China's Electric Car Industry Faces Crisis as Oversupply and Trade Wars Bite

Strategic Insights -

China's electric car industry, once the poster child of success, is now facing a crisis brought about by oversupply and the escalating trade war with the US. With more than half of new cars sold in China being electric, the country's share of the global electric vehicle market is nearing 70%. However, the industry's domestic makers are struggling to sustain profitability, with only three of them - BYD, Li Auto, and Seres - managing to break even. The situation is worsened by the relative weakness of demand, exacerbated by the property sector's implosion and the trade war with the US.

Key Takeaways:

  • The Chinese electric car industry is facing a crisis due to oversupply and weak demand, with only three manufacturers - BYD, Li Auto, and Seres - profitable.
  • The industry has seen a significant reduction in the number of manufacturers, from 500 five years ago to just 60 today, but this is still too many for a sustainable industry.
  • BYD, the world's largest electric vehicle maker, has seen its sales fall short of its ambitious targets, with its sales tracking at half the 30% increase it had hoped for.
  • The industry faces a major challenge in dealing with the massive oversupply of cars, with about 3.5 million vehicles in unsold stocks, equivalent to nearly two months' supply.
  • Dealers are going broke, and suppliers are being squeezed by carmakers under pressure, highlighting the need for industry consolidation and sustainable earnings.
  • China's authorities need to address the distortions caused by state incentives and mandates to prevent a disorderly rationalisation of the industry.
  • The industry's success has driven innovation, with China's electric cars now providing leading-edge EV technology from batteries to software.
  • Companies like BYD, which is now more profitable than Tesla, are achieving success in global markets, but are also facing backlash in other regions due to oversupply and government subsidies.
  • Governments are imposing tariffs on Chinese EVs, making it difficult for Chinese companies to export their products, and the US is effectively closed to Chinese EV exports.

Statistics:

  • More than half of new cars sold in China are electric.
  • China's share of the global electric vehicle market is nearing 70%.
  • The industry has reduced from 500 manufacturers five years ago to just 60 today.
  • BYD has seen its sales fall short of its 30% increase target, with sales tracking at half that growth rate.
  • There are about 3.5 million cars in unsold stocks, equivalent to nearly two months' supply.
  • Dealers are facing significant losses, with many going broke.
  • Suppliers are being squeezed by carmakers under pressure.

Sources:

  • "The Financial Times"
  • "The Wall Street Journal"
  • "Bloomberg"