China’s globally dominant automotive industry has erupted into another vicious price war, highlighting the severe internal competition plaguing the world’s second-largest economy. As the nation enters 2025, it faces what analysts describe as “super involution” – destructive over-competition driven by weak domestic demand and massive overcapacity.
The automotive sector has emerged as China’s economic pillar after the real estate market collapsed in 2021. With revenues reaching 10.65 trillion yuan ($1.48 trillion) in 2024, it officially surpassed real estate’s 9.65 trillion yuan ($1.34 trillion) to become the country’s largest industry. China has maintained its position as the world’s top auto producer for 16 consecutive years and overtook Japan as the leading auto exporter in 2023, with production and sales both exceeding 31 million vehicles in 2024.
However, beneath these impressive figures lies a troubling reality. Industry profits plummeted 8% to 462.3 billion yuan ($64.4 billion) in 2024, with profit margins dropping to just 4.3% – far below the industrial average of 6%. Average profit per vehicle stands at merely 15,000 yuan ($2,089), one-third of Toyota’s margins. Capacity utilization has fallen to 64.9% in the first quarter of 2025, the lowest in recent years.
Geely’s chairman revealed that of China’s 31.43 million vehicle sales in 2024, approximately 20 million units of capacity remained idle, suggesting actual utilization rates of only 50% – well below the industry benchmark of 65%.
The crisis intensified when BYD, China’s leading electric vehicle manufacturer, announced massive price cuts of up to 34% across 22 models in May, forcing competitors to follow suit. Despite criticism from industry bodies and rivals, BYD remains profitable with 2024 revenues of 777.1 billion yuan and net profits of 40.25 billion yuan ($5.61 billion).
Chinese authorities have attempted intervention, summoning major automakers including BYD for regulatory discussions and demanding they avoid selling below cost. However, no concrete enforcement measures have been implemented.
The automotive sector’s struggles reflect broader economic challenges across China. E-commerce platforms continue brutal price wars, with merchants complaining of razor-thin margins. The restaurant, delivery, and ride-hailing industries face similar pressures as unemployment drives more workers into these sectors.
Chinese social media users describe living in a “45-degree life” – unable to compete effectively or completely disengage from the relentless competition. According to AI chatbot DeepSeek’s analysis, this “involution” crisis may persist through three phases: intense pressure until 2030, gradual improvement through 2035, and substantial relief only after demographic changes reduce labor market pressure beyond 2035.
Source: Central News Agency (Taiwan), June 12, 2025
https://www.cna.com.tw/news/acn/202506123002.aspx