Chinese EV Overcapacity and price wars

Investment Analysis Clubs Macro Economic Trends and Risks
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https://www.nytimes.com/2025/09/02/business/china-electric-vehicles-overcapacity.html

Why China Is Trying to Tame Its Electric Car Frenzy

Beijing has run out of patience with companies slashing prices, and is urging restraint. But fierce competition is also producing a surge of innovation.

By Keith Bradsher, The New York Times, Sept. 2, 2025

…

Already, fierce competition among automakers has gotten ruthless, with about 50 automakers fighting for customers by slashing prices again and again. Manufacturers facing ruinous losses are struggling to pay the companies that supply their parts. And yet they keep borrowing from state-run banks to build more factories, leading to extensive overcapacity.

The frenzy has captured the attention of the highest levels of China’s government. Officials have started a campaign against “involution,” which they define as excessive competition….

Even BYD, the world’s largest E.V. maker, is now running into trouble. It said on Friday that its profits fell by almost a third in the spring compared with a year earlier because of price competition….

Overcapacity and price wars are a chronic problem across China’s economy. Debt-fueled investment pours into a succession of government priorities. This creates a glut of companies and factories that battle for a limited domestic market….Another outcome of the overcapacity is that Chinese manufacturers now export a fifth of their production…

Tesla, which helped pioneer China’s electric vehicle market, is now stuck with aging models and is suffering gradually shrinking sales. On Monday, it cut prices for its Model 3…. [end quote]

The Chinese government is concerned, partly because big government factories build ICE cars that compete with EVs and partly because of the threat to the economy from so much debt building up.

For a Communist country that supposedly controls the means of production, China has turned into a sizzling capitalist hotbed with the potential inefficiencies and failures that come with innovation.

Wendy

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Not to worry, it will collapse like construction collapsed.

Stop lending!

A good reason for Tesla to pivot away from selling EVs which is fast becoming a commodity market and concentrate on RoboTaxis and Optimus Robots. The stock market does not like it because it has a hard time seeing beyond the tip of its nose. :winking_face_with_tongue:

Even Communists are smart enough to recognize that capitalism is the way to produce good and services, but only after starving millions of people.

The Captain

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At last check, Tesla has a P/E of nearly 200. Which means that the stock market clearly shares your investment thesis, rather than “not liking it.”

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If EVs are becoming a commodity, then EV robotaxis will be even more such. I certainly care a lot less about a car rental than I do about one I drive every day - and I will care even less as to which car picks me up via an app for a one time trip.

If we ever get to a true go anywhere L5 robotaxis (and I remain convinced it won’t be any time soon and maybe not in my lifetime), I think it will be a SAAS company that wins. Anyone selling hardware will just be pushing a commodity - and should probably be priced as such.

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My bad, I should have said the Tesla/Elon haters.

Yes but there is a difference, the low cost producer wins. RoboTaxis is not about hardware, it’s about TaaS vertically integrated. AI data center, road data, EVs, chargers. A lot of stuff is shared with the Optimus robot such as the inference chip. Think in terms of who can best monetize AI.

The Captain

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In almost complete agreement - but then all the R&D as well as existing capital spent o their EVs becomes more of a burden than a benefit. It would be like Google owning Compaq. Designing and building a robotaxis will continue to be expensive and a likely drag on the revenue that would be generated from their TAAS.

Quick question for you - do you see Tesla one day halting production or otherwise divesting the existing EV business? Current margins are not high enough to support the existing P/E and this is not likely to change - so the existing business would likely forever be a drag on future earnings.

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Not entirely. It will continue making EVs but a very limited number of models. It will make Semis which have a different factory but share much of AI and self driving with the rest of the fleet.

I think it’s the wrong way to look at it, “this is not likely to change” until the new business lines kick in. I believe this must be what is holding up the stock price. Think of it as two startups, taxis and robots.

The Captain

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Can you get much more limited than they are now? Which models that are currently on the street do you expect them to cut?

