Geely Group is one of China’s best-selling EV companies. Photo / Andrea Verdelli, The New York Times
Beijing has run out of patience with companies slashing prices, and is urging restraint. But fierce competition is also producing a surge of innovation.
China is conquering the world in electric vehicles. Its automakers produce far more than any other country and outpace them on innovation. China’s appetite for gasoline-powered cars is fading by the week. In each of the last five months, battery-powered and plug-in hybrid cars made up more than half of all cars sold.
But look closer at the industry, and the picture is not pretty. Already, fierce competition among automakers has gotten ruthless, with about 50 automakers fighting for customers by slashing prices again and again. Manufacturers facing ruinous losses are struggling to pay the companies that supply their parts. And yet they keep borrowing from state-run banks to build more factories, leading to extensive overcapacity.
The frenzy has captured the attention of the highest levels of China’s Government. Officials have started a campaign against “involution,” which they define as excessive competition. Xi Jinping, the country’s top leader, led a Politburo meeting on the economy July 30 that ended with a statement declaring, “It is a must to reinforce industry self-discipline to prevent vicious ‘involution’ competition.”
The results have been mixed. In early June, under orders from China’s Cabinet, 17 automakers agreed to pay their suppliers within 60 days of receiving parts. But a government report on compliance August 11 listed only three automakers, all partly or entirely state-owned, as having set up systems for prompt payment.
Even BYD, the world’s largest EV maker, is now running into trouble. It said Friday that its profits fell by almost a third in the spring compared with a year ago because of price competition.
Discouraging investment by carmakers has been difficult. Even with a slight slowing in July in response to the Government’s admonitions, the industry’s investments were up 21.7% in the first seven months of the year, compared with the same period in 2024 – the fourth year in a row of torrid growth.
Overcapacity and price wars are a chronic problem across China’s economy. Debt-fuelled investment pours into a succession of government priorities. This creates a glut of companies and factories that battle for a limited domestic market.
“Involution” in the auto industry also shows the cost of China’s investment-led growth strategy. For example, even a slight slowing in July of the pace of investment in manufacturing equipment dampened the entire economy’s performance.
Electric cars are a lot like smartphones or laptops: the more you make, the cheaper it is to make even more. Automakers are constantly building ever larger factories to grab more market share, even when that means selling electric cars for less and less money.
“This is a race to dominate, not a race to profitability,” said Bill Russo, the CEO of Automobility, a Shanghai-based electric car industry consulting firm.
Last year, 129 brands in China were selling cars that ran mainly or entirely on electricity, and only 15 of them would be financially viable by 2030, according to an estimate by AlixPartners, a global consulting firm.
“More than that will keep going, but they will require deep pockets investors to keep them going,” said Stephen Dyer, the head of the firm’s Asia automotive practice.
The roster of China’s top electric carmakers starts with BYD. It has stiff competition from the Geely Group, with its many brands including Zeekr and Polestar, as well as Tesla, which has struggled but is still a popular brand in China. The Chinese consumer electronics company Xiaomi branched into electric cars last year and its first model, the SU7, already outsells all but five other models in China.
Absent from the top of China’s EV rankings are four state-owned automakers with ties to China’s national Government: FAW Group, Dongfeng Motor, Changan Automobile and the GAC Group. The government-owned giants are strong in internal combustion engines but weak in electric cars.
Beijing is struggling to contain the industry’s overall capacity in part because the state-owned companies refuse to shrink to offset the growth of the private companies making so many electric and hybrid vehicles. Closing state-owned factories that make gasoline-powered cars and laying off their workers is politically difficult, especially in a high-profile industry like automobiles.
Beijing is concerned partly because banks are potentially exposed to heavy losses if car makers and their parts suppliers cannot pay their bills.
As big employers in an industry that is the pride of China, car makers have the clout to make sure that others keep financing their losses. And banks have been under regulatory mandates to lend for clean energy technologies.
Auto parts manufacturers have had to accept being paid months late, and then have had to take out bank loans to keep going. Local governments, many of which borrowed to establish companies, now need to borrow even more to provide financial lifelines to companies.
The lots of car dealerships are bursting because of the oversupply problem. Yet powerful automakers insist that the dealers keep buying cars. All along, cuts in sticker prices have shrunk the value of dealers’ inventories.
“Dealers are forced to promote products at prices below cost, which drags down the credibility and sustainable development of the entire industry,” the dealership associations of four provinces in the Yangtze River Delta said in a joint statement this summer.
Another outcome of the overcapacity is that Chinese manufacturers now export a fifth of their production, up from almost none before the Covid-19 pandemic. The exports have established China’s carmakers as global powerhouses at the expense of other countries’ car industries. That has been a central trigger for the trade backlash and tariffs against China in the West.
One force propelling China’s EV revolution that Beijing is unlikely to slow is the torrent of mechanical engineers graduating from universities – 10 times as many as in the United States. Two-thirds of Chinese youth now go to university, and while many struggle to find jobs, the auto industry is hiring engineers in large numbers.
BYD alone employs 120,000 engineers, roughly the size of Tesla’s entire labour force. Young engineers earn less than US$3000 ($5120) a month. Across the street from BYD’s headquarters in Shenzhen, 500-square-foot apartments in high-rises, developed in part by the automaker, rent for US$350 a month.
The result of it all – the engineers, the state-backed lending and the ferocious competition – is a remarkable pace of innovation.
BYD’s Fangchengbao Bao 8 SUV has a drone that can take off from the roof and be controlled from the dashboard. The aircraft can fly above the car as fast as 60mph. The car uses artificial intelligence to edit the drone footage and download it to the motorist’s phone.
The Yangwang U9, BYD’s top-of-the-line sports car at US$235,000, does a rolling “dance” to different tunes by bouncing up and down on its hydraulic jacks. Its seats are designed to clutch passengers so they don’t get tossed around.
Geely’s Zeekr brand offers luxury minivans with rear seats that recline into hammock-like beds. A wall separates the rear seats from the driver’s compartment.
Those kinds of bells and whistles have allowed BYD and Geely sales to grow rapidly and lengthen their leads over Elon Musk’s Tesla.
Tesla, which helped pioneer China’s electric vehicle market, is now stuck with ageing models and is suffering gradually shrinking sales. On Monday, it cut prices for its Model 3. The company lacks an affordable sedan after several years of focusing on its brash Cybertruck, which is not sold in China.
“Tesla sales year over year are down from 2024, so they’re not doing as well as they have been in the early years,” Russo said, and added that this, “has got to be a concern for Tesla because their global business is also under stress”.
This article originally appeared in The New York Times.
Written by: Keith Bradsher
Photographs by: Andrea Verdelli, Qilai Shen and Gilles Sabriés
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