Amid Market Saturation, Fierce Competition in China’s EV Industry
"Only 15 Out of 129 Brands Expected to Survive"
Excessive Price Wars Leave Most Firms Unprofitable

China’s electric vehicle (EV) industry is facing a dire outlook, with projections suggesting that the majority of its manufacturers will vanish over the next five years. As the crisis narrative intensifies, a new analysis estimates that by 2030, only 15 of the current 129 EV and plug-in hybrid brands will remain in the market—roughly one-eighth of today’s total. Industry observers are divided on whether this shakeout signals a healthy consolidation or if it foreshadows a “second Evergrande” crisis.

Currently 129 Companies, Fierce Competition Spurs Industry Restructuring

According to Reuters on July 6 (local time), global consultancy AlixPartners predicts that China's EV market will undergo massive consolidation due to fierce competition. Of the 129 companies currently selling EVs or plug-in hybrid vehicles, only 15 brands are expected to survive by 2030. These surviving firms are projected to command approximately 75% of China’s EV and plug-in hybrid market by that year. Each will reportedly manufacture an average of 1.02 million vehicles annually. The report did not identify which companies are likely to survive.

Stephen Dyer, head of AlixPartners' Asia automotive division, noted that consolidation in China’s auto sector will proceed more slowly than in other countries. That’s because local governments may support firms that fail to turn a profit but are vital to regional employment, supply chains, and economic activity. “China is home to one of the most competitive new energy vehicle markets globally, driven by price wars, rapid innovation, and startups that constantly raise the bar,” Dyer said. “This environment has resulted in remarkable advancements in technology and cost efficiency, but it has also made sustainable profitability elusive for many firms.”

More Firms Going Bankrupt Than Entering the Market

China’s auto industry is currently under dual pressure from price wars and supply gluts. Except for top players like BYD and Li Auto, most firms reportedly fail to post annual profits. Industry watchers believe the shakeout is now entering a full-fledged phase. According to AlixPartners, the number of Chinese EV firms jumped from 34 in 2018 to 80 in 2023, but fell back to 77 last year—a turning point in growth. The drop came as 16 firms shut down operations.

Discounting wars have also intensified. JP Morgan reported that Chinese automakers’ average discount rate stood at 8.3% last year, but rose to 16.8% by April—almost doubling. This year, price competition has grown even more fierce. In June, BYD launched a massive promotion slashing prices of 22 models by up to 34%, prompting about 10 other automakers, including Chery and SAIC, to enter a price-cutting “chicken game” with discounts of up to 47%.

While falling prices may appear favorable for consumers, the underlying risks are significant. Volatile pricing undermines consumer trust. On Chinese social media, growing numbers of users express concerns such as “What if the price drops again right after I buy the car?” Automakers, in a bid to survive, may slash spending on quality, safety, and after-sales service. Even as BYD boosts its market share with aggressive pricing, deteriorating industry-wide profitability seems unavoidable. After peaking in late May, BYD’s market capitalization plunged by about $28 billion.

Concerns Over a “Second Evergrande”

The root cause of this crisis lies in China’s excess production capacity. Around 2020, government incentives triggered a surge in EV startups, while traditional automakers rapidly expanded their EV production facilities. According to Chinese market research firm Gasgoo, the average factory utilization rate in China’s auto sector stood at just 49.5% last year—nearly half of all factories sat idle.

EV sales have not kept pace with output growth. China produced about 12.89 million EVs last year, a 34% increase from the previous year, but domestic EV sales rose only 22% to 11.58 million units. Although China’s EV market is still expanding—unlike the stagnating markets in the U.S. and Europe—the supply growth is clearly outstripping demand.

As a result, a dubious practice is spreading across China: manufacturers register new cars as sold, then resell them as “used” vehicles with almost no mileage. Morgan Stanley estimates that nearly 13% of China’s used car market—or 19.6 million vehicles—are models released within the past three months and driven fewer than 50 kilometers.

Voices of concern are rising within the industry. In a May interview with Chinese media outlet Sina Finance, Wei Jianjun, Chairman of Great Wall Motor, said, “Evergrande already exists within China’s auto industry—it just hasn’t burst yet.” He likened the current trend of sacrificing margins for volume in a price-cutting frenzy to the behavior of property developer Evergrande, whose reckless expansion and eventual collapse triggered a broader economic downturn.

Direct exports from China to the U.S. plunged 43% in May, while total exports rose 4.8%
Increase driven by rerouted shipments via Vietnam, ASEAN, and India
U.S. targets China in trade talks with Vietnam, imposes double tariffs on transshipped goods

China’s exports to the U.S. have plummeted, while shipments to ASEAN and the European Union have significantly increased, with rerouted exports through Vietnam and Indonesia hitting record highs. As direct shipments to the U.S. decrease, China is diversifying its trade routes through third-party reexports and targeting emerging and European markets. President Donald Trump’s tariff policy appears to be reshaping the very foundation of China’s trade patterns.