Yes, I get that - but a start up is never saddled with a massive and expensive production line with margins that are subpar by comparison. The existing models, even if fewer, are a drag on P/E if you are a TAAS company. Adding a line of profitable robots isn’t going to make the Model S all of a sudden four times as profitable (even if the new robots are used to build it). As you said yourself, they are becoming commodities. If a significant portion of your business is based on selling a commodity, then your margins will likely be thin.

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It seems unlikely that EV’s will become a commodity, any more than regular ICE cars ever became a commodity (Btresist and I have had many threads about that, and it’s probably not worth going into again). That doesn’t mean that EV manufacturing won’t be intensely competitive, perhaps resulting in thin margins in certain market sectors.

We’ll see if Tesla’s dreadnought manufacturing expertise (the machines that make the machines) and unboxed manufacturing method save them from that. These are supposedly the enduring aspects of Tesla’s EV business that differentiate them from other manufacturers, even though they’re not often highlighted by the company much these days. Tesla might remain confident that their manufacturing margins will be higher than those of other carmakers.

Plus….are we sure that the margins for TaaS companies are going to be especially great? That really depends on whether they can offload ownership of the fleet (and probably most of the labor in maintaining the fleet) onto someone else and be little more than a software company. That might not be an easy feat to pull off.

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No, but that is the only way one can justify a 200 P/E.

No, but that is the only way one can justify a 200 P/E.

Hawkwin

Who remains convinced that it will be a long time until we have non-geofenced L5 robotaxis.

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The slowest moving ones.

Amazing that you underestimate the richest man on earth.

The Captain

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Don’t be obnoxious. I expect better from you than logical fallacies.

I stated that margins are thin for commodities. Hell, margins are already starting to get thin and EVs are not yet commodities.

Do you disagree that margins are thin for products that are deemed commodities?

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Sorry! Different world view.

The Captain

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The Appeal to Riches logical fallacy? :smiley:

Nope. Nobody is sure of that. Heck, nobody is even sure the TAM is anywhere near as large at Elon thinks it is. I think he’s nuts to think the possible market will be that large, or that people will abandon the ownership model for a subscription service. And I agree as well, they need to offload ownership and maintenance of the taxi fleet. This is EXACTLY what Uber and Lyft do after all. Does Tesla REALLY want to be charging them, changing tires, doing maintenance, be responsible for cleaning, for returning lost articles, the list goes on.

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The Appeal to Riches, or argumentum ad crumenam, is a logical fallacy where someone assumes that a person’s wealth proves the validity of their arguments or ideas, leading to the erroneous conclusion that richness implies insight, wisdom, or correctness.

Argumentum ad crumenam

“Argument to the purse.”(1) An argument drawing conclusions based on one’s wealth or lack thereof.(2) An argument that appeals to the desire to save money or avoid expense. Generally, the term is used to refer to the logical fallacy of assuming that great wealth gives one special insight or virtue, or that poverty denotes the absence of insight or virtue.

At least now I know the sin I’m accused of. :sad_but_relieved_face:

Just 15 years following the EV market:

Testa Motors is one contender making a lot of headlines and it has its full contingent fans and detractors. One reason why Tesla is not a disruptive technology is that the price is too high, there is no under-served luxury car market that I know of. Tesla is taking the luxury car market head on, where it might or might not succeed, but even if it does it won’t disrupt the automobile mass market. The small size --so often derided by American commentators-- and the low cost of the Kandi EV are key features in the disruptiveness of the Kandi model.

From Sticking Point To Tipping Point

Complexity is the enemy of adoption. Anything that is too complicated just won’t happen. For battery powered electric cars two of the barriers to adoption have been range anxiety and the time it takes to recharge the batteries. There are thousands of gas stations for conventional automobiles and fueling up only takes a few minutes. There is no equivalent infrastructure for battery powered electric cars.

supercharger-300
supercharger-300300×163 15.5 KB

Tesla supercharging station

KNDI: Irr 43.2%
TSLA: Irr 36.2%

The Captain

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I’ll add to that list that charging is still too difficult, in most cases, to initiate. Not enough charging stations (and none of the Telsa, that I am aware of, maybe the NEVI funded ones do) take credit cards for example. You know, like gas pumps do. Almost all require using an app, THEIR APP, to initiate a charge.

