For over a decade, China’s electric vehicle (EV) sector has been a juggernaut, propelling the country to global dominance. In 2024, China accounted for more than 60% of worldwide EV sales, with new energy vehicles (NEVs)—encompassing battery electric vehicles (BEVs) and plug-in hybrids (PHEVs)—surpassing 10 million units domestically. Subsidies, aggressive industrial policies, and a vast supply chain ecosystem turned giants like BYD, NIO, and XPeng into household names, while exports flooded markets from Europe to Southeast Asia.
Yet, as of September 2025, cracks are emerging. Growth rates, once soaring above 50% year-over-year (YoY), have tapered to their slowest pace in 18 months. Specific segments, such as PHEVs, posted outright declines in August, with sales dropping 7% YoY to 314,000 units. Leading producer BYD saw its deliveries plunge 21% YoY that month—the second consecutive sharp drop.
This isn’t a full collapse; total NEV sales hit a record 1.395 million units in August 2025, up 26.8% YoY. But the momentum is faltering. Production lines are idling amid overcapacity, inventories are ballooning, and profit margins are evaporating under relentless price wars.
Globally, exports—once a bright spot with 102.7% YoY growth in August—are stalling due to tariffs and geopolitical headwinds.
China’s internal EV market, the world’s largest, has matured rapidly. NEVs captured 55% of passenger vehicle sales in August 2025, a testament to infrastructure buildout (over 10 million charging points) and consumer adoption. However, the blistering pace has bred vulnerabilities. Growth slowed to just 6% YoY in August for the overall EV market, down from double-digit surges earlier in the year. BEV sales, the pure-electric segment, bucked the trend with a rise to 34% market share, but PHEVs—the extended-range and plug-in hybrids that dominated recent years—stumbled, reflecting shifting preferences and oversupply.
At the heart of the domestic slowdown is overcapacity. China boasts enough EV production lines to churn out 20 million vehicles annually, far exceeding current demand of around 12-15 million NEVs. This glut has ignited a cutthroat price war, with discounts reaching 30-40% on models like BYD’s Qin Plus and Seagull. The government, alarmed by “involution”—a term for destructive internal competition—issued warnings in August 2025 for manufacturers to halt aggressive discounting and curb production. As one state media outlet put it, persistent deflation risks imperiling broader economic recovery.
The fallout is evident in financials: BYD, the global EV sales leader, reported a 30% profit drop in Q2 2025 despite record deliveries earlier in the year. Smaller players like Leapmotor and Zeekr are scrambling to break even by year-end, with fewer than 10% of China’s 100+ EV brands profitable. Consumers benefit from prices dipping below $10,000 for entry-level models, but this erodes margins and deters investment in R&D. Tesla, ironically, is suffering too—its China sales fell 6.3% YoY through August, squeezed by aging models and local rivals.
China’s macroeconomic malaise amplifies these issues. GDP growth hovered at 4.7% in Q2 2025, hampered by a property crisis, youth unemployment at 15%, and tepid consumer spending. Urban middle-class buyers, the EV sweet spot, are deferring big-ticket purchases amid uncertainty. Auto retail sales overall dipped 0.6% YoY in July, signaling broader weakness.
The subsidy era’s end compounds this. Beijing phased out direct purchase incentives by 2023, shifting to trade-in rebates and tax exemptions. While effective initially, the lack of fresh stimulus has left a void. Early adopters—often tech-savvy urbanites—have been saturated; penetration in tier-1 cities like Shanghai exceeds 60%. Rural and lower-tier markets lag due to charging infrastructure gaps and range anxiety, stalling broader uptake.
PHEVs, which propelled NEV growth from 60% in 2020 to over 40% share by 2024, are now the canary in the coal mine. Their August decline marks the weakest growth since 2021, as buyers pivot to BEVs for zero-emission perks or traditional ICE vehicles for cost. Extended-range EVs (EREVs), a PHEV subset, held steady at 100,000 units, but overall plugin share slipped slightly to 55%. This bifurcation highlights maturation: the market is segmenting, with BEVs gaining on policy pushes for full electrification.
| Segment | August 2025 Sales (Units) | YoY Change | Market Share |
|---|---|---|---|
| BEVs | ~475,000 | +15% | 34% |
| PHEVs | 314,000 | -7% | 21% |
| EREVs | 100,000 | 0% | ~7% |
| Total NEVs | 1.395M | +26.8% | 55% |
Data sourced from CAAM and CPCA reports.
If sales growth is cooling, production is overheating—then contracting. China’s EV output capacity ballooned to 16 million units by mid-2025, but utilization rates hover below 70%. Factories in Guangdong and Jiangsu are running partial shifts, with BYD delaying new lines and slowing output across sites. In July, BYD’s production fell for the first time in years, a harbinger of broader cuts.
