The Struggle for Survival in China’s Electric Vehicle Industry
China’s electric vehicle (EV) industry has experienced a dramatic transformation over the past few years. What began as a promising sector filled with innovation and growth has now become a battleground of cutthroat competition, leading to the collapse of numerous startups and a growing concern among industry experts.
The Rise and Fall of Ji Yue
Ji Yue, an EV startup backed by Baidu and Geely, was once seen as a rising star in the Chinese market. Li Hongxing, a social media ad agency owner, invested heavily in marketing for the company, expecting a return on his investment. However, within half a year, Ji Yue collapsed, leaving Li with significant debt. This case is not unique; it reflects the harsh reality faced by many companies in the industry.
The rapid rise and fall of Ji Yue exemplify the brutal competition that defines the current state of the Chinese auto industry. With hundreds of brands vying for market share, the pressure to reduce prices has led to a vicious cycle of declining profits and strained relationships between carmakers and suppliers.
Government Interventions and Challenges
The Chinese government has recognized the need to address the issues plaguing the EV sector. In recent months, authorities have taken steps to curb the chaotic price wars, including summoning auto leaders to warn them against initiating such practices. Additionally, rules have been issued to shorten payment cycles and guidelines urging local governments to scale back subsidies and eliminate overcapacity.
However, economists and industry experts remain skeptical about the effectiveness of these measures. The challenge lies in the fact that simply cutting capacity could lead to significant job losses and further economic strain. Employment is a critical factor in maintaining social stability, which is essential for the Communist Party’s rule.
The Vicious Cycle of Price Wars
Many automakers and their suppliers are caught in a cycle of price wars, where they must constantly lower prices to stay competitive. This has led to a decline in profit margins and a decrease in the quality of components used in vehicles. Suppliers often face long waits for payments, shifting financial risks onto partners.
The situation has prompted some industry players to speak out about the negative impact of these practices. For instance, a coating materials supplier in Wuhan reported being forced to lower prices by over 40% just to remain in the game. This has resulted in reduced wages and increased workloads for employees, further exacerbating the challenges faced by the industry.
The Concept of ‘Involution’
In response to the challenges, China has launched an “anti-involution” campaign, aiming to combat excessive competition that yields little progress. The term “involution,” or “neijuan,” refers to self-defeating competition that undermines innovation and quality. The Ministry of Industry and Information Technology has vowed to curb this type of competition in the auto sector, emphasizing the importance of sustained investment in research and development.
Despite these efforts, industry players remain cautious. They believe that more comprehensive reforms are needed to address the root causes of overcapacity and ensure long-term sustainability.
The Future of the Industry
Experts predict that the price wars will continue until most brands are eliminated, leaving only a handful standing. The knock-out rounds in China’s auto industry are expected to last for several more years, with only a few companies likely to survive.
As the industry navigates these challenges, the focus remains on finding a balance between competition and sustainability. The path forward requires not only policy changes but also a shift in the mindset of industry players to prioritize innovation and quality over short-term gains.