There is Plug&Charge, and autocharge+, and the Tesla version, that make this easier than a gas pump. But not enough networks and not enough cars support this.

When we went to College Station to drop of daughter for a STEM camp I charged up in the parking garage, but that required an app to a network I’d never heard of before for a charging session I’ve used twice now and probably never will again. But it was the only way to charge. Apps like Tesla, EVgo, EA and ChargePoint have good apps. But the little guy apps seem to be a mess and difficult to use. NEVI had many good things about it, including that any charger must work with any EV, and the charger must have a credit card reader to initiate payment and charging.

I wrote more about this here for those interested. EV Charging getting better, still a ways to go

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Yes the China market space has reached saturation. And a brutal EV price war is occurring there.

Does BYD have a plan going forward?

Yep.

BYD sold 4.27 million vehicles in 2024, nearly 90% of which came from China, its home market. Overseas, BYD’s sales reached 417,204 units for full year 2024, an increase of 71.86% year-on-year. This shows that BYD is seeing a lot of momentum, thanks in no small part to its lineup of reasonably priced New Energy Vehicles from its BYD, Denza, Yangwang, and Fang Cheng Bao brands.

BYD’s dolphin & atto 3 are now offered in the EU at $24k Euro & $37k Euro.

Unlike most automakers, BYD doesn’t just assemble vehicles – it makes almost everything in-house. The company designs and manufactures batteries, semiconductors, and even its own logistics systems. This vertical integration gives BYD a speed and cost advantage that’s hard to match.

On the logistics side, BYD even operates its own shipping fleet to move vehicles abroad – a move that reduces dependence on third-party carriers and ensures timely delivery.

In the past two years, the EV company has announced factories in countries like Thailand , Brazil, Hungary, Turkey, and Pakistan, with others rumored to follow.

BYD expansion now includes Nepal, Malaysia & Cambodia.

BYD Grows Lineup to 7 Models in Nepal

BYD Building Factory in Malaysia

This is an assembly plant.

The first cars assembled at the plant will roll of the production lines there next year (2026).

BYD opened its 43rd store in Malaysia just a few days ago (August 22).

Cambodia

Cambodia — who would think of Cambodia for an electric vehicle expansion? Well, it’s a country of almost 18 million people (about three times the population of Denmark, or approximately the population of Belgium and Norway combined)

BYD currently has 7 stores in Cambodia as well as one service center. By the end of the year, the company aims to have 13 stores and 6 service centers. BYD is also building a vehicle assembly plant in Cambodia, which is supposed to go into operation by the end of the year as well and be able to produce 10,000 vehicles a year

Will BYD’s plan come be successful?

Dunno. But BYD has a plan.

Yes tj has a peanut sized position in BYD. And in Xpeng also.

By the way a US reviewer was impressed with the BYD Seagul China model.

https://insideevs.com/reviews/769113/byd-seagull-good-video-drive/

I learned that yes, BYD’s ultra budget hatchback is all it’s cracked up to be.

Even if BYD managed to sell the Seagull overseas (which it has) for roughly double the price, I think it still would have been a compelling car. It’s smooth riding, sophisticated and well finished, not something I can say about any car this cheap, no matter gas or electric.

I was in the Seagull for about an hour and a half.

The EU increased price is not all profit. BYD EV have to be modified to meet EU crash standards.

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For Fools who didn’t notice, the article you are quoting is over a decade old and the technology still does not have standards that make mass adoption easy and convenient.

The Captain

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BYD chops 900K vehicle from its sales prediction.

BYD has slashed its sales target for this year by as much as 16% to 4.6 million vehicles, two people with knowledge of the matter said, as the Chinese EV giant faces its slowest annual growth in five years and other signs that its era of record-setting expansion could be drawing to a close.

China’s largest automaker told analysts in March it was targeting sales of 5.5 million vehicles for 2025. But internally, the number has been downgraded multiple times in recent months, according to the people.

Last week, BYD reported a 30% drop in quarterly profit, its first decline in more than three years.

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Wheh! Glad I got out when I did. It is up 17% YTD but down nearly 10% in the last six months. Walked away effectively at breakeven.