China’s EV Price Wars Push Startups to Collapse as Industry Faces Overcapacity Crisis
In the spring of 2024, marketing veteran Li Hongxing believed he had found a winning client. Running a social media ad agency, Li took on Ji Yue, a promising electric vehicle (EV) startup in China. Convinced that the brand had the backing and sales momentum to succeed, he even borrowed money to finance a large-scale ad campaign.
But within six months, Ji Yue collapsed. The automaker’s downfall left Li buried in debt of 40 million yuan ($5.6 million)—a devastating blow he never anticipated.
“It was a feeling of sheer despair,” Li recalled.
Ji Yue’s fate is not unusual in today’s cutthroat Chinese auto market, where hundreds of startups have already folded. While giants like BYD dominate the global EV stage, countless smaller brands are being pushed out in an increasingly brutal race for survival.
China’s EV Boom Turns Into a Bloodbath
China’s EV revolution began as a bold government bet. In the 2000s, Beijing identified electric vehicles as a strategic sector and rolled out massive subsidies to accelerate growth. By the 2010s, the industry was booming, producing global leaders like BYD, which overtook Tesla in sales last year. At its peak, the country had nearly 500 EV brands competing for attention.
But rapid expansion has triggered a crisis of overcapacity and price wars. More than 150 auto brands and at least 50 EV manufacturers are still fighting for market share. Many operate at a loss, relying heavily on fresh investment rounds to stay afloat.
The result: relentless discounting, squeezed suppliers, and declining product quality.
“Some companies are bound to go under—if not you, then them,” Li said.
The Case of Ji Yue: Rise and Fall of a Startup
Founded in 2021 as a joint venture between Baidu and automaker Geely, Ji Yue initially appeared destined for success. The startup drew industry attention with solid sales growth and big-name backing.
Encouraged by early signs of promise, Li signed a long-term contract, extending favorable payment terms. But by October 2024, Ji Yue showed signs of financial trouble. A month later, it announced a restructuring plan, citing “fierce market competition.” The move marked the effective end of the venture.
Li, like many small business owners caught in the storm, is still waiting to be repaid.
A Vicious Cycle of Price Wars
Industry insiders describe the EV sector as being trapped in a vicious cycle. Constant price cuts are eroding profit margins, which dropped from nearly 8% in 2017 to 4.3% in 2023, according to the China Passenger Car Association.
Manufacturing capacity is another problem: factories run at only 50% utilization, Morningstar reports. With so many players chasing limited demand, automakers slash prices while delaying payments to suppliers.
Suppliers, in turn, face enormous pressure. Many are forced to sell below cost just to stay afloat. One coating materials supplier in Wuhan said they had to cut prices by over 40%—and wages by **30%—**to stay competitive.
“Suppliers have little choice but to quietly accept unfavorable terms,” said Carl Cheng, an EV industry manager. “If you walk away, there are plenty of others ready to step in.”
This environment has also compromised innovation. Instead of focusing on research and development, many carmakers prioritize cost-cutting to survive.
Beijing Steps In to Curb “Disorderly Competition”
The crisis has caught the attention of Beijing. Chinese leader Xi Jinping recently warned against “chaotic, cut-throat price wars,” highlighting the risks to long-term stability.
In response, regulators have introduced several measures:
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Rules to shorten payment cycles, forcing automakers to pay suppliers within 60 days.
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Guidelines to reduce subsidies and scale back overcapacity.
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Warnings to automakers against igniting destructive price wars.
China’s Ministry of Industry and Information Technology even launched an “anti-involution” campaign. The term “involution” refers to excessive, self-defeating competition that produces minimal progress—a description many say fits today’s EV industry perfectly.
Yet, experts remain cautious. Carmakers can still bypass payment deadlines by using promissory notes, and “stealth” price competition—such as offering upgraded models at the same price—continues.
Global Ripple Effects
China’s EV troubles extend far beyond its borders. Last year, the country exported nearly 6 million vehicles, surpassing all other nations. Brands like BYD, Chery, Geely, and Changan are aggressively expanding abroad.
But this export surge has alarmed trading partners. Europe, Mexico, and Canada have responded with tariffs and restrictions, accusing Chinese automakers of flooding markets with artificially cheap vehicles.
Domestically, the oversupply has fueled deflationary pressures, further straining China’s economy. Experts warn that mass closures of automakers could lead to job losses among the 4.8 million workers employed in the industry—a major risk to social stability.
No Easy Solutions
Despite government intervention, analysts say there’s no quick fix. Overcapacity has been years in the making, fueled by subsidies and aggressive investment. Simply allowing weaker firms to collapse could trigger widespread unemployment and social unrest.
“Cutting capacity is not a perfect solution,” said Chetan Ahya, Chief Asia Economist at Morgan Stanley. “There will be a social stability problem if you just stop investing.”
Industry experts like Claire Yuan of S&P Global believe price wars will continue in some form, whether through discounts, new low-cost models, or added consumer perks.
Vincent Sun, senior equity analyst at Morningstar, agrees:
“It may take more than just anti-involution policies to solve this issue. For now, price competition is here to stay.”
The Road Ahead
For entrepreneurs like Li Hongxing, the collapse of Ji Yue is both a personal and cautionary tale. The EV boom that once promised limitless opportunity has turned into a survival game where only a handful of brands are expected to endure.
As China grapples with how to balance innovation, employment, and economic growth, the EV sector faces an uncertain road. For now, the price wars rage on, reshaping not only China’s auto industry but also the global car market.