Will China's electric vehicle industry become the next Evergrande?

China's electric vehicle industry - is it China's savior from the economic crisis, or a huge financial bubble about to burst?
Peter Chan, Li Yong, and Moby China Workers Forum 13 October 2025

In July, the People's Daily, the CCP's mouthpiece, published a rare statement by Xi Jinping criticizing the electric vehicle industry's "involutionary" competition, overcapacity, and fraudulent sales practices for "zero-kilometer used cars." This reflected the CCP's deep concern that the electric vehicle industry could replicate the performance of the real estate industry. Prior to this, Wei Jianjun, chairman of Great Wall Motors, had publicly warned that BYD, China's largest electric vehicle company, would be "the next Evergrande."

"The next Evergrande" Wei Jianjun's comments reflect widespread concerns within China's capitalist class, which is organically linked to the CCP's authoritarian regime. This appears to have finally forced the government to change its tune. Over the past few years, Xi Jinping has touted the electric vehicle industry and "new-quality productivity," while until recently, officials had flatly denied the existence of any "overcapacity" in China.

In reality, overcapacity is a problem for the entire Chinese auto industry, as well as for many other sectors. According to data from the Shanghai Gasgoo Automotive Research Institute, by the end of 2024, China's overall auto production capacity utilization rate will be only 49.5%, meaning that more than half of its capacity is idle. Some small automakers' capacity utilization rates are as low as 1.5%. China's current national auto production capacity is reportedly estimated to be capable of producing nearly 50 million vehicles annually, equivalent to twice the industry's domestic sales. This is reminiscent of the countless deserted ghost towns that emerged across China during the real estate bubble. This is why the Xi Jinping administration has, at least rhetorically, made a U-turn, acknowledging the existence of "involution" and promising to implement policies to reduce production capacity.

BYD has achieved seemingly impressive sales, market share, and technological innovation in recent years. However, its so-called "accounts payable" (debts owed to other companies) exceeds 250 billion RMB. These accounts payable are primarily in the form of electronic invoices, an internal "white slip" payment instrument that essentially represents involuntary loans from suppliers to the company. If BYD encounters cash flow problems (a significant risk for capitalist companies employing this financial model), it could lead to a significant number of suppliers being unable to recover their funds, potentially leading to bankruptcy and a domino effect.

This bears a striking resemblance to Evergrande's defaults on creditors and suppliers. Before its collapse, Evergrande's business model relied heavily on pre-sales—forcing homebuyers to borrow money from Evergrande years before securing their homes. The company also relied heavily on shadow banking loans. This ultimately resulted in hundreds of billions of yuan in bad debt, an unbearable burden for Evergrande, especially after Beijing implemented stricter controls on real estate company debt in 2020 (Xi Jinping's "Three Red Lines"). The business models of most capitalist developers are largely similar. They are heavily indebted and require high sales to maintain cash flow. Much like expectations for electric vehicles today, the sales projections and forecasts for the real estate market at the time were unrealistic and exaggerated. These products were simply unaffordable for the Chinese people. Evergrande Group was just the tip of the iceberg. The collapse of the entire real estate industry plunged the Chinese economy into an unprecedented crisis, one that shows no sign of ending.

Hidden debt
BYD uses various financial maneuvers to conceal its actual debt levels. As a result, the company's official net debt last year was only 27.7 billion yuan. A report by accounting consultancy GMT Research questions this figure, estimating BYD's "actual" net debt to be over ten times higher (323 billion yuan). This could mean the company is concealing a worse financial situation to boost confidence, attract investors, and expand market share—all practices mirrored by Evergrande and other developers. Many other electric vehicle manufacturers have even more extreme debt ratios than BYD. Between 2019 and 2024, total debt among Chinese automakers soared 56% to 959 billion yuan. According to a Financial Times survey based on company reports, more than a third of listed auto companies have debt exceeding 100% of their assets. However, the actual debt levels are likely much higher. Many economic observers believe that all auto companies are concealing their true debt levels.

In an interview earlier this year, Wei Jianjun, Chairman of Great Wall Motors, stated, "Some automakers are obsessed with 'burning money to gain scale.'" He warned that these companies could face financial crises if market conditions change. He also noted that the collapse of any major automaker would lead to massive job losses, damage upstream and downstream businesses, and negatively impact the Chinese economy.

BYD employs over one million people directly and indirectly. A crisis for the company would have a significant impact on the economy and employment, particularly in third- and fourth-tier cities that rely on its investments. BYD has over 8,000 suppliers, and many small and medium-sized enterprises are highly dependent on it.

At the same time, under the Chinese Communist Party's state-guided capitalist system, capital poured into the electric vehicle industry, benefiting from government subsidies, tax breaks, cheap land, subsidized trade-in programs, and other incentives. A bloody and fierce price war to gain market share and squeeze out competitors rapidly rendered the entire industry unprofitable in less than a decade. According to reports, in the first 11 months of 2024, the price war resulted in cumulative losses of 177.6 billion RMB in the new car market retail sales. At its peak in 2018-19, there were approximately 500 new energy vehicle companies nationwide. By 2024-25, there were fewer than 130 companies left, and by 2030, there may be only 15.

Capitalism involution
A similar picture emerges in other "new productivity" sectors, such as solar energy, electric vehicle batteries, and even artificial intelligence. Local governments compete to attract these companies, offering various fiscal incentives that only further exacerbate their debt burdens. Instead of adhering to any broader national plan, these local governments operate independently, prioritizing local capitalists and businesses. This has led to the birth of the real estate bubble—the most classic example of involution to date. Today's bubble is fueled by the CCP's need to find new economic support after the real estate bubble bursts. This is a perpetual vicious cycle of capitalist involution and debt crises.

The Chinese Communist Party may try to rescue BYD or some other failing electric vehicle manufacturers, such as providing cheap financing and credit, or injecting government funds or acquiring assets.

But this does not eliminate the root causes of the crisis: overcapacity, deflation (falling prices), and falling profit rates, driven by production under an essentially parasitic, speculative capitalist system. Breaking out of this vicious cycle requires the democratically controlled public ownership of enterprises and democratic planning, achieved through the socialist transformation of society.
https://chinaworker.info/zh-hant/2025/10/13/48100/

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