The question is: What makes you think that Chinese cars are superior to German cars? Chinese manufacturers focus on different objectives. Chinese cars of today are virtually cramped with in-car entertainment. The Chinese cars I had the chance to sit in were rather like war situation rooms than like cars:
I would rather be annoyed sitting in front of this multimedia armada while zooming along a German Autobahn at 100+ mph.
However, German car industry faces a different challenge: When Chinese cars hit the European scene two decades ago, they were dirt cheap - and dangerous rubbish. This is the infamous 2005 Jiangling Landwind, which got one of the worst crash test ratings ever:
Over the years, Chinese manufacturers have become better - and they stayed cheaper than their German counterparts. The problem is that the curve of technological advancements flattens. 50 years ago VW began to make the Golf. It was pretty advanced for its time - and China was not able at all to make such cars. Right now VW makes version 8, and if you happen to have a Golf 6, it is still a pretty decent car. About 1985, Korea started to sell their cars in Europe, and in the beginning their cars were utter crap. But they became better and better. Maybe they are not able to make a Golf 8 today, but they offer cars like the Golf 6 - with a Golf 6 price tag. And the usual customer may not be willing to pay a hefty premium for a small plus. A Golf 8 may handle better than a Hyundai at speeds of 90+ mph, but who cares when you rarely go faster than 70 mph? In other words: A Landwind of today may still be worse than a German SUV. But is the difference worth the money?
Why are Chinese cars cheaper than German cars? They have lower labor cost, lower environmental standards - and they profit from design and development efforts done by German manufacturers. If a foreign manufacturer wants to build cars in China, he has to make up a joint venture with a Chinese partner - so China gains know how.
Electric cars are a different thing. About everything you need to build a competitive electric car, was developed in the last ten years. So the fact that Mercedes-Benz is in the business since almost 100 years is not really relevant. And making a shift towards EVs requires steps on state level. Mercedes, Ford and others have reduced their efforts for building EVs due to a lack of demand. The Chinese government creates this demand - by putting sanctions on ICE powered cars.
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