Intro
Yixuan Yang, an analyst on Marathon Asset Management's emerging markets portfolios, walks Edward Chancellor through a Chinese car industry that has built far more capacity than it can sell and is losing money doing it, then makes the case that the money is in the windows. The conversation runs from the subsidy withdrawal and the model release race to Fuyao Glass's market share, its research spending, the energy costs crushing its Western rivals, and what the shares now cost.
Guest: Yixuan Yang, analyst on Marathon Asset Management's emerging markets portfolios
Host: Edward Chancellor
Published: 28 August 2026 on The Capital Cycle Podcast
Episode page | 13 min
Key Takeaways
Chinese carmakers are winning share and losing money at the same time
First-quarter profit fell 27% at Geely and 10% at Chery, the country's number two and three
"The market leader, BYD, which was said to be one of Charlie Munger and Warren Buffett's favorite investments, saw profit decline by 55%" — Yang
The model release race is the clearest measure of the squeeze
"About 650 new or refreshed models were introduced in the first half, and that is nearly four per day" — Yang
Beijing's subsidy withdrawal, not demand, broke the year
The purchase tax exemption for electric vehicles was halved and trade-in subsidies were cut
The way to own the upgrade cycle is the component, not the carmaker
Glass is a small share of a car's cost and a large share of how it looks and drives
Fuyao Glass has gone from challenger to dominant supplier in a decade
"The global share has risen from 20% in 2015 to 35% today" — Yang
About 70% share in China, and roughly twice AGC's sales on Yang's account
Pricing power comes from being too small to argue about
Glass sits below 1% of a car's total cost, so customers barely negotiate it
The capital cycle in auto glass is turning the right way for the leader
Saint-Gobain has closed German and Spanish plants, NSG has been taken private by Apollo, AGC's capex is falling
The stock is priced as a Chinese auto play rather than as a monopoly supplier
"a decade-low multiple of 12 times forward earnings with a 4.5% dividend yield" — Yang
Why the Car Industry Keeps Building Capacity Nobody Needs
Chancellor opens with Marathon's long-standing framing of autos as an industry structurally exposed to destructive capital cycles, and lists three reasons.
The first is that governments will not let the industry consolidate. "these businesses are political footballs. They employ lots of people and in downturns, governments intervene to stop them consolidating and laying off workers" — Chancellor
The second is technological disruption. Chancellor says the arrival of battery electric cars "led to a destructive burst of capital spending by established players in Europe and the US."
The third is that autos have always been open to global disruption: US carmakers have faced competition from Europe, then Japan, and now China.
Chancellor frames the episode as being about Chinese carmakers "that have been taking market share globally, but not exactly prospering either," and says they are living through a negative capital cycle of their own.
China Builds Cars for a Market That Isn't There
Chancellor sets out the overcapacity that everything else in the episode sits on. "China only sells around 25 million cars to the local consumers, but the factory capacity is estimated to be about 55 million, twice as much. And this is enough to supply two-thirds of the global demand" — Chancellor
He notes this is structural rather than cyclical, and something Marathon has watched across a lot of Chinese industries over the years.
The complication is that the excess plant is running into a domestic market that is weak right now, not just oversupplied over time.
Beijing Pulled the Subsidies and Demand Went With Them
Yang attributes this year's weakness to policy rather than to taste. "The domestic demand is under pressure after Beijing halved the purchase tax exemption for electric vehicles, and they also reduce trade-in subsidies" — Yang
Demand has been very weak compared with the previous two years, and the first half showed a 20% year-on-year decline.
Exports rose 50%, which Yang says was not enough to offset the domestic fall.
The two moved against each other and the total still went backwards. "So the total electric vehicle shipment has fell by 4% in China this year" — Yang
Nearly Four New Models a Day
With demand falling, the manufacturers competed on product cadence instead of price alone. "About 650 new or refreshed models were introduced in the first half, and that is nearly four per day" — Yang
Yang calls it a race to release new products, driven by the sheer number of competitors chasing the same buyer.
Chancellor's reaction is simply that it is a "Remarkable piece of information."
The result is intensive competitive pressure landing on an already weaker market, which Yang says has pushed profits down for every manufacturer rather than reshuffling them between winners and losers.
