By Mehmet Emin Hazret
EV Production and Market Boom (2018–2023)
China’s annual new energy vehicle (NEV) sales — including battery-electric and plug-in hybrids — jumped from around 1.3 million in 2018 to 9.5 million in 2023, nearly an eightfold increase in five years. This explosive growth was driven by strong government incentives, a wide variety of affordable models, and growing consumer demand.
By 2023, nearly 30% of all cars sold in China were electric or hybrid, a sharp rise from just 5% in 2018. China also produced 58% of the world’s EVs, firmly securing its place as the global EV leader.
Rapid expansion of state-backed factories also fueled the growth of the EV supply chain. But the question now is: Can this growth continue sustainably?
Fierce Price Wars and Shrinking Profit Margins
With dozens of EV brands in fierce competition, a massive price war has broken out, severely pressuring profit margins. Tesla kicked it off in late 2022 by slashing Model 3 prices by ¥14,000 (~$1,930), forcing Chinese automakers to follow suit.
BYD, for example, cut prices on over 20 models by 10–34%. Its budget Seagull EV dropped from around $10,000 to just $7,765. These discounts benefited consumers short-term but severely cut automaker profits.
Tesla’s global profit margins shrank — its operating profits dropped 40% by mid-2024. In China, some Tesla models were sold at break-even or even at a loss. Meanwhile, startups like NIO and XPeng reported massive losses in 2023:
NIO: ¥22.7 billion (~$3 billion)
XPeng: ¥10.4 billion (~$1.5 billion)
Even BYD, while still profitable, faces questions over how long it can sustain aggressive pricing.
BYD’s Debt and Financial Risks
BYD, which produces nearly 30% of China’s EVs, also plans to invest $1 billion in Turkey. But is its financial structure as strong as its market share?
Officially, BYD reported ¥27.7 billion in debt by mid-2023. But independent researchers like GMT Research estimate the true figure — including supplier debt and off-balance sheet liabilities — could be as high as ¥323 billion (~$47.5 billion).
If market conditions worsen, BYD’s hidden debt and reliance on short-term financing could pose serious liquidity risks, despite strong ties with state banks.
How Consumers Are Feeling the Effects
Lower prices have made EVs more accessible to Chinese consumers, with entry-level models now selling for ¥55,000–¥70,000 (under $10,000). But the rapid discounts also hurt consumer confidence.
Buyers who purchased early saw their cars lose value within months. One 22-year-old bought a BYD Qin Plus for ¥94,800 — only to see its price drop ¥15,000 just four months later. Reactions on social media were swift and angry.
Buyers of smaller brands also fear those companies might collapse, leaving them without service or updates. Some dealerships have even labeled new EVs as “used” to get around pricing controls, further confusing the market.
The “EV Bubble” and a Market Reckoning
As profit margins shrink and debt rises, experts warn that China’s EV market may be forming a bubble, similar to what happened in the real estate sector.
XPeng’s CEO called 2025 a “survival year.”
NIO’s CEO said it’s time to “face harsh realities.”
Great Wall Motors’ chairman compared the current EV market to the Evergrande real estate collapse.
By 2023, 80% of EV sales came from just 30 brands, suggesting that many of China’s 100+ EV companies may soon disappear. Some parts suppliers are already shutting down due to overcapacity and debt.
Government Support and Regulation
The Chinese government has played a major role in building the EV boom. By the end of 2022, it had provided over ¥200 billion in subsidies. In 2023, it launched a massive ¥520 billion tax break package to continue supporting EV purchases through 2027.
However, Beijing is now taking a more cautious approach. In July 2024, the Politburo said it would target “destructive competition” and allow underperforming companies to exit the market.
Meanwhile, global trade pressure is growing. The European Union has launched anti-dumping investigations and imposed temporary tariffs on Chinese EV imports, putting overseas expansion at risk.
Final Thoughts: A Critical Crossroads
After years of rapid expansion, China’s EV industry is at a turning point. Surging production, price wars, and growing debt have exposed serious structural issues. The next 1–2 years will determine whether the sector can stabilize or spiral into deeper crisis.
The 2023 Evergrande collapse was a stark reminder of what happens when unchecked debt growth bursts. A similar scenario in the EV market could have economic and social consequences.
That’s why the future of China’s EV sector matters — not just economically, but socially. What happens next will shape not only China’s green transition, but also the global electric vehicle industry.
Sources:
- Gasgoo News – 2018 NEV sales data in Chinaautonews.gasgoo.com
- KrASIA – 2019 NEV sales decline and subsidy cutskr-asia.com
- CnEVPost/Canalys – China EV sales in 2020 (1.3 million, 8% YoY increase)cnevpost.com
- BBVA Research – China EV sales in 2021 and 2022 (3.3m and 6.9m respectively)bbvaresearch.com
- MarkLines – China NEV sales in 2023 (9.495 million, ~30% of market)marklines.com
- IEA Global EV Outlook 2024 – China 2023 EV registrations (8.1m) and end of national subsidiesiea.orgiea.org
- Reuters – Tesla’s price cuts in China and impact on profit marginsreuters.com
- Reuters – BYD and others cutting prices; fears of industry “bloodbath”reuters.comreuters.com
- Business Insider – Comments from XPeng’s He Xiaopeng (“knockout round” in 2024)businessinsider.com
- Rest of World – Consumer anger at fast price drops (BYD Qin Plus example)restofworld.orgrestofworld.org
- Ainvest/GMT Research – BYD’s hidden debt (~¥323B including off-book) vs reported ¥27.7Bainvest.com
- Reuters – Great Wall Motor chairman’s warning comparing EV sector to Evergrandereuters.com
- Reuters – China’s extension of EV purchase tax breaks (¥520B package, 2024–2027)reuters.comreuters.com
- Teslarati (Tesla 10-K) – Tesla China 2023 sales (603,000 units) and revenue ($21.75B)teslarati.comteslarati.com
- Morningstar/Dow Jones – NIO’s full-year 2023 net loss ¥22.66B; revenue ¥65.7Bmorningstar.com
- XPeng Investor Release – XPeng’s 2023 net loss ¥10.38B vs ¥9.14B in 2022ir.xiaopeng.com
- SpaceDaily – BYD’s 2023 net profit ¥30B (+80% YoY)spacedaily.com
- Reuters – EU’s anti-subsidy probe and provisional tariff (~7.8%) on Chinese EVsreuters.com
- Caixin Global – Politburo pledge to curb “vicious competition” and address overcapacity (July 2024)caixinglobal.comcaixinglobal.com
- USITC Briefing – Chinese EV exports surge to 1.6 million in 2023 (+1016% since 2018)usitc.gov
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