Some industry executives might be tempted to underestimate the Chinese auto industry, Fiat-Chrysler CEO Sergio Marchionne says. That would be a mistake.

Chinese automakers are quickly upgrading their technology, he says, and he expects them to be players in overseas markets.

"If anyone deludes themselves that they can ignore China, they will pay a huge price," Marchionne said Wednesday at an auto industry seminar in Traverse City, Mich. China's auto industry "has grown tremendously, and they have some of the most updated current technology. They should not be underestimated."

Marchionne may have reason to worry. Fiat is a major producer in Brazil, a market that has been targeted by China's Chery Automobile Co.

Last year, Chery announced plans to build a $400 million assembly plant in Brazil, and the company has started exporting vehicles to that fast-growing market.

"We cannot afford to be unprepared for the ascent of China, reassuring ourselves of our invincibility," Marchionne said.

"The excuse that we did not understand or that we underestimated the scale will serve no purpose," he added. "Rather we need to continue to work to make our industrial base more competitive, because the day of reckoning is inevitably coming."

He pointed out that Chinese automakers currently "produce almost entirely for the enormous domestic market, but their future plans for the export market are significant," he said. "Even assuming China were to export only 10 percent of what it produces, the risk we face in our home markets is enormous."

China is the world's largest auto market and many automakers have partnerships there.

Analysts have raised concerns that the transfer of intellectual property to Chinese companies could haunt automakers down the road by helping create stronger Chinese rivals that will export to the United States and Europe.

Reuters contributed to this report