Chinese car makers may have the world's largest market to play in but face many hurdles including a shortage of original models, an overcrowded industry and a lack of overseas acquisition targets before they can challenge for global leadership.

None of this has dimmed the ambition of the country's auto entrepreneurs, however. BYD Co Chairman Wang Chuanfu, who has become China's richest man after U.S. billionaire investor Warren Buffett invested in his company, has said he wants to build BYD into the world's biggest car company by 2025.

To be sure, the swift growth in car sales in China in the past couple of years has been nothing short of breathtaking. Sales rose almost 50 percent last year to 13.7 million vehicles and are up 76 percent in the first three months of 2010.

But translating that strong growth at home and taking on the likes of Toyota Motor Co, General Motors and Ford Motor Co on the global stage is mission that could take China's top automakers decades.

Topping China's market is relatively easy, but topping the world market by 2025? I would say that's a shot a little too far, said Anil Sharma, an auto sector research analyst at


One condition that a carmaker must meet before it succeeds globally is a dominant position in its domestic market.

History has shown that all car manufacturers who were successful in the export market, (did so) after they had a strong position in their home market, said Klaus Paur, director at TNS' North Asia automotive division.

When Toyota overtook General Motors as the world's best selling carmaker, for example, its sales accounted for nearly half of the Japanese market.

By contrast, China's industry remains fragmented, with more than 70 domestic manufacturers and no dominant producer.

At the top (of the industry), it is still not very crowded, but at the bottom it is. There are too many players, said Sharma, who predicted consolidation would come only after the sector's growth loses steam.

Local winners are starting to emerge, however. State-owned SAIC Motor, BYD and Geely Automobile (0175.HK), whose parent is buying premium brand Volvo from Ford, are all tipped as being among a handful of winners in China in coming years.

Another contender is Great Wall Motor Co, the largest Chinese sport utility vehicle (SUV) maker without a foreign partner.

We believe Geely, BYD, Great Wall and SAIC are potential winners, said John Bonnell at JD Power information services provider, part of McGraw-Hill Companies.


Competing on the global stage will also require greater innovation from China's auto industry. To date, however, China's carmakers have built much of their success by utilizing the technology and designs of foreign competitors.

We have seen in the past that there was a lot of copying and imitating, Paur said.

The Geely CK, for example, bears a striking resemblance to the Mercedes-Benz's C-Class cars. And on the highway BYD's F3 model, the best selling model in China, could easily be mistaken for a Toyota Corolla.

I think to be a world market leader you need to bring innovation to the market; you need to be a leader in new products in the next stage of development, said Bonnell.

Green cars are emerging as one bright spot for China, with Chinese carmakers displaying a range of electric and hybrid cars at this year's Beijing Autoshow.

I see China taking the lead in electric vehicles, hybrid vehicles for a combination reasons. It has a good chance to outride others in terms of the market, in terms of government support and in terms of raw materials supply, said Sharma.

Another classic route to industry dominance is through mergers and acquisitions -- a strategy Geely has pursued with its deal to buy Volvo. The transaction will give the Chinese carmaker a globally recognized brand, as well as technology and know-how that may prove useful elsewhere in its operations.

The problem, say analysts, is that there aren't any good companies up for sale.

After Saab and Hummer slipped through the hands of Chinese car manufacturers, and Volvo has been bought by Geely, I don't see relevant international acquisition targets for domestic car manufacturers in the near future, said Paur. But he expects carmakers to intensify collaborations across borders, which would mutually benefit Chinese and foreign and manufacturers.

Instead of buying brands or technology, BYD signed an agreement last month with Daimler (DAIGn.DE) to jointly develop electric cars for China. (Editing by Don Durfee and Lincoln Feast)