The standing of China, the world's largest electric vehicle market, is wobbling. As the view spreads that the domestic market—once the launchpad for Chinese electric vehicle makers' overseas expansion—has reached saturation, worries are mounting over a slowdown in the EV market's growth.
On the 19th, the New York Times (NYT) reported that "investors are selling shares of Chinese electric-vehicle corporations amid concerns that the era of easy growth is over due to intensified competition and shorter production cycles."
Signs of crisis are evident in BYD's results. BYD disclosed earlier this month that sales of new energy vehicles (NEVs), including electric vehicles, in January this year totaled 210,051 units. That is down about 50% from December last year (420,398 units) and 30.1% year over year. With investor sentiment weakening, BYD's share price has fallen about 40% from its May peak.
In the market, a major culprit for weak domestic demand is seen as the Chinese government's reduction of electric-vehicle subsidies. China levies a 10% purchase tax on car purchases. The government ended its purchase tax exemption at the end of last year and cut the relief by 50% starting this year. The benefit is set to be fully abolished in 2027.
Competition with low-priced brands has also intensified. According to JATO Dynamics, a U.K.-based auto market research firm, about 400 electric-vehicle models were sold in China last year, more than double the number in 2019. The overheated competition led to price cuts, which in turn hurt companies' profitability.
Scott Kennedy, senior adviser at the Washington-based think tank the Center for Strategic and International Studies (CSIS), said China's auto industry has entered a "wartime situation," noting that "for long-term sustainability, the number of companies—numbering in the hundreds—will have to be drastically reduced."
While sales of Chinese electric vehicles are rising in overseas markets such as Europe and South America, the prevailing analysis is that there are limits to expanding domestic sales. John Paul MacDuffie, a professor at the University of Pennsylvania's Wharton School, said, "Thanks to government subsidies, the domestic market grew rapidly, but the consumer segment for whom buying an electric vehicle is a rational choice has now effectively reached its limit."
The NYT also pointed out that EV charging infrastructure is concentrated in major cities, making it difficult to use EVs in other regions. Many consumers who can already afford to buy have EVs, making it hard to significantly increase domestic sales.
Utilization rates at factories that surged during the EV boom are falling. Mike Smitka, professor emeritus at Washington and Lee University, assessed that about 40% of China's auto production capacity is idle. An unhealthy cycle is continuing, with new EV models being rolled out one after another to restart halted plants.
The NYT assessed that "BYD appears to be delivering solid results in global markets but is struggling at home," adding, "As competition intensifies, profitability declines, subsidies are reduced, and production cycles speed up, it has become an environment where no corporations can easily maintain the lead for long."