The narrative seems to be that cheap Chinese cars threaten the rest of the worlds automotive industry.
A slightly different hypothesis: Car needs are increasingly different between regions. To exaggerate it: US wants huge pickups, Germany wants fast sedans, China wants cars with entertainment in traffic jams. Since manufacturers are heavily influenced by their home country, they do worse elsewhere now.
Honestly, I doubt needs are diverging so much as marketing has diverged between markets as various companies try to create and maintain places and growing markups for themselves.
Companies in the US focus on competing to sell the largest and thusly highest margin vehicles they can, companies in the Germany focus on upselling customers on speed because they have smaller parking and stricter emissions, and in the price competitive market of China, the focus is on infotainment systems that add something to market and upsell without actually costing much to add.
That being said, while marking can shape demand there is only so much that marketing can do to change the actual needs of car buyers. People still need and buy pickup trucks in europe and asia, rich Americans and Chinese still love their absurdity fast cars, and I doubt that the US or Europe are going to see an end to increasing electronics to increase markup anytime soon, China is just ahead of the curve on that one.