Chinese EV Market Faces Potential Collapse Amidst Sales Slump and Overcapacity
Shanghai, September 5, 2025, 7:41 PM CST – China‘s electric vehicle (EV) sector, once a global growth engine, is teetering on the brink of a market collapse as sales dramatically slow and production capacity far outstrips demand. A confluence of factors – including the end of government subsidies, increased competition, and a weakening economy – is creating a crisis for both established manufacturers and a wave of ambitious startups. The situation poses a significant risk to China’s economic ambitions and could have ripple effects throughout the global automotive industry.
The downturn threatens to erase billions in investment and potentially trigger widespread consolidation, leaving numerous EV companies bankrupt. The crisis impacts not only investors and automakers but also the millions employed within the sector and the broader Chinese economy,which has heavily relied on EV growth. Experts predict a period of intense restructuring and a potential shift in government policy as Beijing attempts to stabilize the market. The immediate future hinges on whether demand can be revived through new incentives or innovative product offerings.
Sales of new energy vehicles (NEVs), including both battery EVs and plug-in hybrids, rose 37.9% year-on-year in July 2025, according to the China Association of Automobile Manufacturers (CAAM), a figure that appears positive but masks a significant deceleration from previous growth rates. this July increase followed a 3.3% decline in June, signaling a worrying trend. Industry analysts at Nomura estimate that China’s EV production capacity currently stands at 8.4 million vehicles annually,while sales are projected to reach only 6.8 million in 2025.
The phasing out of national subsidies for NEVs at the end of 2022 played a crucial role in the slowdown. These subsidies, which once significantly lowered the purchase price of EVs, had spurred early adoption. Local governments continue to offer some incentives, but these are insufficient to offset the loss of national support.
Adding to the pressure,the market has become increasingly crowded. Over 400 EV brands are competing for market share in China, many of them startups lacking the scale and financial resources of established players like BYD and Tesla.BYD, currently the leading EV seller in China, has seen its stock price fluctuate amidst the broader market uncertainty. Tesla, while maintaining a strong brand presence, has been forced to cut prices multiple times in 2025 to remain competitive.
“The era of easy growth in the Chinese EV market is over,” stated Bill Russo, CEO of Automobility ltd., a Shanghai-based automotive consulting firm, in a recent interview with Bloomberg. “Companies that cannot differentiate themselves through technology, branding, or cost leadership will struggle to survive.”
The economic slowdown in China is also contributing to the crisis. Consumer confidence has weakened, leading to decreased spending on big-ticket items like cars. Moreover, a property market downturn has impacted household wealth and disposable income.