China's current car industry is much too big for its own good

It should get into rapid consolidation mode for its own survival

- JULIANA LIU

The evolution of the US auto industry holds a key lesson for Chinese carmakers' deep-pocketed financial backers: Let go and allow the chips to fall where they may. Today, there are about 150 different brands producing passenger vehicles in China, according to consulting firm AlixPartners, of which about 130 make EVs. The biggest homegrown names are BYD, Geely and Chongqing Changan.

Their show of force at the Munich auto show is not just another reminder of their undeniable technical prowess and growing global dominance. It's also a sign that some 20 years after the Chinese car industry kicked into high gear, the sector is now looking for new markets because it's too large and unwieldy at home. Regional and local governments, which are often behind these companies, are part of the problem. The outcome has been a destructive price war that can only be resolved by allowing consolidation and encouraging the least competitive firms to fold.

After all, this is what happened 100 years ago in a comparable market: the US. The Chinese industry's capacity for production, created by too many players, remains far above its output. The situation was fine more than 10 years ago when sales were still growing reliably in the double digits.