Beijing puts the brakes on EV race to the bottom

China is pulling the plug on its decade-long electric vehicle boom as the spotlight shifts towards other high-tech sectors. In President Xi Jinping’s latest five-year plan, quantum computing, bio-manufacturing, hydrogen energy, and nuclear fusion will become priorities.

The race for EV dominance was in previous industrial roadmaps with the state splashing hundreds of billions of dollars in subsidies. But cut-throat competition has sparked a “brutal” battle for sales and “oversaturated” markets.

“We aim to guide all parties concerned to adopt a sound, rational, and realistic approach in their work and refrain from rushing headlong into new initiatives,” Xi said this week as reported by the Xinhua New Agency, the voice piece of the ruling Communist Party.

In August, he highlighted the importance of breaking the cycle of overcapacity that has gripped the world’s second-largest economy and the rest of the world. Major car companies, including marque brand BYD, were ordered to cut production by regulators.

“Government agencies across China have moved swiftly in response to Xi’s remarks, pledging to implement supply-side reductions,” Hutong Research, an independent advisory firm based in Beijing and Shanghai, said in a note as reported by The Guardian media group.

Brutal competition has produced many of China’s successes.

Dan Wang, author and academic

Driving force:

• Global EV sales in 2025 are expected to exceed 20 million, according to the International Energy Agency. That would be more than one-quarter of cars sold worldwide.
• China continues to be the world’s EV manufacturing hub and is responsible for more than 70% of global production, the IEA pointed out in a report.

Delve deeper: Still, author and academic Dan Wang does not believe the EV “price war” is coming to an end. “There are too many entrepreneurs, too many engineers, and too much desire for local governments to support local champions,” he told Business Insider this week.

Between the lines: “Brutal competition has produced many of China’s successes, for example, in solar and electric vehicles. It is also a reason for many of these industries to have low profits,” Wang, the author of Breakneck: China’s Quest to Engineer the Future, said.

Big picture: The one-Party state has spent at least US$230 billion since 2009 funding the EV sector, a report released by the Center for Strategic and International Studies in Washington revealed. Yet that does not include additional local government subsidies.

China Factor comment: Indeed, it is impossible to put a concrete figure on the costs that have fueled the Chinese electric vehicle stampede. But debt has paved the roads they run on.