Only 7 of 170 Chinese Automakers Will Survive

Welcome to Issue #72 of The German Autopreneur!

The Chinese auto market is collapsing. A price war has been going on for years. Now it's exploding.

What happened? In May, BYD drastically cut prices. By up to 34% across 22 models. Competitors had to follow.

The result? Stock prices are crashing. Profits too.

Even the Chinese government had to step in.

We've long speculated about consolidation in China. Now it's here.

Today we look at what's happening in China. And what it means for automakers and markets worldwide.

The Price War Turns Bloody

BYD took the price war to the next level in May:

• Prices for 22 models cut by up to 34%

• The Seagull (similar to Dacia Spring, but with ADAS) now costs just €6,700

• The Seal (similar to Tesla's Model 3) sells for €12,500

Competitors had to follow:

• Geely lowered the Xingyuan to €7,200

• Chery offers the Tiggo 3X for just €4,200

• SAIC-GM drastically reduced prices for Buick models

The result: In just two weeks, BYD lost over $20 billion in market value. The industry's average profit margin fell from 4.3% in 2024 to 3.9% in Q1 2025.

Why BYD Started This War

BYD set a sales target of 5.5 million vehicles for 2025. But in the first four months, they sold only 1.38 million cars.

Also, BYD holds just 7.4% of the market in the key under-€12,000 segment. They want to grow big in this price range.

To achieve this, BYD has two big advantages:

• Vertical integration – they make over 90% of their batteries in-house

• And lithium prices have fallen by 90%, from €72,000 to €7,200 per ton

Lithium is essential for batteries. With these cost advantages, BYD can cut prices while staying profitable.

Their goal: clear the market. BYD wants to speed up consolidation and be among the few survivors.

"We Have an Evergrande in the Auto Industry"

Wei Jianjun, founder and CEO of Great Wall Motor, says: "There's already an Evergrande in the automotive industry. It just hasn't collapsed yet."

Evergrande was a huge Chinese real estate company. It went bankrupt in 2021 with $300 billion in debt.

The crash hit the Chinese economy hard.

Now Wei is drawing parallels to the auto market. He suggests some carmakers are building their business on huge debt.

BYD felt directly accused:

They announced legal action against anyone comparing them to Evergrande.

BYD's PR chief Li Yunfei defended the company's 70% debt ratio. He pointed out that Ford, Boeing, and Toyota have similar levels.

4 Problems Destabilizing the Chinese Market

The Chinese auto market faces four major problems:

1. Overcapacity

China's auto industry can make almost twice as many cars as it sells. Factories run at just 49.5% capacity. There are 3.5 million unsold cars in inventory. Those wanting to keep production lines running, cut prices. A vicious cycle.

2. Desperate Cost Cutting

Manufacturers must cut prices. At the same time, they need to protect their thin margins. So they cut costs everywhere.

The danger: Cheaper parts could damage safety. The "Made in China" image could suffer.

3. Suppliers Under Pressure

BYD took an average of 275 days to pay its suppliers in 2023. Suppliers effectively become banks.

According to GMT Research, BYD's real debt is around €39 billion. Officially, they report only €3.3 billion. The difference comes from delayed payments to suppliers.

4. "Zero-Mileage Used Cars"

Carmakers sell new vehicles to finance companies or dealers to meet sales targets.

These cars then appear as "used cars" with zero miles and discounts of up to 40%.

This makes sales numbers look better than they are and messes up pricing.

Consolidation Is Starting

Of 169 automakers in China, more than half have less than 0.1% market share. This can't last.

Bank of America analysts expect a "bloodbath" this year. According to the China Association of Automobile Manufacturers (CAAM), only 5-7 dominant brands will remain.

The Government Steps In

Now the Chinese government is taking action. They ordered the CEOs of over a dozen automakers to Beijing.

This included BYD, Geely, and Xiaomi.

The message:

• No selling below cost

• No inappropriate price cuts

• End "zero-mileage cars" practices

• Fair treatment of suppliers

The response came quickly. 17 Chinese automakers promised to limit their payment terms to 60 days. This applies to all major names: BYD, Geely, Chery.

And also startups like Nio, Xpeng, and Li Auto.

The government also worries about the reputation of "Made in China" products. State media warns that cheap cars could hurt Chinese exports.

What It Means

1. Foreign Brands in China Are Losing

Foreign brands have been losing market share in China for years. In early 2025, sales dropped sharply:

• German brands: -12.6%

• Japanese brands: -18.9%

• American brands: -10.1%

Chinese brands now hold 69.4% of the market. In 2020, it was just 36%.

And even with combustion engines, Chinese brands are winning: Geely now sells more ICE vehicles than Toyota.

2. Competition Shifts from Price to Technology

With extreme price cuts, price is no longer a differentiator. Everyone is cheap.

So competition moves to technology.

Chinese brands offer high-quality tech for low prices. In cars under €12,000, you'll find:

• Advanced driver assistance systems

• Premium features like cooled seats

• High-end infotainment and AI features

This puts foreign brands under double pressure: They must compete on both price and technology.

3. Export Pressure Is Rising

The overheated Chinese market forces manufacturers to export. Already 20% of all vehicles made in China go abroad. That's an 11% increase from last year.

Pressure keeps rising:

• The US market is closed due to tariffs

• Japan and Korea may follow

• Russia is becoming more difficult as an export market

That leaves Europe.

What This Means for Europe

The EU introduced anti-subsidy tariffs on Chinese EVs in October 2024. Now talks are underway about minimum prices (around €35,000) and quotas.

But even with tariffs, Chinese cars will remain cheap.

An example: The BYD Seal costs €12,500 in China. With a 45% tariff, that's €18,125. Still only half the price of a Tesla Model 3.

For Europe, this means:

• Export pressure is growing. The tougher competition gets in China, the more manufacturers will look for new markets. Europe tops the list

• The price war will spread to Europe. We should expect falling prices and fierce competition

My Take

What we're seeing in China isn't normal competition. It's survival of the fittest. The long-awaited consolidation.

Of the roughly 170 Chinese auto brands, only 5-7 will survive.

This has three consequences for traditional automakers:

1. In China: Pressure on foreign brands will keep rising. Those who can't match price and technology will lose market share

2. In Europe: Export pressure from China is growing. The question isn't if Chinese cars will come, but how many

3. For strategy: Legacy manufacturers can't win a price war. They're also behind on technology. They must focus on other strengths: quality, safety, and reliability

But there are also opportunities.

I believe the shake-out in China is THE big opportunity for traditional automakers.

It's the perfect time for smart investments. Struggling Chinese manufacturers need partners or investors. Legacy automakers can get involved through:

• Targeted investments

• Joint ventures for specific technologies

• And most importantly: buying assets like patents, technologies, and teams

The sell-off in China has started. This is THE chance to close the technology gap quickly.

🔗 bl1 | bl2 | bl3 | bl4 | bl5 | bl6 | cn1 | cn2 | cn3 | cne1 | cne2 | el1 | el2 | ft1 | mp1 | re1 | re2 | re3 | al

That's all for today.

Feel free to reply to this email with your thoughts.

Until next week,
— Philipp

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