Sales Leadership Without Profits
Yang's summary of the industry's economics is that scale is not converting into money. "So despite Chinese carmakers topping sales leaderboards worldwide, profits at the even strongest car makers are evaporating" — Yang
In first-quarter 2026 results, profit fell 27% year-on-year at Geely and 10% at Chery — the number two and three carmakers in China.
The market leader did worse than either. "The market leader, BYD, which was said to be one of Charlie Munger and Warren Buffett's favorite investments, saw profit decline by 55%" — Yang
"And Berkshire has wisely sold out of the stock entirely in 2025" — Yang
The Bright Spot Is a Part Nobody Argues About
The upgrade race that is destroying carmaker margins is, on Yang's account, a revenue event for the suppliers those carmakers are buying from.
She singles out one component on the grounds that it is cheap to the buyer and highly visible to the driver. "one component that make up a small share of the cost, but a large part of the car's driving experience and appearance has stood out, which is glass windows" — Yang
Asked which company stands out, Yang names Fuyao Glass, the largest car glass maker in China and globally, which she says has emerged as a dominant player in a market where almost nobody else is thriving.
Fuyao, the Ohio Plant and the Oscar-Winning Documentary
The company was founded in 1987 by Cao Dewang, and Yang says it has spent four decades making car windows.
Its Ohio factory became "the center of a culture clash by the Chinese management and the American workers," which was filmed as the documentary American Factory.
Chancellor's own recollection of the founder is less diplomatic. "I seem to remember Cao complained that American workers were lazy, unmotivated, or something like that" — Chancellor
The share gain since then has been substantial. "The global share has risen from 20% in 2015 to 35% today" — Yang
In China, the world's largest auto production market, Yang puts Fuyao's share at about 70%.
The positions have reversed against the old leader. A decade ago Japan's AGC was the world's largest; "Fuyao Glass is almost twice AGC size by sales and eight times operating profit and with far superior margin and returns on capital" — Yang
One Product, and the Research Budget to Match
Yang's explanation for the gap is focus. "Global players such as Japan's AGC and France's Saint-Gobain has diversified production across construction and industrial materials. While Fuyao has one single focus, they invest heavily in R&D for auto glass" — Yang
The spending gap shows up as a share of revenue. "we noticed that Fuyao spent 4 to 5% of their revenue in R&D throughout the cycle. This compared to AGC's 3% and Saint-Gobain's 1%" — Yang
On Marathon's estimates, that puts Fuyao's absolute research spending at over two and a half times AGC's, its nearest rival.
Yang also credits continuous collaboration with customers rather than research alone.
Electric Cars Use More Glass, and More Expensive Glass
The shift to EVs works in the supplier's favor rather than against it. "EVs use more glass and more functional glass than the vehicles they replace" — Yang
Automakers have raced to adopt windows with UV insulation, soundproofing, head-up displays and dimming features.
What was optional has become expected. "these high-value products are once nice to have, but now standard features" — Yang
The value of glass per vehicle rose a modest 3% a year between 2015 and 2020; over the last five years, Yang says that has accelerated to 9% a year as the high-value products lifted prices.
And the reason nobody pushes back is that the line item is trivial. "glass still is below 1% of the car's total cost, which means Fuyao's customers are relatively insensitive to price" — Yang
Melting Sand in Gas-Fired Furnaces
Outside China, Yang says auto production has been shrinking for about a decade, which starves the incumbent glass makers of volume.
"In the US, they assemble about 10 million cars a year and in Europe about 17 million" — Yang, who adds that both are 10% to 20% below their pre-COVID peak
The incumbents she names are the Japanese makers AGC and NSG — Nippon Sheet Glass — and France's Saint-Gobain.
The volume problem meets an input cost problem. "The lower volume have collided with European energy costs running at twice the Chinese levels. And this is a unhappy combination for the business that melts sand in gas-fired furnaces" — Yang
Fuyao, by contrast, is a cost leader on scale, cheap energy and what Yang calls operational discipline.
The Competition Is Cutting Capacity While Fuyao Adds It
Chancellor puts it to Yang that the capital cycle is moving into a benign phase for auto glass, and she agrees: the contraction in Western car production has already produced meaningful cuts in glass manufacturing capacity.