Shipments to ASEAN Bloc Rise 15%

On the 6th (local time), the Financial Times (FT) reported, citing data from the U.S. Department of Commerce and China’s General Administration of Customs, that China's exports to the U.S. in May fell 43% year-on-year, amounting to USD 15 billion. However, during the same period, China’s overall exports rose by 4.8%.

This is attributed to a 15% rise in shipments to the ASEAN trade bloc and a 12% increase in exports to the EU, offsetting the losses from the U.S. market. Mark Williams, Chief Asia Economist at Capital Economics, said, “The data shows a truly remarkable pattern.”

Indeed, rerouted Chinese exports via Vietnam and Indonesia have surged recently. According to Capital Economics, in May alone, Chinese goods passing through Vietnam reached USD 3.4 billion, up 30% from the same period last year. Indirect trade through Indonesia stood at USD 800 million, a 25% increase year-on-year. Chinese data also showed exports of electronic components such as printed circuits, smartphone parts, and flat panel display modules to Vietnam surged 54% from a year earlier, reaching USD 2.6 billion.

U.S. Imposes 40% Tariff on Rerouted Goods via Vietnam

In response, the Trump administration has moved to block such rerouted exports by imposing high tariffs on trans-shipped Chinese goods in its trade deal with Vietnam. On the 2nd, Trump announced via Truth Social that the U.S. had signed a trade agreement with Vietnam. While mutual tariffs were significantly reduced from 46% to 20%, a 40% tariff was set specifically for rerouted goods. The aim is to fundamentally block China’s so-called “origin laundering” practices. The U.S. has long accused China of circumventing tariffs by exporting goods through Southeast Asian nations like Vietnam.

Although specific terms of the deal were not disclosed, U.S. political media outlet Politico, which obtained a draft of the agreement, reported that both sides are working toward a final deal to be concluded in the coming weeks, which will substantially reduce tariffs on Vietnamese exports to the U.S. The draft reportedly includes tariff reductions on a range of products including shoes, agricultural goods, and toys, though it did not specify final tariff rates.

Politico also noted that Vietnam is expected to establish favorable rules of origin to reduce transshipment of Chinese goods, and to dismantle non-tariff barriers such as those involving intellectual property (IP). Furthermore, Vietnam agreed to grant the U.S. preferential market access for poultry, pork, beef, agricultural products, and unspecified manufactured goods.

Vietnam in a Bind over Transshipment Clause

As the U.S. explicitly targets China’s rerouted exports with the “40% tariff on transshipped goods” clause in its trade deal with Vietnam, China has strongly pushed back. On the 3rd, China’s Ministry of Commerce stated in a regular afternoon briefing that “(The U.S.) reciprocal tariffs are a typical unilateral act of bullying,” and added, “We strongly oppose any agreement that sacrifices China’s interests under the pretext of tariff reductions.” The Ministry warned, “China will resolutely defend its legitimate rights and interests.”

China’s Ministry of Foreign Affairs joined in. Spokesperson Mao Ning said, “All parties must resolve trade disputes through dialogue and negotiation on an equal footing,” adding, “Agreements should not target or harm third-party interests.”

Vietnam, which maintains deep economic ties with China, also faces significant pressure from the 40% tariff clause on transshipped goods. During the first Trump administration in 2018, China invested heavily in Vietnam to avoid tariffs amid the U.S.-China trade war. Many appliances exported to the U.S. are produced in Vietnamese factories operated with Chinese capital, using Chinese systems and components. However, former Trump trade officials, including Trump’s “tariff architect” Peter Navarro, have now said they will classify such goods as rerouted.

A further complication is the lack of a clear definition for “transshipped goods.” Roland Rajah, Chief Economist at the Lowy Institute, an Australian think tank, warned, “If the transshipment clause applies even when a Vietnamese product contains only trace amounts of Chinese components, it would create a much larger problem.”

China has consistently warned countries not to engage in trade deals with the U.S. that are detrimental to Chinese interests. On the 3rd, He Yungchen, spokesperson for China’s Ministry of Commerce, stated, “While we welcome efforts by all parties to resolve trade and economic disputes with the U.S. through equal consultation, we firmly oppose any attempt to reach agreements at the expense of China’s interests,” adding, “If such situations arise, China will take resolute countermeasures.”

Moreover, China may shift rerouting channels from Vietnam to other neighboring countries to avoid U.S. tariffs. Xu Tianchen, a senior economist at the Economist Intelligence Unit (EIU), said, “The broader structural issue is that China is the world’s largest producer, while the U.S. is the largest consumer,” adding, “If you block Vietnam, others will emerge. It’s like a game of whack-a-mole.” He cited Indonesia and Morocco as potential alternative countries. Indeed, recent Chinese trade data shows that exports to Indonesia, Malaysia, and Thailand are also surging alongside Vietnam.