China’s automobile market is undergoing a fierce reshuffle due to overcapacity, with the competition in 2025 expected to be more intense than ever before.
According to a report by The Wall Street Journal on Thursday, Xiao Peng, the CEO of Xiao Peng Motors, stated in an internal email on December 31, 2024 that the years 2025 to 2027 will be a survival game for the Chinese automotive industry. He emphasized that the competition in 2025 will be more intense than ever.
Li Bin, the CEO of the high-end electric vehicle manufacturer NIO, also noted that “automobile companies cannot afford to have any weaknesses.” He added that the industry has entered the “most intense and brutal stage of competition.”
This industry reshuffle is a common result of Beijing’s industrial policies. Initially, the CCP and local governments promote favored industries through subsidies and policy support. Once these industries reach a critical mass, the market enters a phase of fierce competition and consolidation.
Previous industries like solar panels, wind turbines, as well as steel and electronics, have gone through similar processes in the past.
The Chinese automobile market is currently facing oversupply, with future demand for electric vehicles significantly lower than current production capacity. In order to remain competitive, Chinese auto companies have been forced to adopt price-cutting strategies and explore overseas markets for growth.
Foreign brands such as General Motors, Ford, and Toyota have been losing market share to domestic Chinese competitors. According to data released by the China Automobile Dealers Association on Thursday, China’s auto sales in 2024 increased by 5.5% year-on-year, reaching 22.9 million vehicles. Local Chinese brands held 61% of the market share, an increase of 8.6 percentage points from the previous year.
However, the excess capacity has triggered a fierce price war among domestic brands in China, leaving only a few companies able to survive.
Stephen Dyer, Managing Director of AlixPartners, told The Wall Street Journal that in 2024, 23 electric vehicle brands exited the Chinese market or were merged into other brands, while dozens of new brands entered the market. He mentioned that in the first nine months of last year, 112 brands sold more than one electric car.
Nevertheless, he estimated that the capacity utilization rate of Chinese automakers was only about 50% last year.
According to AlixPartners’ data analysis in July of last year, by 2030, out of the existing 137 electric vehicle brands in China, only 19 will be profitable, with the rest either exiting the industry, undergoing consolidation, or fighting for a small market share.
Dyer told Bloomberg that as long as Chinese auto companies like BYD still have profit margins, price wars will continue. BYD is the best-selling electric vehicle brand in the Chinese market, surpassing foreign electric car giant Tesla in production volume.
Sam Fiorani, Vice President of AutoForecast Solutions, specializing in global automotive production and sales, mentioned in an interview with The Wall Street Journal that eventually, only state-owned enterprises and large private enterprises may survive. He added that there will likely be a significant consolidation and loss of small businesses, especially those without export operations.
However, even financially strong enterprises cannot guarantee their future. In 2025, due to a sluggish overall economy, Chinese auto sales may decline.
Moreover, it is becoming increasingly challenging to find overseas markets to absorb excess production, as no market can accommodate such large quantities of output. Various countries have also set up trade barriers to protect their domestic industries. In October 2024, the EU imposed tariffs as high as 45% on electric cars manufactured in China, and the Biden administration levied a 100% tariff on Chinese electric vehicles in the same year.
According to Wards Intelligence, the number of electric vehicles and plug-in hybrid cars sold in China has now nearly reached the total scale of the US automobile market, which had approximately 15.9 million vehicle sales last year.