Chinese cars are catching on for a reason, and it’s not super hard to see why. Chinese brands are making big inroads globally among value-oriented consumers in search of a deal. These cars are generally very good, especially for the cheaper-than-average prices they’re offering. Of course, this has sent Europe into an existential crisis, as the Chinese brands threaten the future of its automotive industry. Some insist that this is merely political policy from Beijing to underprice cars and weaken global industry.

Not so fast. A recent analysis from financial consulting and market analysis company AlixPartners examined China’s rise on a deep level. The firm shows that financial subsidies or incentives aren’t the full explanation for China’s superiority in the EV space. AlixPartners found that there’s a roughly 35% production cost difference on average between Chinese EV models and European ones. At the end, the analysis emphasized the importance for European manufacturers to fundamentally change how they all operate in order to maintain relevance and profitability.

“A Chinese-branded EV made in China costs about $20,000 to produce versus $31,000 for a European equivalent,” the study said. Why? Well, there’s a combination of reasons, some larger than others, but all add up to structural advantages in how Chinese companies are managed and how these companies utilize their manufacturing advantages, and not really just subsidies.

For starters, the study says that Europe’s battery manufacturing and raw material sourcing are too reliant on external inputs, which is a structural barrier to high costs.

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