Why China’s Electric Cars Are Taking Over the Global Market: The Price War That Could Shape Their Future

In spring 2024, Li Hongxing, a social media advertising expert, took a risk on a rising electric vehicle (EV) brand in China called Ji Yue. Confident in their potential due to impressive sales and support from wealthy backers, Li even borrowed money to boost their advertising. Unfortunately, his hopes quickly crumbled. Within six months, Ji Yue collapsed, leaving Li with a staggering debt of 40 million yuan (about $5.6 million).

“It was a feeling of sheer despair,” he recalled.

Ji Yue’s failure isn’t isolated. The electric vehicle industry in China is facing a tough challenge. Many brands have gone under due to fierce competition and price wars. The Chinese government’s previous support for EV makers led to a surge in production. However, this has resulted in overcapacity, with hundreds of brands vying for a shrinking market share.

Officials in China acknowledge the chaos this competition brings. In a recent column, President Xi Jinping emphasized the need to stop “chaotic price wars” in the business sector. Following this, the government has introduced measures, such as limiting payment timelines for suppliers, yet experts remain skeptical about whether these changes will effectively stabilize the market.

Companies like BYD, Chery, and Geely are now pushing into global markets, helping China export nearly 6 million cars last year—more than any other country. Yet, the overflow of vehicles has stirred concerns abroad, resulting in tariffs and restrictions from places like Europe and Canada.

The current market dynamics are harsh. A report from the China Passenger Car Association indicated that profit margins have plummeted to 4.3% last year, down from nearly 8% in 2017. Many producers are in the red, relying on external funding to stay afloat.

Chetan Ahya, chief Asia economist at Morgan Stanley, notes that simply reducing production capacity can lead to job losses and further economic stress in a country where employment is crucial for social stability. The auto sector employs over 4.8 million people, making the stakes even higher.

As Li reflects on his experience with Ji Yue, he sees the industry’s cruel reality. “Some companies are bound to go under,” he said. Industry observers predict that this tough landscape may continue, with fewer brands surviving the ongoing turmoil.

Despite recent government efforts to cut excess capacity and stabilize competition, the future remains uncertain. Analysts suggest that structural changes are essential. As the industry navigates this precarious situation, many automakers are still figuring out their strategies to either endure or become the next Ji Yue.



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