China´s Electric Car Miracle Turns Menace – State-Driven EV Boom Risks Economic Fallout (31.07.2025)

China used aggressive subsidies rebates cheap finance and local government support to catalyze its ev industry rapid expansion led to China commanding more than 60 % of global ev sales and dominance over battery supply chains

But the picture has shifted sharply: plant utilization across ev factories has plunged to around 50 % the lowest in a decade while inventory levels have soared above ¥370 billion and total sector debt climbed 56 % to ¥959 billion in 2024

Profit margins are evaporating. the median net margin across 33 listed automakers dropped to just 0.83 % in 2024 from 2.7 % in 2019 only BYD remains an outlier with a 5.4 % margin by pivoting toward automotive revenue

Intense price wars have rocked the market smaller brands like Neta slashed prices by more than 20 % to shed inventory this has intensified deflation with producer price index down −3.6 % in June 2025

On July 16 China´s cabinet under premier Li Qiang announced measures to clamp down on “irrational” competition price monitoring banning below cost selling and demanding timely supplier payments

President Xi Jinping has issued rare warnings against local governments racing into ai computing and ev´s without coordination labelling such hyper‑competitive dynamics as “involution” and highlighting waste and deflation risks

Consultancy Alixpartners projects only 15 of the current 129 ev brands in China will survive through 2030 controlling 75 % of market share consolidation will be slow given local governments may keep propping up weak players to preserve jobs and tax revenues

China´s export push is more aggressive having capacity to export up to 560 000 cars annually to Europe in 2025 scaling toward 1.7 million by 2026 that excess has provoked tariffs and trade friction from the EU, US and Canada on alleged unfair subsidies

Smaller export markets such as Thailand mirror the same risks in 2025 Neta saw registrations slump 48 % exposing raw fragility of second‑tier players in global markets as price wars follow them abroad

Wider economic risks loom if overinvestment continues unchecked analysts warn of empty industrial parks rising debt deflationary spillovers and failure to rebalance toward domestic consumption undermining China´s transition to sustainable growth model

China struggles to shift from manufacturing dependency and weak consumer demand remains a chronic constraint economists argue deeper market reforms stronger social welfare and re‑aligned local government incentives are essential to rebalance growth and contain systemic risks

Meanwhile commodity markets briefly rallied in July as investors bet that authorities are finally serious about curbing overcapacity in sectors including steel solar polysilicon and ev´s signaling possible supply‑side reform

Summary

China´s electric vehicle sector, once a showcase of its industrial and technological rise, is now burdened by oversupply intense price wars and vanishing profitability while a few dominant players like BYD remain competitive. Most of the industry is struggling with mounting debt and deflationary pressure. The government is intervening to reduce harmful competition and encourage consolidation but without stronger domestic demand and structural reforms, the sector risks becoming a long term drag on China’s economic stability and growth trajectory

Related Online Reading

• merics.org / Beyond overcapacity: Chinese‑style modernization – analysis of how state‑led investment in EVs and other sectors drives inefficiency
• ainvest.com / China’s EV price wars heighten global concern – view on how subsidy withdrawal and price competition intensify risks in the EV industry
• deloitte.com / Global economic ripple effects from China’s overcapacity – Deloitte insight into how China’s oversupply of high‑tech exports impacts international trade dynamics
• apnews.com / Export dependence and rebalancing efforts in China‑US trade talks – AP News overview of broader policy pressures facing China from external trade partners
• reuters.com / Local market distortions distort EV sales data – Reuters investigation revealing the use of pre‑insured car schemes to inflate figures

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