The wave has been so large that China leapfrogged Japan in 2023 to become the largest purveyor of passenger cars to the world for the first time, exporting 3.8 million vehicles for a staggering 62% increase in one year alone.

“The Chinese car companies are the most competitive car companies in the world,” Tesla CEO Elon Musk said this week. “Frankly, if there are not trade barriers established, they will pretty much demolish most other car companies in the world.” 

He should know: BYD just eclipsed Tesla as the global EV leader at the end of last year.

Now the Shenzhen-based company chartered its first cargo ship capable of carrying 7,000 cars, which embarked this month for Europe.

Other Chinese carmakers like Shanghai Automotive have also enjoyed export success with EV brands like MG.

But the export wave has not only been driven by pull factors like the cars’ low prices and leading-edge EV technology—China’s rapidly deflating economy has triggered the export boom as well.

The collapsing Chinese real estate bubble has necessitated the international push after everyone from bankrupt property developer Evergrande to cell phone maker Xiaomi ploughed billions into building automobiles that now strain to find enough domestic buyers.

Now, European and American carmakers face an intimidating question: How, if at all, can they hold back the flood?

Western EV makers caught sleeping on Chinese rivals

Dan Ives, senior equity research analyst with Wedbush Securities, believes carmakers underestimated the risk emerging from Asia under their collective nose.     

“There was a view that Chinese carmakers would be successful domestically and there would be Game of Thrones battles within China, but that it would be difficult for them to penetrate the rest of the world,” Ives told Fortune. “Led by BYD, they have scaled to the point that surprised even the naysayers and now they’re setting their sights on Europe.” 

Western rivals may even be encouraging them after a number decided recently to mothball EV spending plans and conserve their cash.

In October, for example, General Motors delayed a $4 billion EV investment in its Orion truck plant by a year.

For its part, Ford is postponing $12 billion in spending given weakening EV demand. 

Even Tesla has abandoned its strategy of growing manufacturing capacity “as quickly as possible”, instead, holding off on construction of its new Mexico plant due to economic uncertainty.  

“This might be the time to strike, because currently there are no U.S. manufacturers or even European transplants that are making EVs anywhere near the cost,” says Todd Cassidy, who leads the automotive and aftermarket investment banking practice at Brown Gibbons Lang & Company.

But these brands are not just content with merely exporting.

While Europeans were celebrating Christmas, BYD was busy finalizing plans to build cars in Hungary in the company’s maiden enlargement of its passenger car production beyond Asia. 

“Expansion into the U.S. and Western markets is more attractive if you’re looking to chase profitable growth,” BGL’s Cassidy tells Fortune.

Years ahead of the competition

But to say Chinese EVs are only a threat because of their low price is to drastically misjudge the state of their industry.

While Western brands focused on horsepower and handling, Chinese brands equipped their vehicles with the latest in software features.

A stylish mid-size sedan like the BYD Seal offers enough technology to compete with the Tesla Model 3. 

In a desperate move to remain competitive, Volkswagen dug deep last year to buy a 5% stake in China’s Xpeng worth $700 million after watching BYD effortlessly supplant it at the summit after decades in which it dominated the Chinese market.

“Next to Tesla, the innovation coming out of BYD, Nio, Xpeng and others is unrivaled,” Wedbush’s Ives tells Fortune. “The Chinese players are years ahead when it comes to vertical integration and battery technology.”