Japan's NSG, whose auto glass revenue is about half of Fuyao's, was taken private by Apollo in March this year. "they seem to be more likely to sweat their assets than expanding them" — Yang
Saint-Gobain closed its automotive glass plants in Germany and Spain in the second half of last year, citing energy costs and low-cost competition, and its next five-year strategic plan seeks to shrink or sell underperforming industrial assets — auto glass likely among them.
AGC's auto glass capex is also expected to fall in absolute terms this year.
The leader is moving the other way. "Fuyao is expanding capacity by over 30% in the last two years and will soon be able to glaze half of the world's car production every year" — Yang
The Two Risks: A New Entrant and a European Tariff
High returns invite competition, and Yang names the company already trying. Lens Technology, a Chinese listed maker of mobile phone screens and cockpit components, has been building auto glass capacity and is starting to supply side windows.
"Our research suggests that its scale is currently very small relative to Fuyao, so it remains a distant risk, but it is worth monitoring" — Yang
The second risk is European trade policy: additional tariffs and carbon-adjusted taxes of the kind applied to Chinese steel and aluminum this year.
That risk is concentrated because Fuyao supplies its European customers entirely from China, and Europe is expected to contribute significantly to future growth.
Yang argues the exit of the local competitors is itself the hedge. With European rivals leaving the business, carmakers there will rely more heavily on Fuyao, and "So it would be relatively easy for Fuyao to pass on the tariffs onto their customers" — Yang
Returns Rare for an Industrial, and a Dividend Policy Rare for China
Chancellor raises the point that a shareholder-friendly business "is not true of every business on the Chinese mainland," and asks Yang to make the case.
"We saw Fuyao's return on invested capital climbing towards 30% and return on equity approaching 26%. This is very rare for an industrial business" — Yang
On distributions, Yang's point is that the payout has been sustained rather than occasional. "they have paid out over 60% of their earnings continuously over the last decades as dividends" — Yang
Those dividends accumulate to 40 billion of renminbi on Yang's figures.
What the Shares Cost
Yang's closing argument is that the market is pricing Fuyao as a Chinese car stock rather than as the supplier taking share from everyone. "investors are fixated by the depressed auto sales in China and have marked down Fuyao's shares to a decade-low multiple of 12 times forward earnings with a 4.5% dividend yield giving us what we believe is an excellent entry point" — Yang
Chancellor closes by thanking her and saying he hopes to see her again.
Yang's bet is that the same overcapacity destroying Chinese carmakers' profits is what makes their glass supplier a good business — a part too cheap to negotiate over, getting more expensive and more functional every model cycle, sold by the one company still adding capacity while every Western rival closes plants or sells the division.
Products, Companies & Tools Mentioned
Fuyao Glass (The centerpiece: founded in 1987 by Cao Dewang, roughly 70% share in China and a global share Yang puts at "35% today", R&D at 4 to 5% of revenue, capacity up over 30% in two years, and a 12 times forward multiple)
BYD (China's market leader, once a Munger and Buffett favorite, with first-quarter profit down 55% and Berkshire out of the stock entirely in 2025)
Geely and Chery (The number two and three carmakers in China; first-quarter profit down 27% and 10% year-on-year)
Berkshire Hathaway (Sold out of BYD entirely in 2025, which Yang calls wise)
AGC (The Japanese maker that led the world a decade ago and is now, on Yang's account, roughly half Fuyao's sales with an eighth of the operating profit; R&D at 3% of revenue and auto glass capex expected to fall this year)
NSG, Nippon Sheet Glass (Auto glass revenue about half of Fuyao's; taken private by Apollo in March, and in Yang's reading more likely to sweat its assets than expand them)
Saint-Gobain (Closed automotive glass plants in Germany and Spain in the second half of last year on energy costs and low-cost competition; R&D at 1% of revenue and a strategic plan pointed at shrinking or selling underperforming industrial assets)
Apollo (The buyer that took NSG private in March this year)
Lens Technology (The mobile phone screen and cockpit component maker building auto glass capacity and starting to supply side windows — the new-entrant risk, currently very small relative to Fuyao)
Marathon Asset Management (Yang's and Chancellor's firm; Yang covers the emerging markets portfolios)
Books & Resources Mentioned
American Factory (The Oscar-winning documentary about the culture clash between Chinese management and American workers at Fuyao's Ohio plant; Yang says it can be found on Netflix)
Get the latest market chatter and takes as they happen:
X | Threads | Instagram | YouTube | TikTok | Facebook