Dealers are saddled with unsold stock: the July 2025 inventory alert index hit 57.2%, up from June and signaling eroding confidence. This stems from mismatched forecasting—manufacturers ramped up for 20%+ growth, but demand softened to 15-20%. Upstream, battery makers like CATL face idle capacity, with NMC cells (59% of exports) seeing utilization drop 10%. Downstream, suppliers endure delayed payments, prompting Beijing’s August directive to accelerate reimbursements.
The price war exacerbates this: razor-thin margins force cost-cutting, including cheaper LFP batteries over pricier NMC, stabilizing average range but commoditizing the sector. Government intervention looms larger; a September 2025 plan targets 15.5 million NEV sales (up 20% YoY) but caps overall auto growth at 3%, implicitly urging consolidation.
Losses are mounting. Industry-wide, EV profits fell 25% in H1 2025, with startups burning cash on expansion. BYD slashed its 2025 sales target by 16%, from 4 million to 3.36 million units, citing cooled demand. This contrasts with Geely’s optimistic hike to 3 million, underscoring bifurcation: incumbents consolidate, upstarts falter.
Strategically, firms are pivoting to software (e.g., XPeng’s AI driving) and overseas factories to dodge tariffs, but domestic overbuild risks a shakeout. Analysts predict 20-30% of smaller players exiting by 2026.
Exports were China’s EV lifeline, surging 70% in 2024 to 1.2 million units. Yet 2025 forecasts point to stagnation: growth projected at 0-5%, down from 2024’s boom. August saw 204,000 passenger NEVs shipped abroad, up 102.7% YoY but down 6.5% month-on-month—a volatile pattern.
The EU’s October 2024 tariffs—up to 38% on Chinese EVs—bit hard, slashing shipments to Europe by 20% in Q1 2025. The U.S. maintains 100% duties, effectively barring entry, while Canada’s 100% levy (mirroring the U.S.) curbed momentum. These measures, justified as countering subsidies, have redirected flows: Europe, once 30% of exports, now <20%. Russia, hit by sanctions, saw volumes halve post-2024.
Chinese OEMs are pivoting to friendlier shores. Brazil and Mexico absorbed 25% more in H1 2025, fueled by local assembly plans. Southeast Asia, with lax rules, saw 40% growth. Yet challenges persist: quality perceptions lag (e.g., build issues in early MG models), and local incumbents lobby for protections. In Europe, despite a 121% YoY surge to 43,500 units in August, overall Chinese brand penetration stalls at 5%.
Exports’ role in absorbing domestic overcapacity is waning. Inventory buildup contributed to the slowdown, with unsold China-made EVs piling up abroad. Chinese firms now eye local production—BYD plans full European output by 2028—to circumvent duties.
| Region | H1 2025 Exports (Units) | YoY Change | Key Factors |
|---|---|---|---|
| Europe | ~150,000 | -15% | Tariffs, competition |
| Russia | ~200,000 | -50% | Sanctions, logistics |
| SE Asia | ~180,000 | +40% | Low barriers, demand growth |
| Latin America | ~120,000 | +25% | Local plants, trade deals |
| Total | ~1.1M | +10% | Stagnation projected for full year |
Estimates from IEA Global EV Outlook 2025.
This slowdown tests China’s EV playbook. Domestically, it accelerates consolidation: expect mergers among the 100+ brands, with state-backed champions like BYD emerging stronger. Profits may rebound by 2026 if price discipline holds, but overcapacity lingers as a deflationary force. Globally, diversification mitigates tariff pain, but it dilutes the “China shock” to legacy automakers like Volkswagen and Ford.
Environmentally, the pivot to BEVs aligns with net-zero goals, though PHEV declines could slow short-term emission cuts. Geopolitically, it underscores supply chain vulnerabilities—Western bans on Chinese batteries risk bifurcating the market.
China’s EV sector isn’t collapsing; it’s evolving from frenzy to finesse. Sales and production aren’t “falling” in absolute terms—NEVs hit 51% market share in August—but the white-hot growth is cooling under overcapacity, economic drags, and barriers. Beijing’s 32 million total auto sales target for 2025 (up 3%) signals caution, prioritizing quality over quantity. For investors and rivals, this is opportunity: a humbled giant may innovate deeper in autonomy and solid-state batteries.
Yet risks abound. If price wars persist, a financial crisis looms, echoing the property sector’s woes. Success hinges on export diversification and domestic stimulus revival. As one analyst noted, “China won the EV race—but sustaining the sprint requires endurance.” In this maturing arena, adaptation will define the next chapter.