At first glance, it may seem odd that Beijing is criticizing its most successful industry. After all, China produces more EVs than the rest of the world combined, and domestic sales have increased by nearly 40% despite an unimpressive economy.

According to Ernan Cui, a China consumer analyst at Gavekal Dragonomics, internal-combustion car sales may disappear entirely in China within five years. There is growing concern worldwide that Chinese manufacturers like BYD will dominate the future of this industry with their cheaper and better vehicles.

However, the Chinese government is not entirely wrong about the "blind" and "disorderly" nature of the EV market. China heavily invested in the development of EVs and their supply chain for two decades, starting in the early 2000s. As consumers began to buy EVs without needing government support, official subsidies were phased out in 2022, as confirmed by Paul Gong, head of China autos research at UBS.

As a result, only a few companies emerged as winners, leaving behind a sea of unsuccessful attempts. According to Bill Russo, CEO of Shanghai-based consultant Automobility, there have been over 100 companies trying to make EVs, but the top 10 now control 80% of the market.

BYD, in particular, has gained a significant market share, accounting for 35% of the market volume last year. Tesla, on the other hand, only held a distant 8% share. Even the industry leaders engaged in disorderly price wars.

It seems that even in the world of EVs, one can indeed have too much of a good thing. The Chinese government's intention to rein in the chaos in the market might just be what the industry needs to ensure sustainable growth and success in the long run.

The Complexity of China's EV Industry

By Niels Graham, Associate Director for Geoeconomics at the Atlantic Council

The booming electric vehicle (EV) industry in China is facing a challenging predicament. While it may be tempting to let struggling EV manufacturers go bankrupt, the Chinese government's paternalistic stance complicates matters. As Beijing prioritizes bolstering manufacturing amid a faltering real estate sector, cooling down the feverish EV market would contradict this broader policy.

According to recent figures from Niels Graham, bank loans to the Chinese EV industry grew by a staggering $700 billion last year, while property-related flows turned negative. These numbers reflect the government's commitment to support and sustain the sector.

Experts believe that Beijing will strive for "balance" in managing this situation. Rather than forcing mass bankruptcies, they predict that the government will curtail new EV construction permits. However, business closures are likely to be a gradual process that takes time.

While substantial Chinese EV exports to the United States are currently restricted due to domestic-content subsidies and high tariffs, Europe presents an attractive market for Chinese automakers such as BYD. The European Union initiated an "anti-subsidy" investigation into Chinese EVs last October, which is expected to conclude this year. Graham anticipates that the investigation will result in increased tariffs on imported Chinese EVs above the bloc's existing 10% levy on all cars.

Beijing's statement about reining in production may be primarily aimed at appeasing Brussels rather than having a significant domestic impact. Observers suggest that this could be a strategic move, with the Chinese government intending to maintain control over its burgeoning EV industry.

Regardless of origin, many Western consumers are seeking affordable EVs that offer the best value for their money. And China has proven its ability to deliver precisely that. The world needs affordable EVs, and China understands how to meet this demand in the market.

In conclusion, the landscape of China's EV industry is complex, and finding a delicate balance between sustaining growth and preventing excessive speculation is crucial. As this sector continues to evolve, both domestic and international stakeholders will closely monitor China's strategies and policies.

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