Fortune: China’s EV industry in turmoil Price war triggers collapse fears

In a revealing analysis, Fortune lays bare the deepening crisis in China’s electric vehicle (EV) sector — a crisis driven by overcapacity, plummeting prices, and an industry locked in what Beijing itself has dubbed a “rat race.” What began as aggressive market expansion is now spiralling into destructive competition, eroding profits, brand credibility, and investor confidence.

Despite repeated warnings from the Chinese government and even summoning top auto CEOs to Beijing, the freefall continues. The market leader, BYD, often identified as the main driver of deep price cuts, has seen its value drop by $21.5 billion since late May. Yet its aggressive pricing strategy is pressuring both rivals and suppliers, with smaller players either folding or scrambling for survival. Analysts predict massive consolidation ahead — a shakeout that’s already underway, as more NEV brands exit the market than enter for the first time.

The sector’s underlying illness is chronic overcapacity. In 2024, China's auto industry used less than half (49.5%) of its production capacity, according to Shanghai-based Gasgoo. This oversupply has led to a race-to-the-bottom in pricing — one that Fortune argues is distorting consumer behaviour, threatening long-term trust, and encouraging risky financial practices. Buyers are now reluctant to commit, expecting next week’s models to be cheaper, while automakers desperate to offload inventory may compromise quality and service.

Even worse, companies like BYD are accused of squeezing suppliers with sharp cost cuts, potentially masking mounting debt through supply chain financing tactics. GMT Research estimates BYD’s real net debt could be 12 times higher than official disclosures suggest. Meanwhile, dealership networks — the backbone of domestic distribution — are buckling under the pressure. Several BYD-affiliated dealerships have shuttered since April.

Beijing’s attempts at ceasefires, including a 2023 industry pact against “abnormal pricing,” have failed. Regulatory constraints, export barriers, and geopolitical headwinds — from a closed U.S. market to tightening restrictions in Japan, Korea, and Russia — mean Chinese EV makers can’t simply sell their way out of trouble abroad.

As Fortune makes clear, this is no ordinary price war. It is an industrial reckoning — one that could reshape China’s EV dominance narrative into a cautionary tale of unchecked expansion and state-limited capitalism.

By Vugar Khalilov