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Bloated by excessive investment, distorted by government intervention, and plagued by heavy losses, China’s EV industry appears destined for a crash. EV companies are locked in a cutthroat struggle for survival. Wei Jianjun, the chairman of the Chinese automaker Great Wall Motor, warned in May that China’s car industry could tumble into a financial crisis; it “just hasn’t erupted yet.”
To bypass government censorship of bad economic news, market analysts have opted for a seemingly anodyne term to describe the Chinese car industry’s downward spiral: involution, which connotes falling in on oneself.
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The wobbles in China’s EV sector demonstrate the downside of China’s state-led economic model. China’s government threw ample resources at the EV industry in the hopes of leapfrogging foreign rivals in the transition to battery-powered vehicles. The Center for Strategic and International Studies estimates that the government provided more than $230 billion of financial assistance to the EV sector from 2009 to 2023. The strategy worked: China’s EV makers would likely never have grown as quickly as they have without this substantial state support. By comparison, the recent Republican-sponsored tax bill eliminated nearly all federal subsidies for EVs in the U.S.
The problem is that China’s program encouraged too much investment in the sector. Michael Dunne, the CEO of Dunne Insights, a California-based consulting firm focused on the EV industry, counts 46 domestic and international automakers producing EVs in China, far too many for even the world’s second-largest economy to sustain.
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In most economies, the market would sort out this mess by culling the weakest players. But China’s leaders don’t trust markets to achieve their national goals, so they readily intervene. In China, state support or ownership of automakers extends the life of struggling businesses. Local governments are also reluctant to lose the jobs they bring, so officials prop up unprofitable companies.
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China’s EV woes are a direct consequence of these interventions, which have engineered an unsustainable glut of vehicles. But instead of addressing these market problems, China’s leaders are cracking down on what they call “disorderly competition,” such as the aggressive EV price war and the sale of zero-mileage “used” cars.
Beijing has its own reasons to avoid the economic reforms that would make its EV industry more viable. By keeping factories running, even at a loss, the government can shore up an economy plagued by sluggish consumer spending and a slumping property market. More important, EV makers are a key part of Beijing’s plan to expand China’s global power.
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China’s state-led EV program, by design, has been predatory. By subsidizing these companies, China sought to edge out more established automakers in the U.S., Europe, and elsewhere. Beijing’s economic planners are willing to sacrifice something as frivolous as profitability to fulfill their dreams of building an internationally competitive car industry. China “sustains a lot of inefficiency at home in order to dominate industries and markets globally,” Dunne [said].
Yet even the Chinese state may not be able to prop up its automakers indefinitely.
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China’s EV industry’s gains in the international market are also under threat. President Joe Biden’s administration imposed a 100 percent tariff on Chinese EVs last year, which President Donald Trump has maintained, effectively shutting these vehicles out of the U.S. market. The European Union, Canada, Turkey and Mexico have also hiked duties on Chinese cars. Restricted access to key international markets could make it even harder for Chinese EV companies to survive without aid from their government.
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price of EVs is plummeting
This is objectively good for the vast majority of people.
Articles like this are just funny to me. I mean, look at the way it starts, “China’s EV market is imploding: Beijing’s grand ambition threatens to take down the global car industry.” Both the title and the subtitle are telling you “China bad” but for completely opposite reasons. The subtitle wants you to be afraid that China’s EV market is going to be strong enough to dominate the global auto industry - China bad! But the title wants you to know that the EV market is failing because - China bad! It’s ridiculous, it really is a Catch-22 where the author will try to evoke negative feelings about China regardless of what they do or don’t do, regardless of what’s true or untrue, which is exactly what I’ve come to expect from this trash outlet, always full of the most chauvanistic takes imaginable.
As other commenters have pointed out, the auto industry is also propped up by government intervention in the US, particularly with tariffs. And naturally, this wave of protectionism (there and elsewhere) shrinks the market for Chinese cars, resulting in overproduction. A problem which the Chinese government has identified and has moved to address, as mentioned in the article. But of course, when the Chinese government makes an honest assessment of an internal problem, Western sources use that to blow it out of proportion. And the cheaper prices resulting from the reduced size of the market is presented as some sort of underhanded scheme, which in turn justified tariffs.
What would this article even look like, if you removed all the loaded language, all the scaremongering and shitting on China? “Tariffs lead to reduced demand for Chinese EVs, leading to lower prices.” There, done, saved you a bajillion words.
Pretty breathless reporting on a price war that’s been running for over a year. I mean the dude notes that the companies are actively consolidating and the government is thus letting some fail. Portraying China as supporting too big to fail automakers who can’t seem to capture markets as a singular example seems pretty funny to me. Doing so while pointing to tariff policies while also extolling the virtues of the free market is even more strange. Any day now I’m sure those neoliberal drives will magic up a viable EV market in the US.
USA is not touting free markets anymore. Trump pretty solidly ended that. But on EV the Democrats were in on it, preventing Chinese cars from entering USA at all, while allowing massive subsidies to flow to Tesla.
