The global auto industry has faced unprecedented shifts in recent years, but it is the Chinese electric vehicle (EV) industry where the greatest upheaval is expected. BYD, the world’s largest EV maker, now warns of a sweeping consolidation and shutdown of hundreds of car companies in China, the world’s biggest auto market.
The announcement has sent ripples across the automotive sector, raising questions about the sustainability of smaller manufacturers and the future of electric mobility in the country.
China’s Auto Market Under Pressure
China stands as the largest car market globally, accounting for more than 25 million vehicle sales annually. Over the past decade, the country has transformed into the epicentre of global EV production and consumption. This growth was fuelled by strong government subsidies, a favourable policy environment, and heavy investments from both established and start-up automakers.
However, BYD cautions that this rapid expansion is unsustainable. According to its analysis, China currently hosts more than 100 local EV manufacturers, but only a fraction of them have the resources, technology, and operational scale to survive fierce competition. This has created an overcrowded market with collapsing margins, making it inevitable for many small and mid-sized companies to shut down.
BYD’s Position as Industry Leader
BYD has cemented itself as the most powerful EV manufacturer in China and the world. Backed by Warren Buffett’s Berkshire Hathaway and armed with advanced battery technology, the company has surpassed rivals both in sales and production scale. In 2024, BYD sold close to 3 million new energy vehicles (NEVs), outpacing Tesla, its main global competitor.
Its dominance stems largely from vertical integration. BYD produces its own batteries, chips, powertrains, and software, giving it a cost advantage. In contrast, most small EV manufacturers rely on external suppliers and lack financial stability, leaving them vulnerable to shifting market dynamics.
The company’s leadership believes that consolidation is inevitable and even necessary. High competition with low profitability, coupled with intense regulatory scrutiny, has already begun pushing weaker companies out of the market.
Overproduction and Supply-Demand Imbalance
One of the most significant challenges facing China’s EV industry is overcapacity. Manufacturers have rushed to establish factories to capitalise on government incentives, but consumption growth is now levelling out. While EV adoption rates remain high – with more than one-third of all new cars sold in China being electric – the sheer number of brands competing for a limited segment of buyers cannot be sustained long-term.
BYD predicts that within the next three to five years, up to 70% of current EV start-ups may face closure or forced mergers. This is because the market cannot absorb all the production being pumped by these companies.
Policy Shifts and Market Realities
For years, the Chinese government heavily subsidised electric cars, providing cash incentives to automakers and consumers alike. This policy accelerated the early EV boom but also created inefficiencies. Numerous small manufacturers emerged, chasing subsidies rather than long-term competitiveness.
Since 2022, Beijing has gradually rolled back these subsidies, shifting focus toward quality, safety, and technological innovation. The removal of state support has exposed weaker companies that lack adequate research and development investments.
BYD’s warning echoes this reality: only those with strong financial backing, large-scale operations, and advanced technology will withstand the market transition.
Comparing EV Companies in China
The scale of disparity between major EV manufacturers and smaller firms can be seen in terms of sales volumes, financial strength, and technological investments.
| Company | 2024 EV Sales (approx.) | Technology Strength | Market Outlook |
|---|---|---|---|
| BYD | 2.9 – 3 million | Strong in batteries & software | Global leader, stable |
| Tesla (China sales) | 600,000+ | Advanced autonomous features | Strong, niche EV appeal |
| NIO | 160,000+ | Battery swapping tech | Moderate survival chances |
| XPeng | 120,000+ | AI driving systems | Struggling with competition |
| WM Motor | <50,000 | Limited innovation | At risk of shutdown |
| Small Start-ups | <10,000 each | Minimal tech & weak finances | Likely closures imminent |
The disparity highlights that only a few players are prepared to dominate China’s EV market in the long run.
Consolidation as the Future
While mass shutdowns may sound negative, BYD sees consolidation as an essential part of maturing the market. Currently, the fragmented structure is leading to inefficiency, high competition, and waste. When weak companies exit, stronger corporations will gain scale, increase profitability, and dedicate more resources toward innovation.
This process is expected to mirror what happened in the early smartphone industry. When China first embraced smartphones, hundreds of brands flooded the market before consolidating into a few dominant leaders such as Huawei, Oppo, Vivo, and Xiaomi. BYD predicts a similar outcome in the automotive space.
Global Implications of China’s EV Shake-Up
The prediction holds serious implications for the global auto market. China not only produces the majority of EVs but also leads in battery supply chains. Any large-scale shutdowns could affect global pricing, investment strategies, and supply balances.
For Western automakers, the news presents both challenges and opportunities. On one hand, China’s stronger EV giants like BYD and Tesla pose direct competition in international markets. On the other hand, the reduction of smaller Chinese competitors may ease oversupply and open more collaborative ventures with established players.
Countries seeking to expand their EV adoption may also face lower car prices in the short term since struggling firms could dump excess inventory at discounts before eventual exits.
Consumer Perspective in China
For Chinese consumers, this transition could reshape car-buying habits. Currently, buyers face choices from hundreds of brands, some offering extremely low-cost EVs. As smaller firms collapse, available options will shrink, but those remaining will likely offer higher-quality and more reliable vehicles.
BYD emphasises that customer trust and product safety should be prioritised over mere variety. A smaller but stronger pool of carmakers will ultimately benefit end-users by assuring better aftersales service, warranty support, and long-term availability of parts.
Outlook for International Competitors
Tesla, Toyota, Volkswagen, and Korean companies like Hyundai are all keeping a close eye on developments in China. Tesla may maintain a strong presence due to its brand recognition and technological lead, but BYD’s aggressive expansion threatens its market dominance.
Traditional automakers that were initially slow in EV adoption are now investing heavily in China while also diversifying their production across Southeast Asia, Europe, and North America to reduce dependency.
If BYD’s predictions materialise, Western manufacturers may find it easier to compete against a handful of concentrated Chinese giants than hundreds of fragmented start-ups.
FAQs
1. Why does BYD predict mass shutdowns in China’s EV market?
BYD believes the overcrowded market, subsidy withdrawal, and lack of profitability will force smaller car companies to close down.
2. How many car companies are at risk of closure?
Analysts estimate that up to 70% of small and mid-sized EV start-ups in China may face closure within the next 3–5 years.
3. Will this affect global electric car prices?
Yes, in the short term, oversupply may push prices lower, but in the long term, consolidation will balance production with demand.
4. Which companies are most likely to survive?
Major players like BYD, Tesla, NIO, and XPeng have a higher chance of survival due to strong technology, finances, and brand value.
5. How will consumers be impacted in China?
Consumers will see fewer brand choices but can expect better safety, reliability, and service from stronger surviving automakers.
Conclusion
BYD’s prediction of a mass shutdown of car manufacturers in China’s auto market is not alarmist speculation but a realistic expectation based on current industry dynamics. Overcapacity, subsidy withdrawal, and uneven technological capability have already created a market correction.
While painful for smaller automotive start-ups, consolidation will strengthen the long-term stability of the industry, leaving only a few powerful enterprises such as BYD, Tesla, and other leading Chinese EV firms to dominate. The shake-up will not only transform the world’s largest auto market but will also ripple across global EV supply chains, reshaping the direction of the entire automotive sector.
