BYD's new energy vehicle dispalys during the 2015 Shanghai International Automobile Industry Exhibition. [Photo/IC]

Analyst Zhong Shi said Chinese firms have made incredible progress in pursuing global standards and improving product quality, "but commercially, domestic cars still have to stand the test of both the market and time."

Way out

China has the world's most competitive car market, with twice as many brands and three times as many models on the market than in the United States. But it is also a market so large and lucrative that no domestic players can afford an industry shake-out.

Latest data from the CAAM shows China's auto sales are on track to increase 7 percent year on year to hit 25.1 million units in 2015.

According to the association, China's auto sales maintained an average annual increase of 24.1 percent from 2001 to 2010. The rate slowed to 6.8 percent from 2011 to 2014.

Despite the market slowdown, global car makers are taking on a growing presence in China. More Audis, BMWs, Mercedes and Land Rovers are rolling off assembly lines installed in China. Lower-end vehicles produced by joint ventures are also squeezing domestic brands.

Stepping up to nibble at a luxury market that has always been dominated by foreign companies is a natural way out for Chinese car makers, Zhong said.

According to official data, domestic brands accounted for 56.4 percent of the SUV market in China in the first three months of the year.

None of the vehicles brought to the show by Geely Automobile, a domestic company known for its low-end products, can be categorized as budget cars.

"It does not mean that we have given up on budget cars," said Zhao Fuquan, Geely vice president. "But the luxury models at the show do indicate the direction of our future development."

Speaking of the future, out of the 109 car models that made their global debut at the Shanghai Auto Show, 103 were new energy vehicles.

The number of new energy vehicles produced in China in 2014 stood at 78,000, up 350 percent year on year, and the number sold in the country hit 74,000, up 320 percent.

Explosive growth of the Chinese new energy vehicle market has offered a new arena for domestic firms in competing with overseas brands. Of the 103 new energy models, 51 are domestic brands.

BYD, China's leading electric and hybrid vehicle maker, has brought to Shanghai five new energy vehicles, named after five Chinese dynasties.

"We are not afraid of incoming foreign competitors in the new energy vehicle market. More players will be conducive to enlarging the market scope and our share of the cake as well," said a BYD executive at the exhibition.