China: driving the future

As with any investment, your capital is at risk.

Times have changed significantly since Elon Musk belittled the design of a BYD car in 2011. China is now the largest car exporter in the world. BYD makes more electric cars than any other company. CATL is the world’s largest electric vehicle (EV) battery manufacturer. In contrast to the US, where EV penetration is barely 10 per cent, China has already made the energy transition with over 50 per cent of the 25m vehicles sold in the world’s largest car market expected to be electric or hybrid this year. That scale has delivered an automotive ecosystem that is second to none. And while this has helped global companies, with Tesla making more than half its cars in China, it has also supported the rise of a critically important, and increasingly world-leading, domestic industry.

Focusing solely on the volume of car production is missing the point. It isn’t the quantity, but the quality of cars produced in China, that is starting to turn heads.

China has an industrial policy that, by subsidising producers and flattening the supply curve, has spurred innovation, increased output and (if we’re honest) asked questions of industry profitability. But, in contrast to the popular perception in the West that balancing company profits with economic and societal developments is value destructive, it has turned China into an automotive powerhouse. Value is accruing to consumers as lower prices, higher quality and/or more innovative products and services. More broadly, switching to electric vehicles is also helping wean China from oil imports, lowering pollution levels, providing jobs for millions of new STEM graduates and creating ultra-competitive companies to compete in international markets.

Breakthroughs in battery technology, autonomous driving, smart connectivity, and software-defined vehicles are fuelling the industry’s innovation ecosystem, with companies rolling out features like advanced driver assistance systems and AI-powered vehicle platforms. The big question is where the value will accrue across the supply chain, particularly in fiercely competitive parts of the market.  

Let’s take CATL, a company founded in 2011, whose products today power a third of the world’s electric vehicles (EVs) and a similar share of energy-storage systems for grids. Its scale and vertical integration have driven down costs and lowered prices to the point where competitors are struggling to keep up. And, at its Technology Day in April this year, it unveiled an ultra-fast-charging battery that can deliver 520km range in five minutes. It may be a company few have heard of but, having just completed the largest IPO in Hong Kong for a number of years, raising almost US$5bn, its international ambitions are clear.

But we can go one step further into the future: autonomous driving. A relatively new holding in portfolios is Pony.ai, a leading developer of autonomous driving technology, whose ecosystem of partners spans hardware, software, vehicle platforms, manufacturing, and cloud infrastructure. Pony.ai’s leadership in deploying robotaxis across China’s largest cities combined with China’s aggressive push toward mass adoption – projected to reach up to 1 million robotaxis by 2030 – signals a robust and transformative outlook for the country’s autonomous mobility sector.

And while not owned in portfolios, our search for where the value is likely to accrue across the automotive value chain has also led us to revisit the case for Didi: a ride hailing company shaking off geopolitical and regulatory challenges to become the world’s leading transportation platform. In China, Didi has already established itself as the dominant force in ride-hailing, capturing over 70 per cent of the domestic market and leveraging unique local conditions – such as densely populated cities and restrictions on private car ownership – to fuel its rapid growth. And now it is looking to Latin America, Africa and Europe.

We’re also looking at Zhejiang Sanhua, one of the world’s largest manufacturers of refrigeration control components and a global leader in automotive thermal management systems. The company is recognised for its technological leadership with robust R&D capabilities and a global footprint, including production bases in China, Mexico, Poland, Thailand, and the USA, and a customer list that includes Tesla, Mercedes, Hyundai, VW and Toyota. And if that’s not enough, it also makes the actuator modules for Tesla’s humanoid robot, Optimus – a high-value, high-volume component essential for robot function.

Together, these companies exemplify China’s leadership in the automotive revolution, driving the industry toward a future defined by intelligence, sustainability, and global competitiveness. No other country offers the scale advantages that China does. While we should expect volatility and a rapidly evolving competitive landscape – which can be brutal at times, hurt profitability, and raise questions about the longevity of competitive or technological advantages – one thing is clear when it comes to autos:
China is not just driving the market. It is steering us into the future.

Risk factors

The views expressed should not be considered as advice or a recommendation to buy, sell or hold a particular investment. They reflect opinion and should not be taken as statements of fact nor should any reliance be placed on them when making investment decisions.

This communication was produced and approved in June 2025 and has not been updated subsequently. It represents views held at the time of writing and may not reflect current thinking.

This communication contains information on investments which does not constitute independent research. Accordingly, it is not subject to the protections afforded to independent research, but is classified as advertising under Art 68 of the Financial Services Act (‘FinSA’) and Baillie Gifford and its staff may have dealt in the investments concerned.

All information is sourced from Baillie Gifford & Co and is current unless otherwise stated.

The images used in this communication are for illustrative purposes only.

Important information

Baillie Gifford & Co and Baillie Gifford & Co Limited are authorised and regulated by the Financial Conduct Authority (FCA). Baillie Gifford & Co Limited is an Authorised Corporate Director of OEICs.

Baillie Gifford Overseas Limited provides investment management and advisory services to non-UK Professional/Institutional clients only. Baillie Gifford Overseas Limited is wholly owned by Baillie Gifford & Co. Baillie Gifford & Co and Baillie Gifford Overseas Limited are authorised and regulated by the FCA in the UK.

