China's EV dominance fragments global auto markets post-pandemic
A Banca d'Italia paper analyzes the global automotive sector's post-pandemic transformation, revealing China's dominance in electric vehicles and increasing market fragmentation.
China's EV Ascent Reshapes Industry
The paper examines major structural transformations in the global automotive industry since the COVID-19 pandemic.
China's rapid rise as the world's largest electric vehicle (EV) producer and exporter, driven by sustained industrial policy, battery supply chain dominance, and an estimated 30-45 percent manufacturing cost edge, has fundamentally altered competitive dynamics.
China's vehicle sales surpassed pre-pandemic levels, while advanced economies, particularly in the European Union, remain significantly below 2019 volumes due to weakened affordability and policy uncertainty.
Chinese firms are estimated to have a two- to three-year lead in software-defined vehicles, creating a durable technological advantage.
The recovery in automotive demand has been strikingly uneven, with China accounting for nearly two-thirds of global EV sales in 2025.
Western OEMs Face Dual Challenge
European, Japanese, and Korean original equipment manufacturers (OEMs) face mounting pressure from Chinese electrification, trade fragmentation, and the transition to software-defined vehicles.
US and EU defensive measures, including prohibitive tariffs and countervailing duties, have proved only partially effective.
EU passenger car imports from China rose by nearly 30 percent in 2025, driven by substantial battery electric vehicle (BEV) price reductions and a strategic shift toward hybrid and internal combustion engine (ICE) models not covered by duties.
The incomplete recovery in advanced economies also reflects weaker affordability and higher costs associated with electrification, compounded by pandemic-related supply disruptions and increased input costs.
A Fragmented Future Takes Shape
The paper convincingly demonstrates a fundamental shift in the global automotive landscape, moving beyond mere post-pandemic recovery.
While the findings on China's technological and cost advantages are stark, the analysis of policy fragmentation underscores systemic challenges for established players.
This realignment will likely redefine global supply chains and consumer choices, demanding strategic responses beyond traditional trade defense.