Chinese EVs Going Global, Facing Risks

In spring 2024, Li Hongxing, a veteran marketing executive in China’s auto industry, believed he had found a winning client. His ad agency took on Ji Yue, a promising electric vehicle startup, and he even borrowed heavily to fund its advertising campaigns, trusting he would be repaid once the young carmaker took off.

But within six months, Ji Yue collapsed,leaving Li with debts of 40 million yuan ($5.6 million). “It was sheer despair,” he recalled.

Ji Yue’s downfall is part of a larger trend. China’s EV boom has created global leaders like BYD but also triggered an oversupply problem that has driven hundreds of smaller carmakers out of business. Generous subsidies and state support helped China become the world’s biggest EV market, but they also fueled overcrowding in the sector, sparking cut-throat price wars that erode profits and strain suppliers.

Even successful manufacturers, according to industry insiders, pressure parts makers to sell below cost while delaying payments for months. Beijing itself has labeled the phenomenon “disorderly competition,” a pattern also visible in other industries like solar panels, food delivery, and e-commerce.

At the same time, major Chinese brands such as BYD, Geely, Chery, and Changan are expanding aggressively overseas. China exported nearly six million vehicles last year,more than any other country. Yet that surge has drawn pushback, with Europe, Mexico, and Canada imposing tariffs and restrictions on Chinese EVs.

Worried about deflationary pressure and economic instability, Beijing has begun intervening. This year, authorities summoned auto executives to warn against price wars, tightened payment rules within the industry, and urged local governments to scale back subsidies and curb overcapacity. President Xi Jinping, writing in a Communist Party magazine, called for “cracking down on chaotic, cut-throat price wars among companies.”

Still, economists caution that quick fixes are unlikely. Decades of heavy subsidies created structural excess capacity, and simply shutting down weaker brands risks mass layoffs. China’s auto industry employs nearly five million people, and policymakers fear that widespread job losses could threaten social stability. “Cutting capacity is a good starting step,” said Chetan Ahya, chief Asia economist at Morgan Stanley, “but it’s not a perfect solution. Social stability becomes a problem if you just stop investing.”

Ji Yue’s fate underscores this dilemma. Founded in 2021 as a joint venture between tech giant Baidu and automaker Geely, the company initially appeared well positioned, with strong backing and rising sales. Li, impressed by early signs of growth, signed a long-term ad contract and allowed extended payment terms. But by October 2024, Ji Yue showed liquidity problems, and weeks later it announced a restructuring to seek new capital, effectively marking its demise.

“For a company with such major shareholders, I never imagined it could collapse so quickly,” Li said. He is still waiting for repayment.

China’s EV success story,rooted in state investment since the 2000s,has given the world giants like BYD, which last year outsold Tesla. But it has also created nearly 500 domestic auto brands at the peak in 2019, many of which are now disappearing under the weight of the very competition that once fueled their rise.