Persons resident or domiciled outside the UK should consult with their professional advisers as to whether they require any governmental or other consents in order to enable them to invest, and with their tax advisers for advice relevant to their own particular circumstances.

Financial intermediaries

This communication is suitable for use of financial intermediaries. Financial intermediaries are solely responsible for any further distribution and Baillie Gifford takes no responsibility for the reliance on this document by any other person who did not receive this document directly from Baillie Gifford.

Europe

Baillie Gifford Investment Management (Europe) Ltd (BGE) is authorised by the Central Bank of Ireland as an AIFM under the AIFM Regulations and as a UCITS management company under the UCITS Regulation. BGE also has regulatory permissions to perform Individual Portfolio Management activities. BGE provides investment management and advisory services to European (excluding UK) segregated clients. BGE has been appointed as UCITS management company to the following UCITS umbrella company; Baillie Gifford Worldwide Funds plc. BGE is a wholly owned subsidiary of Baillie Gifford Overseas Limited, which is wholly owned by Baillie Gifford & Co. Baillie Gifford Overseas Limited and Baillie Gifford & Co are authorised and regulated in the UK by the Financial Conduct Authority.

Hong Kong

Baillie Gifford Asia (Hong Kong) Limited 柏基亞洲(香港)有限公司 is wholly owned by Baillie Gifford Overseas Limited and holds a Type 1 license from the Securities & Futures Commission of Hong Kong to market and distribute Baillie Gifford’s range of collective investment schemes to professional investors in Hong Kong. Baillie Gifford Asia (Hong Kong) Limited 柏基亞洲(香港)有限公司 can be contacted at Suites 2713–2715, Two International Finance Centre, 8 Finance Street, Central, Hong Kong. Telephone +852 3756 5700.

South Korea

Baillie Gifford Overseas Limited is licensed with the Financial Services Commission in South Korea as a cross border Discretionary Investment Manager and Non-discretionary Investment Adviser.

Japan

Mitsubishi UFJ Baillie Gifford Asset Management Limited (‘MUBGAM’) is a joint venture company between Mitsubishi UFJ Trust & Banking Corporation and Baillie Gifford Overseas Limited. MUBGAM is authorised and regulated by the Financial Conduct Authority.

Australia

Baillie Gifford Overseas Limited (ARBN 118 567 178) is registered as a foreign company under the Corporations Act 2001 (Cth) and holds Foreign Australian Financial Services Licence No 528911. This material is provided to you on the basis that you are a “wholesale client” within the meaning of section 761G of the Corporations Act 2001 (Cth) (“Corporations Act”). Please advise Baillie Gifford Overseas Limited immediately if you are not a wholesale client. In no circumstances may this material be made available to a “retail client” within the meaning of section 761G of the Corporations Act.

This material contains general information only. It does not take into account any person’s objectives, financial situation or needs.

South Africa

Baillie Gifford Overseas Limited is registered as a Foreign Financial Services Provider with the Financial Sector Conduct Authority in South Africa.

North America

Baillie Gifford International LLC is wholly owned by Baillie Gifford Overseas Limited; it was formed in Delaware in 2005 and is registered with the SEC. It is the legal entity through which Baillie Gifford Overseas Limited provides client service and marketing functions in North America. Baillie Gifford Overseas Limited is registered with the SEC in the United States of America.

The Manager is not resident in Canada, its head office and principal place of business is in Edinburgh, Scotland. Baillie Gifford Overseas Limited is regulated in Canada as a portfolio manager and exempt market dealer with the Ontario Securities Commission (‘OSC’). Its portfolio manager licence is currently passported into Alberta, Quebec, Saskatchewan, Manitoba and Newfoundland & Labrador whereas the exempt market dealer licence is passported across all Canadian provinces and territories. Baillie Gifford International LLC is regulated by the OSC as an exempt market and its licence is passported across all Canadian provinces and territories. Baillie Gifford Investment Management (Europe) Limited (‘BGE’) relies on the International Investment Fund Manager Exemption in the provinces of Ontario and Quebec.

Israel

Baillie Gifford Overseas Limited is not licensed under Israel’s Regulation of Investment Advising, Investment Marketing and Portfolio Management Law, 5755–1995 (the Advice Law) and does not carry insurance pursuant to the Advice Law. This material is only intended for those categories of Israeli residents who are qualified clients listed on the First Addendum to the Advice Law.

Singapore

Baillie Gifford Asia (Singapore) Private Limited is wholly owned by Baillie Gifford Overseas Limited and is regulated by the Monetary Authority of Singapore as a holder of a capital markets services licence to conduct fund management activities for institutional investors and accredited investors in Singapore. Baillie Gifford Overseas Limited, as a foreign related corporation of Baillie Gifford Asia(Singapore) Private Limited, has entered into a cross-border business arrangement with Baillie Gifford Asia (Singapore) Private Limited, and shall be relying upon the exemption under regulation 4 of the Securities and Futures (Exemption for Cross-Border Arrangements) (Foreign Related Corporations) Regulations 2021 which enables both Baillie Gifford Overseas Limited and Baillie Gifford Asia (Singapore) Private Limited to market the full range of segregated mandate services to institutional investors and accredited investors in Singapore.

157002 10055639