World

China’s EV Glut: How Oversupply and Price Wars Reshape the Global Auto Market

China‘s EV oversupply causes deep discounts, unsustainable practices, and market turmoil. Government policies fueled excess.

byAndres Castro

September 17, 2025, 9:46 AM

The electric Xiaomi SU7 car is displayed in a showroom with a person walking past it

The new electric Xiaomi SU7 sedan is on display at a Xiaomi store in Shanghai, China, in July 2024. By Tada Images / Shutterstock.com.

Executive Summary

China’s government policies and subsidies have created a significant oversupply in its automotive and EV markets, leading to intense domestic competition.

The oversupply has resulted in unprecedented price cuts, with some vehicles discounted by 50-60%, and unsustainable practices such as bulk registration of unsold cars.

This “involution” drives automakers to prioritize sales over profit, impacting foreign brands and suggesting a prolonged period of consolidation despite some brands facing bankruptcy.

The Story So Far

China’s current automotive market oversupply, characterized by drastic price cuts and unsustainable practices, stems directly from years of ambitious national government policies that incentivized electric vehicle production and consumer purchases. These policies, aiming for high annual production targets and supported by local government subsidies and land offers, led to numerous brands producing far more vehicles than the domestic market could absorb. This intense competition and pressure to meet sales targets have resulted in a “vicious cycle” known as “involution,” where companies prioritize market share and cash flow over profitability, often selling at significant losses.

Why This Matters

China’s massive domestic auto oversupply, fueled by government subsidies, is leading to unprecedented price cuts and unsustainable sales tactics within its industry, potentially destabilizing global automotive markets with an influx of aggressively priced vehicles. This situation also creates a challenging dilemma for Beijing, as its policies have fostered a “vicious cycle” of overproduction that impedes profitability and necessary market consolidation, impacting both local and foreign brands.

Who Thinks What?

The Chinese government’s national policies, initiated in the 2000s, aimed to dominate the global automotive and EV markets by encouraging production and consumer purchases through subsidies and ambitious targets, leading to significant domestic oversupply.

Chinese automakers and dealers are compelled by the intense competition and oversupply to prioritize sales targets over profitability, leading to deep discounts, unsustainable practices like bulk registration of unsold cars, and “involution” to maintain cash flow.

Industry analysts foresee a potential shakeout and consolidation in the Chinese auto market, while overseas governments express concern about a possible influx of cheap Chinese cars into their own markets due to the oversupply.

China’s ambitious drive to dominate the global automotive and electric vehicle (EV) markets has inadvertently created a significant domestic oversupply, leading to unprecedented price cuts and unsustainable practices across its auto industry. This surplus, a direct consequence of years of government subsidies and production-focused policies, is compelling automakers to prioritize sales targets over profitability, with dealers in cities like Chengdu offering steep discounts on new vehicles to manage excess inventory.

Oversupply and Deep Discounts

The Chinese automotive market is currently grappling with a severe oversupply, characterized by showrooms offering drastic discounts on new vehicles. In Chengdu, for instance, locally made Audis are reportedly discounted by 50%, and a FAW seven-seater SUV is available at over 60% below its sticker price.

This situation stems from government policies designed to foster a robust domestic auto industry, particularly in EVs, which has resulted in numerous brands producing more cars than the market can absorb. Chinese electric vehicles, some starting at under $10,000, are significantly cheaper than comparable models in other major markets.

Unsustainable Market Practices

The intense competition and excess inventory have led to a range of unusual and unsustainable practices among dealers. Many are registering and insuring unsold cars in bulk to record them as sold, thereby qualifying for automaker rebates and bonuses.

Unwanted vehicles are frequently sold on gray markets, social media, or rebranded as “used” despite having zero mileage. Some are shipped overseas, while others are reportedly abandoned, all symptomatic of a market prioritizing sales and market share over sustainable profitability.

Government Policies and “Involution”

The root of this overcapacity lies in Beijing’s national policies, which began encouraging EV production and consumer purchases in the 2000s. A 2017 policy blueprint aimed for 35 million vehicles annually by 2025, prompting local authorities to offer cheap land and subsidies to attract EV manufacturers in exchange for production and tax commitments.

China nearly met this ambitious target last year, producing over 31 million vehicles. This top-down pressure to hit sales targets, coupled with local governments’ reluctance to let automakers fail due to fears of mass layoffs, has created a “vicious cycle.” Industry players refer to this self-destructive competition as “involution,” where companies are driven to produce and sell even at significant losses to maintain cash flow.

Impact on Foreign Brands and Future Outlook

The domestic market’s volatility has also impacted foreign brands, whose market share in China declined from 62% in 2020 to 31% in the first seven months of this year. Overseas governments are increasingly concerned about a potential influx of cheap Chinese cars into their markets.

While some industry analysts foresee a shakeout and consolidation, as evidenced by the recent bankruptcy of Chinese EV brand Neta, the process could take years. Local governments are expected to continue supporting struggling automakers, potentially prolonging the market’s current state of oversupply and intense, often unprofitable, competition.