A Harsh Market Correction in China’s EV Sector

China’s once-celebrated electric vehicle (EV) market is hitting a wall. An unsustainable mix of aggressive subsidies, cutthroat pricing and overproduction has led to a dramatic shake-up in the industry. For years, global headlines have praised Chinese automakers for their rapid progress in electric mobility and autonomous driving. Some even claimed German car manufacturers were becoming irrelevant. But the tide is turning.

According to Handelsblatt, more than 12 million EVs and hybrids were sold in China in 2024. However, this breakneck growth came at a steep price. Even BYD—long considered a champion of China’s EV boom—is now grappling with hundreds of thousands of unsold vehicles. As of May, over 340,000 units were sitting in inventory, surpassing last year’s total. Allegations have also surfaced that some automakers are inflating their sales figures using questionable accounting practices.

Massive Shakeout on the Horizon

The industry is now entering a brutal phase of consolidation. While giants like BYD, Geely, Chery, and Great Wall—with their diverse portfolios of EVs, hybrids, and internal combustion engine (ICE) models—are likely to survive, hundreds of smaller firms are expected to fold. Interestingly, there is no ICE ban in China, and established manufacturers are strategically keeping their combustion engine lines alive. Even tech newcomers like Xiaomi might find a foothold, but many others will be left behind.

This wave of closures is not an unintended consequence—it’s part of a calculated government strategy. By flooding the market with support, Beijing aimed to foster fierce competition, allowing only the strongest to emerge.

A Mountain of Unsold EVs and Desperate Measures

BYD, headquartered in Shenzhen, made headlines at the start of 2024 when it surpassed Tesla in global EV production. But cracks are now appearing. The domestic market, which recently grew by 45%, saw BYD increase its sales by a mere 5.5%. This sluggish performance has led to overstocked warehouses and discontent among dealers. In Shandong province alone, over 20 BYD dealerships have shut down.

To counter the slump, BYD has launched a two-pronged response: slashing prices and ramping up exports. The company’s entry-level model, the “Seagull,” now sells for just €6,800. Rival automakers have slammed the strategy. Chery’s CEO likened it to “drinking poison to quench thirst,” while Great Wall’s founder mockingly dubbed BYD the “Evergrande of the auto industry.”

An Export Push with Hidden Pitfalls

As domestic demand softens, BYD is turning to overseas markets. Founder Wang Chuanfu aims to export 800,000 vehicles this year—twice as many as in the past. The company is currently operating six of its own cargo ships to make this happen.

However, there are growing concerns about the methods being used. Vehicles are reportedly being registered briefly in China before being labelled as used exports—an apparent ploy to dodge tariffs. Chinese authorities have described the situation as a “vicious cycle” and are considering regulatory action.

Germany Pushes Back

In Germany, BYD’s success remains limited. So far, the brand has only found footing with rental companies. Private registrations remain negligible, with only 128 recorded in May, according to Dataforce. New BYD Germany head Lars Bialkowski plans to expand to 120 dealerships, but insiders remain doubtful. One former executive remarked, “That’s simply not going to happen this year.”

Conclusion: Germany Must Not Be a Dumping Ground

As China’s EV bubble deflates, it’s crucial that Germany—and by extension Europe—remains cautious. While the rise and fall of BYD may not spell the end for Chinese EVs, the situation highlights the volatility of a market driven by subsidies and volume rather than sustainable growth. Germany should leverage this moment to reaffirm its engineering strengths and avoid becoming a repository for unsold electric cars churned out in China’s overextended factories.