China’s Electric Vehicle Boom Turns Into Brutal Price War as Carmakers Fight for Survival

What began as a government-fueled electric vehicle (EV) boom in China has spiraled into a fierce battle for survival, leaving bankrupt startups, suppliers under pressure, and the world’s largest EV market in turmoil.

For Li Hongxing, a veteran marketing professional, the dream of riding the EV wave turned into financial ruin. Earlier this year, Li borrowed heavily to finance advertising campaigns for Ji Yue, a startup backed by Chinese tech giant Baidu and automaker Geely. Confident in the company’s prospects, he extended generous payment terms, expecting steady growth and future profits.

But by October, Ji Yue had run out of cash. Within months, the company folded, leaving Li with debts totaling 40 million yuan ($5.6 million).

“It was sheer despair,” Li said. “I never imagined a company with such strong backers could collapse overnight.”

From Boom to Bloodbath

Ji Yue’s downfall mirrors a growing crisis across China’s EV industry. Once buoyed by government subsidies and a thriving domestic market, hundreds of manufacturers are now locked in a cut-throat price war, driving down profits and threatening to take down even well-established brands.

China’s early bet on EVs paid off spectacularly at first. By 2023, the country had overtaken all rivals to become the largest EV market in the world, producing global leaders like BYD, which outpaced Tesla in annual sales. At its peak, the country boasted nearly 500 homegrown EV brands, a testament to Beijing’s push for green technology and economic growth.

But rapid growth created massive overcapacity. Today, more than 150 brands, including over 50 dedicated EV makers, are still competing for a limited pool of customers, according to research by HSBC.

“With products looking increasingly similar and market growth slowing, competition has become a battle of attrition,” said Bo Yu, country manager for market intelligence firm Jato Dynamics. “Some companies are bound to fail – it’s survival of the fittest.”

Price Wars and Squeezed Suppliers

The competition has sparked relentless price-cutting, squeezing profit margins to record lows. According to the China Passenger Car Association, average profit margins in the sector fell to 4.3% in 2023, down from nearly 8% in 2017.

Major players like BYD, Chery, and Geely are pressuring suppliers to slash costs by at least 10% annually, forcing them to accept longer payment cycles and absorb financial risks.

“If you refuse, there are plenty of others ready to take your place,” said Carl Cheng, an insurance manager at an EV firm.

One Wuhan-based supplier reported cutting prices by over 40% just to stay afloat, while slashing workers’ wages by 30% and relying on temporary staff and overtime to reduce costs.

“The focus has shifted entirely to efficiency and survival, not innovation,” Cheng added. “The quality of components has suffered.”

Global Expansion Meets Backlash

Even as domestic competition intensifies, Chinese automakers are aggressively expanding overseas. Last year, the country exported nearly six million vehicles, more than any other nation, as brands sought relief from a crowded home market.

However, this flood of low-cost EVs has sparked trade tensions, with regions like Europe, Mexico, and Canada introducing tariffs and restrictions to protect local industries.

On Friday, Beijing introduced new rules requiring carmakers to obtain licenses for overseas shipments, an attempt to control exports and address concerns of dumping lower-quality vehicles in foreign markets.

Beijing Steps In

Recognizing the economic risks, China’s government has begun intervening to calm the chaos.

President Xi Jinping recently called for a crackdown on “chaotic, cut-throat price wars.” In response, regulators have introduced rules to shorten supplier payment cycles to 60 days and urged local governments to scale back subsidies that encourage overproduction.

Despite these steps, industry analysts doubt a quick resolution.

“These are important first steps, but cutting capacity alone won’t fix the problem,” said Chetan Ahya, chief Asia economist at Morgan Stanley. “If you just stop investing, it could lead to widespread job losses and threaten social stability.”

China’s auto industry employs over 4.8 million people, making large-scale shutdowns politically and socially risky for the Communist Party.

The Road Ahead

The future of the industry may depend on how quickly the market consolidates. Some experts predict that, in time, only a handful of dominant brands will survive.

He Xiaopeng, CEO of leading EV maker Xpeng, believes the battle is far from over.
“The knock-out rounds in China’s auto industry will continue for another five years,” he said. “When the dust settles, there may only be five companies left.”

For now, the bloodbath continues. Li Hongxing, still struggling with the debt Ji Yue left behind, says his experience is a cautionary tale for those betting on China’s EV dream.

“The competition is merciless,” he said. “If not you, then someone else will be next.”