China's Automotive Industry Caught In Crisis Due To Excess Production And Price War

Changchun car exhibition in East China, July 13, 2025. (Photo: X/@ChinaDaily)

JAKARTA The automotive industry in China, which was once praised as a global force, is now in a precarious condition. Recent reports reveal that a surplus in production capacity, too aggressive incentives, and uncontrolled price competition have sparked a deep crisis in the country's automotive sector.

Launching from Reuters, Friday, November 7, the main problem stems from the industrial policy that encourages the production of vehicles, especially new energy vehicles (NEVs), without being adjusted to realistic consumer demand.

Where, the production capacity of car manufacturers in China has now doubled the number of vehicles produced last year, which is around 27.5 million units. This condition encourages the emergence of unusual practices in car distribution and sales.

Many dealers face stock buildup making it difficult to generate profits. Some manufacturers and dealers even do mass registration and new car insurance that has not been sold in order to record it as sold, then resell the vehicle in the gray market as a silver' car even though the odometer is still zero kilometers away.

For example, on the outskirts of a city of 21 million people, a showroom in a shopping center offers around 5,000 units of cars with large discounts. Several locally made Audi cars are sold for a price cut of up to 50 percent, while the seven-passer SUV from the FAW manufacturer is released at a price of around Rp364 million, more than 60 percent below the original price.

"If you manage to sell 16 out of 20 target units that month, then what will be done with the remaining four units on the last day of the month?" said one dealer. Selling the car even at low prices will make it meet bonuses of around 80,000 yuan or around Rp. 182 million, and almost break apart.

According to the main economist of The Conference Board China Center Yuhan Zhang, this phenomenon creates a circle of problems that strengthen each other. They feed each other, strengthen each other, and this can trap the market in the vicious circle," he said.

Local government policies also exacerbated the situation. Many local governments compete to provide cheap land and subsidies to car manufacturers to increase production and tax revenue, even though domestic market growth is not comparable to this capacity increase.

"When there is a direction from Beijing that this is a strategic industry, every provincial governor wants a car factory. They want to be in a good position with the party," said Rupert Mitchell, Australia-based macroeconomic commentator.

"In the end, what happened was that the existing automotive sector actually doubled its investment," continued the man who previously worked at a Chinese electric vehicle startup.

This condition narrows the space for manufacturers to operate in a profitable manner. Of the approximately 129 electric and hybrid car brands circulating in China, it is estimated that only about 15 will survive financially until 2030.

In this situation, pressure is also experienced by foreign brands who have lost significant market share. China's foreign brand market share fell from 62 percent in 2020 to 31 percent in the first seven months of this year.

Analysts assess that China's automotive industry is now facing three major challenges, namely overcapacity, destructive price competition, and dependence on production volume rather than profitability. To restore conditions, industrial policy adjustments are needed, capacity restructuring, and strengthening a healthier and more transparent market mechanism.