On September 22, it was revealed that renowned American investor Warren Buffett has sold off all his stocks in Chinese electric car giant BYD.
On September 19, Xiaomi’s electric vehicle brand, one of the leading smart EV makers in China, recalled 110,000 SU7 vehicles due to safety concerns.
The mid-year 2025 corporate reports revealed that out of the 10 listed autonomous driving car companies in China, 8 were facing losses.
These continuous string of negative news suggests that the Chinese electric vehicle industry may be heading towards a bubble burst. This raises the question, can the Chinese Communist Party resolve this bubble?
According to a Reuters survey, the production capacity of domestic car brands in China has exceeded the domestic market’s absorption capacity.
Data from the China Association of Automobile Manufacturers showed that in 2024, the annual production and sales of cars in China reached 31.282 million and 31.436 million vehicles respectively, with annual growth rates of 3.7% and 4.5%. The production and sales of electric cars, known as “new energy vehicles,” hit 12.888 million and 12.866 million vehicles respectively, with an annual growth rate of 34.4% and 35.5%, accounting for 40.9% of total new car sales.
The Reuters survey report stated that Chinese car companies are “striving to catch up with the production targets set by the government, rather than consumer demand. This makes it difficult for almost all car companies to make a profit.”
In 2017, the Chinese government introduced a plan requiring Chinese car companies to produce 35 million cars annually by 2025, with a special emphasis on producing electric vehicles. The 2024 figures are already close to this target.
In 2017, the plan led to the emergence of at least 487 electric vehicle manufacturers in China. However, by 2024, this number had decreased to 129. This shows that the bubble in the Chinese electric vehicle industry inflated rapidly and is disappearing just as quickly.
David Huang, an economic scholar in the United States, told Dajiyuan that the main political purpose of the Chinese Communist Party promoting electric vehicles is to use them as a bargaining chip in carbon emissions and climate negotiations with European and American countries.
Huang stated that the CCP provides “subsidies and incentives” for its political goals, and local governments are “desperately promoting production for economic growth, employment, and fiscal revenue,” with car companies operating more in accordance with government policies than market demands”.
In recent years, as the Chinese real estate industry declined, many local governments turned to the automotive industry as an alternative economic pillar.
Tian Xie, a professor at the University of South Carolina Aiken School of Business, stated to Dajiyuan that the Chinese electric vehicle industry emerged due to the CCP’s “political needs” to stimulate the economy and promote the production of electric vehicles. The sudden emergence of hundreds of electric car companies was all to gain subsidies and land incentives from the central and local governments.
He said, “This is essentially a frenzy of ‘Great Leap Forward’-style, wasteful production.”
At the international car show held in Chengdu, Sichuan from late August to early September this year, domestic Audi cars were sold at a 50% discount and FAW’s seven-seater SUV was sold at a 60% discount.
The “inward collapse” and price wars in the Chinese car market have entered their third year, indicating that the severe consequences of overcapacity continue and show no signs of improvement.
Jiazhong Fan, an economics professor at National Taiwan University, stated to Dajiyuan that China’s economic planning is “very supply-oriented, not market-oriented, which is actually a characteristic of the CCP in developing the economy,” known as a “planned economy”.
“Overproduction is a product of a planned economy,” Fan said. The CCP “never really intended to operate under a market economy framework” and insists on a planned economy that “almost allows it to control all production resources, which is helpful for its centralized power”.
Under the pressure of economic decline and weakened consumption, the CCP tends to favor planned economic policies. Fan stated, “The only way it can boost GDP is from the supply side, so it tries to push for production according to the plan. Even if companies are not profitable, it hopes that they can produce more according to the plan to maintain GDP at a certain level, so that the decline in GDP is not too rapid, and the problem of unemployment in the market can be alleviated slightly.”
Fan believes that although the car market’s share in GDP is not as large as the real estate sector in terms of volume, the automotive industry is a more sensitive industry.
During the peak period, the real estate sector’s overall contribution to the economy (including upstream and downstream industries) could reach 25%-30% of GDP. However, as the real estate market declines, this number is also decreasing.
For the automotive industry, industry insiders believe that its total output value in 2023 has approached 10% of GDP, becoming a new “leading pillar industry”.
Although the automotive sector has different characteristics compared to the real estate bubble, “the market is supply-driven, leading to severe imbalance, severe ‘inward collapse,’ and price competition. In this development process, it is also heading towards a bubble. This is actually a very easy risk that comes from a planned economy. The car market is a very typical example,” with the car market bubble being a “microcosm of China’s economic crisis”.
If the CCP continues with planned economy policies, Fan believes that the issues in the Chinese economy, including the electric vehicle bubble, are unsolvable. He stated, “There is essentially no way to solve it. The ‘inward collapse’ issue is something it caused itself, and it is too severe. It hopes to pull back a bit, but the result is a trade-off. This means that when it comes to handling various supply-demand imbalances, the planned economy is very inefficient. It has always not been handled well, mainly because of this issue.”
In the short term, Fan predicts that the car market’s “inward collapse issue will continue, and imbalance issues will persist for some time.” In the medium to long term, “a major reshuffle in the Chinese car market is unavoidable, and severe closures will occur.” After a “dramatic reorganization process,” as a long-term result, “the car market will definitely return to a new equilibrium point, but this may take a very long time.”
According to a study by global consulting firm AlixPartners, by 2030, there may be only 15 Chinese electric vehicle brands left.
In the Chinese electric vehicle industry, who is benefiting? And as the electric vehicle bubble approaches collapse, who are the losers?
Huang stated that in the short term, there may seem to be many winners, but in the medium to long term, everyone will lose, especially consumers who will suffer the most.
He further explained that in the short term, the CCP government can engage in negotiations on carbon emissions with European and American countries to make these countries wary of China. However, in the long term, Europe and America will realize that this is just a “new energy scam,” so in the long run, the CCP’s negotiation plan with Europe and America will fall apart.
For local governments, in the short term, they gain in revenue, but in the long term, it causes huge risks and waste of local debts, diverting available resources from improving the economic fundamentals toward distorted market controls.
For major car brands, in the short term, they “may use policies to expand their development space,” but in the long term, “only a few leading companies can truly survive amidst this upheaval, and they still face huge market risks and turbulence.”
For the majority of car dealers and small and medium-sized car manufacturers, “although they may have received subsidies in the short term, in the medium to long term, when faced with a significant increase in inventory and production, they may be unable to sell, leading to oversupply, significant cash pressure, and ultimately resulting in massive bankruptcies.”
For consumers, many have believed the CCP’s “monolithic propaganda” and bought into electric vehicles, thinking they were getting a good deal, when in reality, they are suffering “significant harm.” “Firstly, electric vehicles are not safe; secondly, the depreciation rate and damage rate of electric vehicles are very high; thirdly, electric vehicles are actually a huge monitoring device,… and can also serve as a ‘man-made death’ or ‘man-made accident’ factory, meaning it is ‘all harm and no benefit’ for consumers. In the end, consumers will be the biggest losers.” warned David Huang.
He added that if there are real winners, they are only a few politicians within the CCP ruling class.
Tian Xie also stated that just as in the real estate industry, where the real beneficiaries are the Communist Party’s red elites and their families, these same figures profited during the rise of the electric vehicle bubble. “Now they have left, having made their profit, leaving the problem to the general public.”