Dragoman Digest

Legacy carmakers embrace their ascendant Chinese rivals

Western and Japanese carmakers lean into Chinese partnerships to close the technology gap

China overtook Japan as the world’s largest vehicle exporter in 2023 and shipped more than eight million vehicles abroad in 2025, nearly a third more than the year before. This stunning advance has left established carmakers from Europe, Japan, and the US losing ground everywhere. Their share of the Chinese market has almost halved in five years, to around 30 percent, while in Europe, Chinese brands have gone from a negligible presence to nearly nine percent of sales. Much of the difference comes down to speed: Chinese manufacturers develop new models in at most 24 months – against 40 to 80 elsewhere. The software in a new foreign vehicle is typically two years behind equivalent Chinese models.

To catch up, Volkswagen has allied with XPeng, a Chinese EV maker, and Horizon Robotics, an autonomous-driving startup. It now engineers vehicles at a new Hefei research centre 30 percent faster than in Europe. Toyota, which will build electric Lexus models near Shanghai from 2027, is working with the technology giants Huawei and Tencent, the driving-software developer Momenta, and Xiaomi, a consumer-electronics company with a growing EV arm. Even Renault, which sells no cars in China, developed its latest Twingo model there to save time and absorb local know-how. Chinese parts have made similar inroads where Chinese cars have not, and Honda’s president expects components from China and India to become the global standard.

In some cases, these deals fund Chinese competitors now entering their partners’ home markets. XPeng is expanding rapidly in Europe and Xiaomi plans to follow next year. Neither has much reason to hand its best technology to companies it aims to displace. Breaking the dependency would require mastering software in-house – something no legacy carmaker has managed. Volkswagen, for example, aims to become a leading technology company in its own right, yet its software arm, Cariad, has struggled for years. Nor can China’s pace be licensed piecemeal, since it originates from an industry founded on software-driven EVs as opposed to the traditional, hardware-centric model. Incumbents face an invidious choice between falling further behind and financing the rivals they most fear.

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US-Saudi nuclear deal still faces hurdles

The US has made the agreement contingent on KSA-Israel normalisation

The recently signed civil nuclear cooperation agreement (known as a 123 deal) between the US and Saudi Arabia is ostensibly a major breakthrough in bilateral relations. Under the 30-year, multibillion-dollar deal, US companies, such as Westinghouse, are expected to act as exclusive suppliers for the Kingdom's nuclear industrial development. Under the deal, Saudi Arabia will also be permitted to develop a domestic uranium enrichment facility, following the completion of a two-year commercial feasibility study.

The Trump administration has promoted the deal as yielding both strategic and economic benefits. Washington has argued that the deal will strengthen the bilateral relationship (slightly bruised after the Iran War) and revitalise the US’ nuclear export industry. Of late, the US and its allies have lost ground to rival nuclear export bids from Russia and China. Riyadh, for its part, has been lobbying the US for such an agreement since 2008. The Kingdom has publicly stated that it wants nuclear energy to diversify its domestic energy supply, which would free up more of its oil for exports and support the mining of domestic uranium ore deposits. At the same time, Riyadh has refused to abandon its option to develop a nuclear weapon if Iran ever chose to do so.

The deal is far from finalised. Just a day after signing the 123 agreement, President Trump stated progress will hinge on Riyadh joining the Abraham Accords. The Biden administration had also pursued a similar conditional clause before negotiations were derailed by the Gaza War. With Riyadh having deep reservations around Israel’s regional conduct and perceived bellicosity, prospects of Israeli-Saudi normalisation are very remote. With Trump’s ability to force an additional clause on KSA-Israel normalisation uncertain, it is still possible that the condition will be ignored.

Another complicating factor is what the agreement may mean for regional proliferation. Unlike the UAE's more stringent nuclear agreement signed with the US in 2009, the Saudi agreement avoids the 'gold standard' commitment never to enrich uranium or process nuclear fuel domestically. Despite Trump's insistence that bilateral safeguards are enough to prevent proliferation, an already disgruntled Abu Dhabi will undoubtedly pursue a renegotiation. On the other side of the Strait, Tehranmay feel itself vindicated in pursuing its own nuclear program.

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India fails to realise lofty manufacturing ambitions

Burgeoning mobile phone exports may present an adaptable template for progress  

In 2014, Prime Minister Narendra Modi pledged to raise manufacturing’s share of GDP to 25 percent by 2025. Despite some high-profile investments from multinationals, manufacturing share of GDP has in fact declined to 12.4 percent over the past decade, down from 16.5 percent in 2017. India's underperformance largely stems from entrenched structural barriers which incremental reforms have failed to definitively address. Land acquisition, for instance, remains a longstanding impediment. Prime land parcels are extremely scarce, particularly near urban areas. Available land, even in states like Uttar Pradesh which have made concerted efforts to increase the ease of land acquisition, often lacks essential infrastructure and proximity to labour. Cumulative regulatory burdens are another major obstacle. Although India has lowered tariffs, non-tariff barriers such as Quality Control Orders (QCOs), often require products imported by factories to be approved by the Indian government. One firm reported requiring no less than 80,000 pages of documentation to import machinery.

Yet, there are examples of specific sectors where the Indian government has more proactively reduced hurdles to doing business and in turn, reaped the benefits. One example is smartphone manufacturing, where output has surged from US$26 billion in FY2020-21 to over US$60 billion in FY2024-25, driving a near equivalent spike in exports, particularly to the US. Attracted by deep pocketed firms like Apple, officials at the federal and state levels have facilitated land acquisition, fast-tracked regulatory approval, waived protectionist barriers and made it easier for foreign workers to join production lines. In doing so, India has established the basis for a successful and globally competitive assembly-based manufacturing ecosystem. Delhi is now seeking to move beyond the assembly of mobile phones towards component manufacturing. Uptake under the new incentive scheme has been strong, with over US$12 billion in investments as of December 2025, nearly double the original target. The question now is whether Modi's government can replicate this commercially successful formula across its economy.

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