USA is all about protectionism now, and is the least free market for cars in the developed world now.That’s my take, too. European and American automakers continued churning out EVs nobody wanted or needed: luxury models with a gargantuan price tag. China’s developed some EVs that were small and cheap, and finally European automakers, at least, started realizing the market was not where they were looking to find it.
Sure, the Chinese EV panoply is unsustainable, and the Chinese government is probably fond of keeping things running longer than required, but at least we got the innovation we had been asking for. A cheap, reliable commuter car that recharges in no time.
Portraying China as supporting too big to fail automakers who can’t seem to capture markets
This is not what the report says (and the price wars in China’s domestic markets are much longer than a year).
Yes. In the scheme of things, the subsidies seem miniscule compared to eunand USA subsidies over time.
Worst case, they put their western rivals in an unprofitable position thanks to state subsidy. Best casez they turn a profit thanks to the subsidy.
What I would like the euntonso is require.all.parts and tech in the ev market to be open source. Make it a commodity. Then if china subsidised, it’s to the benefit of the consumer. People worry about china dominance in the market. That only works for a closed market.
Require universal charging standards, universal software standards, universal battery storage standards etc and it’s a commodity.
I am not so sure about that argument. Precisely some of the largest US companies like Amazon have been financed by debt and have not generated profits for many years, and companies like Uber are VC-capital driven, in other words, financed by debts and the hope for profits. Even if we take for granted that only a part of these car companies survive, it is hard to know what the result of this gamble will be. But what is sure is that non-fossil transportation is the future, because it has now a far cheaper energy source. This point alone will be a driving force of economic changes of geopolitical dimensions.
Lmao, “involution” is seemingly anodyne?
“Involution” is the translation of “卷”, a very popular term used to describe the rat race of late stage capitalism rampant in modern China. Its anti capitalist elements have taken the form of young people choosing to “lie flat” (躺平), which was the inspiration for quiet quitting in the West.
“Involution” has so much more context and and is way more loaded than simple “bad” eocnomics news. The Chinese does not take kindly to either terms, so I highly doubt it’s a censorship issue.
Neijuan - Wikipedia - https://en.wikipedia.org/wiki/Neijuan
The story about new cars being sold as used at reduced prices is old, and the Chinese government tried to intervene on that already half a year ago.
That said the situation in the Chinese car industry is indeed crazy. With every possible financial trick they can think of being used.
Including 6 month delayed payments to suppliers, that instead get vouchers they can sell to be able to continue.
As the article writes, some of them should have been bankrupted by now, but “somehow” they all keep going.
The “somehow” possibly being things like regional politicians supporting the factories to keep the jobs. ( Which is common in mostly all countries to do. )It’s very interesting to follow the current problems of car makers across the globe, with for instance even the mighty VW group also having problems. Difference is that last I heard, they have margin enough on sales to still remain profitable, although it’s only with 5%, which is a very narrow profitability for a market with heavy R&D cost.
Anyways, I’m personally betting this cutthroat competition which is currently also spreading in EU will last through next year too, so I’m still waiting a bit before going electric. Expecting ever better offers to come next year too.
We sure live in interesting times. 😱
From what I hear the Chinese EV manufacturers have a lot better features and finish than what we can get in the States. One concern I would have is if the manufacturer were to go out of business can you still get parts and maintenance.
This is largely going to depend on exactly how they go out of business. In the US, it’s typical for a company in decline to be bought wholesale by a bigger player. They’ll take control over all aspects, and consolidate them to stay profitable. This would ensure that parts (etc) are available at least for the required 10 years.
However, if a company is a complete dumpster fire, it may go into chapter 7 bankruptcy. In this case, all assets are auctioned off to pay whatever debts they can, and any remaining creditors (potentially including customers) are left in the cold.
In the US, most EV models are from major brands - Ford, GM, and VW as a whole will not go under, so they will still make parts for the required 10 years. But if you have a Lucid or Rivian, you’re taking a bigger risk.
I suspect the Chinese companies are in a similar boat. The smaller players will probably be bought/merged instead of completely dissolving.
In most economies, the market would sort out this mess by culling the weakest players. But China’s leaders don’t trust markets to achieve their national goals, so they readily intervene.
I think the author was dropped on their head as a child, what the fuck kind of take is this entire gish gallop?
Does no one remember the billions the US Government put into the US car market (market sorts it out my shiny metal ass), the UK Givermebt poits ubtiod sibsidies o to theirs, there are massive tariffs NOW protecting the market from competition in the US and EU.
The chinese car market is sorting it out.
the UK Givermebt poits ubtiod sibsidies o to theirs
Are you ok? Do you need an ambulance?
Truly an !ihadastroke@lemmy.world moment.
same thing with their real estate market all over again.
china doesn’t care about supporting oligarchs if they are not effective, or lived out their usefulness.
id expect their car market to eventually collapse into just a few companies, and scale down somewhat, yes.
As long as a car isn’t open source, a car maker going out of business is a big problem. It’s going to leave customers stranded without spare parts.
That, in my opinion, fully explains the propping up.
And for this reason, I predict that they will be keeping even unprofitable manufacturers on life support despite everything, quite long. The companies will likely get merged and production of spares will hopefully be arranged. If not, lots of people will be angry.
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But but centralised control is so good!!! /s
