobility
The rise of autonomous driving appears irreversible, with more vehicles integrating artificial intelligence to enable self-driving capabilities. In some parts of China, fully autonomous taxi services are already operational. “Autonomous driving involves numerous variables, and the safety margin must be virtually zero before widespread deployment becomes feasible,” Dunbar said. “The first step is making cars smarter.”
In October 2024, Baillie Gifford invested 260 million dollar of client capital in the IPO of Chinese technology firm Horizon Robotics, acquiring over 500 million shares. This was in addition to a prior investment in the company before it went public. Horizon Robotics specialises in AI and semiconductors for autonomous driving. “The company provides technologies such as image recognition, sensor fusion, and deep learning, which enhance the intelligence of vehicles like those produced by BYD,” Dunbar explained.
Automation and robotics in manufacturing
The disparities between Asian and European automakers are also evident in manufacturing. Asian automakers are heavily investing in robotics, whereas European firms struggle to reinvent themselves. Hampered by entrenched traditions and powerful labour unions resistant to change, they are falling behind. “No European car manufacturer is currently making a profit on EV production,” Dunbar stated. “Asian brands, however, have managed to achieve profitability through extensive automation and robotics.”
South Korean carmaker Hyundai recently opened a high-tech manufacturing facility in Singapore, which Dunbar cites as an inspiration for traditional automakers. “The Hyundai Motor Group Innovation Center in Singapore demonstrates how technological advancements can be effectively utilised,” he said. “With just 50 employees on the factory floor and 200 robots, the facility produces 30.000 IONIQ 5 EVs annually. This model of automation is crucial for making EV production financially viable.”
European consumers turning to Chinese brands
Meanwhile, European consumers are increasingly opting for affordable yet high-quality cars, particularly from China. Dunbar remarked, “A solid BYD model is available from 35.000 euro, while a long-range variant costs 50.000 euro. Additionally, BYD is considering launching an entry-level EV at just 20.000 euro, making electric vehicles more accessible.”